Global Prime: Daily Market Digest

[IvanGlobalPrime]

Find my latest market thoughts

Euro Capitalizes On Germany's Green Shoots


The EUR was emboldened by the prospects of a 'gentle turning point' in the German economy, with the CHF also benefiting from the ebbs and flows. The GBP showed residual demand only to evaporate Tuesday's gains by a setback in the UK Gov MRP poll. The USD remains lagging behind ahead of today's FOMC as does the AUD as the suspense on the Chinese tariffs continues.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The European currencies were the main winners on Tuesday, with the Swissy leading the pack from the early hours of trading in Asia, only to be followed by a perky Euro as the German data continues to show some very early signs of green shoots in the country. The Sterling remained well supported throughout the day until a moment of reckoning by an overly long market led to a unwinding of positions as the market learned that the benchmark UK Gov MRP model survey came worse than expected for the Conservatives. Their lead is narrowing dangerously, bringing back fears of a hung parliament, even if that is still far from being the base case scenario being priced in by the market. The US Dollar, meanwhile, remains very subdued ahead of today’s FOMC where the market expects very few changes to the statement as the Fed has shifted to a neutral and data dependent stance. It’s worth noting that the USD, as reiterated this week, tends to perform poorly in Dec judging by the collection of historical data in the last 3 decades of price action at this time of the year. The Canadian Dollar was better bid, partly in line with improved technicals, but also getting an extra breather in the way of a new NAFTA deal finally approved by officials. Lastly, the oceanic currencies suffered sell-side pressures since the start of the European session as the market is none the wiser as to whether or not Chinese tariffs will be enacted by Dec 15.

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 green shoots expand to Germany: The German Dec ZEW current situation and economic sentiment kept improving, cementing the tendency of green shoots we are seeing in other corners of the world. The expectations/outlook reading came to its highest level since February 2018. ZEW said that projections for a pick up in German exports and private consumption played a key role as the German foreign trade surplus and the labour market stabilize.

China’s fundamentals keep painting a rosier picture: China’s November credit and money supply data also strengthened the groovy vibes about a global recovery as the broad Aggregate Financing measure rose by ¥1,750bn, way above exp. , which when added to the positive developments in the country's PMIs, it shows the country might be on the cusp of turning a corner, and that keeps the global recovery thematic going.

Divergence in data a trend to keep an eye on: The rebound in the German and Chinese data plays into the view of the remarks made by the research team at Morgan Stanley about emerging divergences in data trends, which should lead to higher volatility ahead as long as these trends are continuing to diverge. “Divergence is a recipe for vol, and we are starting to see signs of the data trends diverging. Global data continue to show signs of stabilization. More than half of global manufacturing PMIs ticked up in Nov, including in China where both manuf PMIs rebounded. Trade activity is also showing signs of bottoming while global credit growth is rising at the fastest pace in three years.”

Officials expect a delay in the Chinese tariffs deadline: According to a report by the WSJ, US and Chinese trade negotiators plan for a delay of the December tariff, citing officials on both sides. The report notes: “Officials have signaled that Sunday is not the final date for reaching a so-called phase-one deal ... Chinese and U.S. officials involved in the talks say they don't have a hard deadline. President Trump, however, hasn't yet made his decision, and he has overridden his advisers on trade several times to add tariffs.” Based on the market behavior, the market is expecting some type of delay to be given.

US-China officials aim for tariffs delay, will Trump agree? A report by Bloomberg notes that Beijing sees a delay of the Dec 15 tariffs along with both sides reducing existing tariffs, even if ambiguity on Trump's side remains. The article details “Chinese officials expect the U.S. will delay a threatened tariff increase set for Sunday as both sides focus on de-escalating tensions by cutting import taxes currently in place rather than removing specific products from the target list, according to people familiar with the matter.”

New NAFTA deal: Officials have finally come to agree in signing a revised NAFTA agreement. CTV news notes: “The agreement on the updated deal was reached between Canada, the U.S, and Mexico, and comes after U.S. Democrats secured adjustments to the deal that was first struck a year ago. This paves the way for the new United States-Canada-Mexico Agreement to finally be ratified.” Senate majority leader Mitch McConnell said that the Senate won’t finish USMCA this year. The Canadian Dollar was barely altered in its value as the focus is in the US-China tariffs.

GBP sold as Conservative lead shrinks: GBP saw an aggressive mark-down between NY and Tokyo as the UK election race is narrowing, according to the latest YouGov UK election poll. This survey is by far the one followed most closely by the market as the model it uses predicted the loss of majority by Theresa May back in 2017, hence the market has assumed this is the main gauge for the Dec 12 outcome. The results show Conservatives losing ground at 339 (-20) against Labour 231 (+20). Remember, earlier polls had projected a much larger majority for Johnson. What this means is that the risk of a hung parliament should not be disregarded, hence the adjustment lower in GBP.

AUD the main laggard in FX: The AUD continues to exhibit weakness following a stabilization in the NAB business survey, which showed confidence and conditions below average levels with a marginal decrease in the confidence measure. We also saw RBA’s Governor Lowe intervene in a Q&A post speech on payments, saying that “The surprise in the GDP data was weakness in consumption growth, given extra income from tax cuts. I’m still confident, given extra time, people will spend extra income. It’s quite possible that spending takes a little longer…in the current environment there’s a high level of debt, and households are paying down debt first. Says weakness of Q3 consumption ‘does not have any particular message for the future.”

FOMC next risk event: The FOMC is scheduled to release its latest decision on monetary policy. The market is not expecting major changes in language. As the economics team at Danske Bank notes: “Following three cuts in a row, we expect the Fed to remain on hold. FOMC members have made it clear that they think the ‘current stance of monetary policy is appropriate’ and that they now want to wait some time and see how things play out before acting again. At the latest meeting in October, the Fed surprised us by removing its easing bias and, as the data has not really painted a different picture, it is difficult to see why FOMC members should change their minds (if anything the strong jobs reports in recent months should calm fears despite subdued ISM/PMI indices). Hence, we do not expect major changes to the statement.”

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Professional Insights Into FX 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index, which had its lowest close in years last Friday, has managed to find strong buy-side interest below a broken level of support as the German data keeps improving. Where we go from here is not clear as the technicals are hard to decode this week since the market is in a standby ahead of the major risk events ahead. The structure in the index still warrants caution as the sequence of lower lows and lower highs in the daily still rules.

The GBP index came within a hair of the anticipated hard resistance in the form of a horizontal line and the 100% projected target. The latest UK election poll commissioned by UK Gov has knocked the currency down from its lofty levels as the Conservatives lead narrows. This setback in the poll has the market realizing that the risk of a hung parliament still exist, and as a result, on the lead up to the Dec 12 election results, some unwinding og GBP longs may now ensue.

The USD index has stalled at the lows and it appears to be carving out a potential reversal, which if it gathers to see follow through, may see the new leg extends back up towards last week’s breaking point. The performance in the index this week will hinge on the outcome of the FOMC today to a certain extent. What this means is that technicals won’t necessarily act as a primary driver to gauge the next direction but rather the stance on policy by the Fed will. Nonetheless, remember, Dec forex seasonals and technicals, are both against the USD.

The CAD index may be on the cusp of a meaningful bottom judging by the maturity of its downcycle. This is a view I have been endorsing since the last sell-off pre-BOC and its backing is predicated on the fact that each leg down has carried lesser commitment - magnitude of the downside extension - than the previous (-1.65%, -1.45%, -1.10%). This premise is mainly anchored by the latest BOC decision, which appeased the prospects of a rate cut, to the point that it should override somehow the horrible Canadian jobs report printed last Friday.

The JPY index, if only judged by its most recent price action over the last week, still shows moderate bearish tendencies, even if the lack of any downside momentum makes it hard to crystalize with conviction a particular direction. When one adds to the mix the raft of risk events in line, it is no wonder that the market fails to manifest, via its aggregated flows, a clear picture as the market has dialed down its commitment to take any aggressive bets. Bottom line, the Yen is in a ‘wait and see’ mode going nowhere fast until the market digests the risks to come.

The AUD index continues to be a laggard in FX and as feared, the double bottom eventually got raided as the next logical target where plenty of liquidity would have been available in AUD-related pairs. The acceptance below this low should shift the focus towards this year’s double bottom formed in Aug-Sept. The market now awaits the binary outcome about Trump enacting or not the next round of tariffs to China. AUD will react the most as a proxy for China.

The NZD index remains in an upward stepping formation pattern with buy on dips interest still notable as per the significant down wick printed in Tuesday’s candle as the price returned towards its latest point of a demand imbalance. Remember, the momentum in this market is strong, and a testament of that is how bulls managed to gun through what I’d have expected to be a potential top given the level of confluence. Now this very same level is acting as a bastillon where buyers are looking to keep the upper hand. As I wrote in yesterday’s report, “there is no reason to be a hero by looking to engage in shorts unless you have a well calculated and premeditated strategy."

The CHF index has improved its outlook in the last 24h, as the rotational price action seen is now headed straight into the next resistance level. This test would confirm that the last rotation back down has failed and automatically increases the prospects of a fresh bullish cycle developing, although the option of a failure at the resistance resulting in range-bound dynamics is another scenario that must be accounted for. My view to personally staying away from forming any strong opinion on the Swissy as the overall flows stand remains true.

Important Footnotes

• 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
• 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

USD Sinks As Technical & Seasonal Factors Rule


The US Dollar expanded its downward tendency after the FOMC even if the Committee appears to be reinforcing its neutral stance. What are the factors influencing the sell-off? What is the rapid appreciation in the Aussie telling us about the prospects of a China tariffs suspension? Today's report helps to put things into perspective as usual...

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

While it may come as a surprise for some that the USD keeps selling off on the back of a strong US NFP last Friday, coupled with a neutral FOMC, if one accounts for the technicals bearish outlook and forex seasonals, it makes the follow through in sell-side activity slightly less of a surprise. The explosive rise in the Oceanic currencies plays into the view that the market might start to be front-running Trump's decision to potentially delay the Dec 15 Chinese tariffs. The Sterling, as the market awaits the outcome of the UK election, has shown steadiness in spite of the setback in the last UK Gov MRP poll in which Conservatives saw the lead cut significantly at the expense of Labour. Amid the improvement in risk appetite dynamics as reflected by the up move in equities (not reflected in global yields), the Swissy and Yen found consistent selling pressure. Lastly, as I elaborate in today's charts section, the Canadian Dollar managed to weather the USD bearish storm with success, cementing the view that a bottom may have been found.

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.

Fed policy unchanged, rate cuts not expected in 2020: As largely expected, the Fed has announced no change in its policy stance in the US, while cementing expectations for no further easing in 2020 as the landscape stands, something that was clearly reflected through the distribution of the Fed’s dot plot chart (¾ of the members expect no change to lower rates in 2020). Most members were optimistic about higher rates starting in 2021 even if that’s a long shot away, with a further increase expected in 2022.

Same old mantra of data dependence by the Fed: In the Fed statement, the removal of `uncertainties’ in the outlook further reinforced the idea that the bar to cut rates has been set higher. The Committee instead pointed out that the ramifications of incoming data will continue to be assessed on the go to adjust the economic outlook, “including global developments and muted inflation pressures”.

Powell concerned about low inflation: When it comes to inflation, Chairman Powell kept outlining the low inflationary pressures. During the release of the latest US core CPI figures, the numbers came largely in line with expectations, hence not posing an immediate threat to a re-calibration of monetary policy views. At the presser, Powell showed some concerns that if low inflation remains overtime, it may further suppress inflation expectations, which creates less room to cut rates if needed.

Stubborn GBP ahead of the UK election outcome: Ahead of the UK general election, the GBP was sold in Asia despite it found buyers on dips in Europe/US. it as the Conservatives lead shrinks based on the latest YouGov UK election poll. The results showed Conservatives lost ground at 339 (-20) against Labour 231 (+20). Remember, earlier polls had projected a much larger majority for Johnson. What this means is that the risk of a hung parliament should not be disregarded. Follow this interactive chart by the Guardian for the voting intentions based on all the polls.

Suspense in the US-China tariffs deadline: China said the upcoming 15 Dec tariffs should be cancelled as minimum pre-condition for continued negotiations in trade, according to CNBC reporter, Eunice Yoon. The tweet thread reads: "Chinese experts who follow #trade talks tell me 1) #China side would want Dec 15 tariffs canceled as minimum pre-condition for continued negotiations of phase one deal (if not, would be sign US not serious). 2) #China "extremely reluctant" to commit to massive concrete figures for US farm goods (if China agrees, it would be considered major concession) 3) still bottom basement level of trust Trump team won't toss out any deal."

ECB and UK elections to dominate proceedings: On the UK election front, the time when volatility will start picking up is around the 8 am Sydney time on Friday. Brace yourself as the imp vol options suggests a major range expansion of up to 250-300 pips in GBP/USD. As per the ECB meeting, the Central Bank is most likely going to keep the status quo, with most of the focus on the new ECB President Lagarde’s policy views at her first press conference.
If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Professional Insights Into FX 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index has recovered some ground off the lows ahead of the ECB policy meeting. Technicals will not act as the main guide in the next 24h as a reassessment of the Euro valuation will come after hearing Lagarde’s first press conference as new President of the ECB. Macro wise, the structure in the index still warrants caution on lower lows and lower highs printed.

The GBP index has stalled at a horizontal resistance line and the 100% projected target, exhibiting a period of consolidation in its index ahead of the UK election outcome. The volatility about to kick the Sterling won’t be for the faint-hearted, so be aware to adapt to it. Anything other than a majority victory by the Conservatives should see the GBP under pressure.

The USD index has had a clean breakout of the previous swing low on the back of the FOMC, unravelling another round of strong sell-side pressure. The consistency in the USD depreciation this month is in line with the USD seasonals weakness we tend to see in Dec. The next target for the Green back appears to be the double bottom printed back in July this year (~0.6% below).

The CAD index, through its recent price action, continues to communicate that the prognosys built around having found a meaningful bottom is so far holding true. The point I’ve been making is that each leg down has carried lesser commitment - magnitude of the downside extension - than the previous (-1.65%, -1.45%, -1.10%). The aggressive sell-off in the USD has barely budged CAD longs, which is yet another signal that this bottom is being bought up.

The JPY index has resumed its bearish trend by breaching the previous low, a technical event that set the stage for further follow through continuation towards the double bottom seen last June, an area where it should align with pockets of significant liquidity in JPY-related crosses.

The AUD index has turned around very aggressively off the lows, in a move that now in hindsight portrays a market clearly interested to take the currency into a liquidity pocket before smart money sponsors the mark up phase. The fake out of the breached low should now shift the attention towards the previous level of resistance as the next target.

The NZD index, after returning towards its latest point of a demand imbalance, which coincided with the broken 100% proj target, eventually found strong buy-side flows as bulls regrouped. The bullish outside candle off the daily is a precursor for higher prices in the coming days, in what has become the cleanest and strongest trend in FX since November.

The CHF index failed at the resistance level, which has resulted in the market entering range-bound dynamics. My view to personally staying away from forming any strong opinion on the Swissy is reinforced based on the recent price action seen. There is simply no distinctive commitment to take the currency into any specific direction with much conviction.

Important Footnotes

• 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
• 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 Turbo-Charged As Tories Set For Big Win


The Sterling has been the absolute star as the Conservatives look set to guarantee a majority in the UK parliament. Have you capitalized in the GBP strength based on the bias we've kept in the Daily Edge? How about the weakness seen in the US Dollar, could you find any trading opportunities in recent days? Find out where we stand in G8 FX in today's report ...

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The Sterling has been catapulted, with the bulk of the move occurring in the blink of an eye, in response to the UK election exit poll showing that the Conservative party is set to win with a big majority of 368 seats as the votes continue to be counted. The Oceanic currencies also benefited from buy-side flows as the US and China have reached a deal in principle, which now awaits Trump’s signature. The conditions of the Phase One deal, where a roll back of 50% from existing tariffs alongside the suspension of Dec 15th, was definitely music to the ears of a market that remains in a groovy mood to bid risk to the boots. Amid this risk dynamics, the Yen and the Swissy have fallen out of bed, while the US Dollar also makes fresh trend lows as the weak seasonal trend continues to play out in a textbook manner this month. The Canadian Dollar followed the US Dollar in lockstep by showing fragility as well, even if the index is yet to make fresh trend lows. The Euro managed to weather the ECB mini-storm with marked success as the Central Bank upped the CPI forecast a tad and sounded slightly more optimistic on the EZ growth slowdown bottoming out.

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 Pound sees bulk of the rally on positive exit poll: The Sterling has surged over 3 full cents against the USD, with similar range expansions across the board as the UK election exit poll once polling stations were closed shows the Conservative party is set to win in a landslide fashion with 368 seats projected. The first results indicate this projection appears to be quite accurate even if it’s going to take a few hours to clear it all up.

US-China reach deal in principle: According to a Bloomberg report, the US reached a deal in principle with China, with Trump’s signature now the final step, citing people familiar. As the report details, “President Donald Trump signed off on a so-called phase-one trade deal with China, averting the Dec. 15 introduction of a new wave of U.S. tariffs on about $160 billion of consumer goods from the Asian nation, according to people familiar with the matter.”

Roll back of tariffs fuels the ‘risk on’ rally: A report by the WSJ expands on the US conditions proposed to China, noting that US negotiators offered to cut Chinese tariffs by up to 50% on $360B in imports and cancel the planned Dec tariffs. The US would reimpose original tariff level if China fails to carry out pledges. If the deal materializes, the reduction in tariffs by 50% on $360B in imports is a big development, which has understandably fueled the upside in equities and knocked the Yen.

The US is after greater Chinese commitment: The US side has been pushing Beijing to show a much stronger commitment towards the purchase of large quantities of US agricultural and other products, alongside the enactment of new rules that better protect US IP rights and greater access to China's financial-services sector. According to Reuters, China has agreed to buy USD50bn in agricultural products in 2020, citing people familiar with the matter.

Lagarde provides no fireworks: In her first appearance as ECB President, Lagarde’s opening statement at the press conference outlined some initial signs of stabilization in the growth slowdown, which is a tentative development to keep watching as the German data shows a few green shoots. Lagarde said “risks remain tilted to the downside but have become somewhat less pronounced.” One of the phrases that defines Lagarde’s intention to keep a low-profile is when she said her aims is not to be a hawk or dove but rather an owl. Good way to put it.

ECB a tad more ambitious on inflation: Lagarde added that “incoming data point to continued muted inflation pressures”, hence why “highly accommodative policy still needed”, the policymaker added. Headline inflation prices -- largely on oil -- are expected to rise in coming months according to the ECB, which is what led the Central Bank to revise slightly to the upside its CPI forecast. “There are some indications of a mild increase in core inflation, in line with previous forecasts,'' Lagarde said.

BOC Poloz hint rate cuts not in the horizon: Bank of Canada Governor Poloz, in a comment that cements the notion that the bar to cut rates has been set higher, downplayed the poor jobs data in Canada from last Friday by noting that “We don't put a lot of weight on individual data points, especially jobs.”, adding that the actual trend “has been a positive one for the labor market.” When asked about insurance rate cut if jobs fell again, he said “would not look at just employment, would look at other indicators because employment tends to lag.” The remarks are an admission that the outlook is going to have to deteriorate significantly for the BOC to take the plunge and cut rates.

SNB firmly committed to keep negative rate policy in place: The SNB left its policy rate unchanged at -0.75%, with consistency in its language by noting that the Central Bank “is prepared to intervene in markets if needed.” The head of the CB Jordan said that “the Franc remains highly valued”, adding that “negative rates and willingness to intervene should counteract attractiveness of the franc and ease upward pressure on the currency. Jordan also reaffirmed the current policy stance of negative rates by saying that the benefits of NIRP "clearly outweighs" the costs, hence why there are no changes in policy in the horizon.

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Professional Insights Into FX 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.

If you found the content in this section valuable, give us a share by just clicking here!

The EUR index kept finding interest by buyers to reload long inventory near multi-year lows on the back of the ECB, with the upside momentum further fueled by the UK exit poll, which put Conservatives comfortably in front with a majority advantage. Technically, the EUR has established range-bound conditions by printing equal highs/lows in the last 24h.

The GBP index has surged as the market prices in a majority by the Conservatives that would make the passage of the new Brexit deal by parliament a smoother process. The British Pound has purged its 100% proj target in what constitutes one of the most aggressive one-day rallies in the currency this year. The strategic longs in the GBP had to be played from much lower levels if one is a swing trader. Awaiting for a deep retracement is definitely wise. Don’t chase this market higher unless you know what you are doing as part of a short-term strategy.

The USD index, following its clean breakout of the previous swing low on the back of the FOMC, has seen sell-side accounts pilling in earnest as the index now sets its sight on the next target, set at the double bottom printed back in July this year (~0.6% below). The consistency in the USD depreciation this month is in line with the USD seasonals weakness we tend to see in Dec.

The CAD index keeps pushing into lower territory, partly weighted by the correlation it exhibits with the USD at a time when it is selling-off. Another reason is found on the cleaner alternatives to play long (GBP, NZD, AUD, EUR), which somehow eclipsed demand flows into the CAD. That said, my observation about a lesser commitment by sellers judging by the magnitude of the downside extension of each leg in the index remains true. I am expecting the CAD to potentially become one of the most attractive markets to eye buy-side opportunities by mid-Dec/Jan.

The JPY index is on a one-way traffic path with no end in sight to the sell-side pressure just yet. While the index remains awfully oversold, this type of momentum has the potential to keep on going into the week-end. Being long JPY looks like a very dangerous proposition indeed, while short the currency, unless a scalper, offers a very expensive price to pay. Bottom line, the time to play short JPY is now gone, hence patience is required to reinstate positions short.

The AUD index shows a more sanguine outlook going forward after the currency’s buyers (smart money sponsored move) managed to orchestrate a break of structure. This makes the prospects for further buying opportunities in the Aussie a scenario to seriously account for. The fact that the market came lower early in the week, tapped into liquidity, only to see the mark-up phase in a very explosive fashion, tells me this has the footprint of smart money aiming for a shift in trend. This premise hinges on where the US-China trade talks head to.

The NZD index keeps on delivering for those trend-traders looking to bank on the steadiest FX trend since the beginning of November. The old adage ‘the trend is your friend’ applies here, with the only stance to have is long-sided bias unless you are looking to pair up the NZD against the strongest currencies out there in the last few days (GBP, AUD). As outlined, the bullish outside candle off the daily ended up being a great indication of higher prices as the index achieved what’s referred to as a break of structure of successful rotation on Thursday.

The CHF index has been bashed into fresh multi-month lows after the combination of a dovish SNB, as it vows to keep negative rates for the foreseeable future, alongside the ‘risk on’ dynamics as so far the Goldilocks scenario of US-China trade deal and Breit friendly outcome on a win of Conservatives is playing out as any long risk would have hoped for. The Swissy remains quite weak, but the slow-paced decline at a macro level has other currencies the likes of the USD or JPY exhibit much poorer technicals as reflected in USD/CHF or CHF/JPY.

Important Footnotes

• 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
• 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

Macro Risk Removals Clears Up Forex Puzzle

The developments from last week cannot be underestimated as the fact that the market can finally look beyond Phase One in the US-China trade deal, not to mention how much of a relief is to think that we can soon look past the withdrawal agreement phase in Brexit, has major consequences for FX dynamics. Find out where we stand by reading today's report.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The main takeaway of last week's eventful trading activity, as we head into the final adjustment of portfolios before the year-end, is the settling of a new reality. Granted, in spite of all the wax and wane, we are weeks away from welcoming a new decade with the two most important macro risks of 2019 (Brexit, US-China trade war) to be stared through the rear mirror. It doesn’t mean this 2019 staple for news-watchers can be abandoned, far from it, as the market will remain sensitive to follow up headlines as Brexit and trade headlines will swiftly transition, both in tandem, into phase two. However, it certainly provides breathing room to divert the focus more decisively into central bank monetary policy divergences, liquidity actions, and in what looks likely to be an environment that unless major shockers, is setting the stage to be dominated by lower vol conditions. If this view holds true, and as the overall flows in the G8 FX indices indicate, we may see the perky Pound, the revitalized Aussie and the flying Kiwi continue to be firmly anchored based on the improved 'risk on' sentiment. I’d personally add the Canadian Dollar into this basket as another potential currency to take into account for a shift in order flow to a more positive bias. Should the groovy vibes in risk dynamics extend into 2020, watch for the Yen, Swissy and the US Dollar to be the candidates to suffer a continuation of the steadiest sell-side flows. When it comes to the Euro, it won't be an easy ride, but if more evidence gathers that Germany growth slowdown is bottoming out, I wouldn’t be surprised if the Euro keeps showing a relatively benign outlook, all within a context of restrains in performance that comes with a negative rates'
currency.

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 phase one deal done: The US and China announced that the first phase of a trade deal was agreed, with the Chinese counterparts noting that the first phase of trade negotiations achieved major progress. The agreement, only on text, with a signature ceremony set for early Jan, has resulted in the US not going ahead with the Dec 15 tariffs, with China also canceling tariffs scheduled for Sunday. China has agreed to ramp up the purchases of wheat, rice and corn within quotas, with both sides talking now about timing, place and details of the signing deal.

The trade deal contains nine chapters: According to Chinese moutth-piece the Global Times, “the text includes nine chapters, including #IPR, technology transfer, food and agriculture, financial services, exchange rate and transparency, expanding trade, bilateral evaluation, dispute settlement and final agreement.”

Trump boasts how great a trade deal this is: US President Trump tweeted: “We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder. The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all.”

Market sells the US-China trade deal news: It must be said that as part of the Phase One trade deal, the market sold the fact after being busy buying the rumor of the leadup to the actual announcement. The main detail that led to a disappointment is the fact that the roll back in tariffs by the US of 50% will only apply to a smaller quantity than thought worth $112B of goods. As a result, we saw a sell-off in the Australian Dollar even if the market structure looks solid, while on the flip side, the USD and the Yen were favored as the market readjusted the pricing of the trade deal outcome.

Two key macro risks of 2019 have now been removed: In the grand scheme of things, the short-term removal of the two most important risks for financial markets this year, that is, a hard Brexit and an escalation in the US-China trade war, means the path gets cleared for markets to return to cleaner dynamics, not constantly distorted by positioning adjustments based on macro tail risks but rather a recalibration back into monetary policy divergences and the narrative around keeping ample liquidity in the system.

Fed heavyweights have nothing new to add: Williams and Clarida, two of the heavy-weights at the Fed, made remarks about the US economy, with the net result uneventful as both policy-makers stuck to the script. Williams said the US economy is on a strong footing and good growth, while Clarida detailed that he sees no signs of the US consumer pulling back, adding that on aggregate the US consumer is in great shape, and that the Fed's baseline for the outlook in 2020 is 'more of the same'.

US retail sales data underwhelms, market shrugs it off: The US November advance retail sales came at +0.2% vs +0.5% expected, with the important control group component also disappointing at +0.1% vs +0.3% expected. The data runs the risk of resulting in a downgrade in the next US GDP release even if the reaction by the US Dollar was counter-intuitive last Friday as the currency appreciated, driven by the trade deal headlines.

Manufacturing data abounds today: The readings of manufacturing/services PMIs out of Europe, the UK and the US, will continue to help us shape up the narratives about the state of the economic conditions in these regions. Of special interest will be the German data sets following the tentative evidence, outlined by the last ECB meeting, that the growth slowdown in the country and in the continent overall, may be in the process of bottoming out.

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Professional Insights Into FX 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index has established a well defined range in the daily as we approach year-end. On the downside, buyers are still showing interest to intervene with conviction around multi-year lows, with the currency finding more macro evidence to get support, predicated on the basis of a slightly more constructive ECB on growth and the removal of hard Brexit fears. If markets continue to suppress volatility, which promotes carry trades, the EUR may continue to find grateful sellers on rebounds though, as the negative swap carried is still very significant.

The GBP index saw significant profit-taking on the back of the majority achieved by the Conservatives as the market looks beyond the Brexit withdrawal process out of Europe. After Friday’s spike, which is one of the most aggressive one-day rallies in the currency this year, there is no reason to believe the outlook will shift anytime soon to anything other than strategic longs in the GBP, although pragmatism and nimbleness is required to engage at reasonably priced levels rather than blinding reinstating longs at too rich levels. Awaiting for some measure of retracement intraday before adding longs as part of one’s strategy is definitely wise. Don’t chase this market higher unless you know what you are doing as part of a short-term strategy.

The USD index has erased most of its Friday losses, even if such abrupt reversal does nothing little to revert the well-established bearish trend, fueled by a FOMC keeping the status quo, the successful story of the Conservatives in the UK election, and a very weak seasonal trend in Dec. It would be reasonable that the index, technically speaking, sets its sight on the next target at the double bottom printed back in July this year (~0.6% below).

The CAD index is on the cusp to a shift in order flow that could take the currency to much higher levels as my view of an exhaustion on the bearish cycle hints a shift in market structure. My observations about a lesser commitment by sellers judging by the magnitude of each downside extension remains a valid case, and the printing of a sizeable bullish pin bar candle off the lows last Friday, if anything, only reinforces this view. My outlook on the CAD is a tentatively bullish one that will follow with keen interest, even if always ready to scratch this stance in a heartbeat.

The JPY index shows a clear bearish trend still playing out. Based on the location in the chart, I wouldn’t be expecting a reversal of the bias around these levels, in other words, I still believe selling the currency on rallies is a sensible strategy. The big bottom side wick on Friday helps to re-adjust the oversold conditions to eventually see follow up supply returning. As stated in the previous report, long positions in the JPY remain terribly dangerous as the macro environment continues to improve on the removal of hard Brexit and US-China trade war escalation.

The AUD index has shown renewed fortitude with the break of the previous swing high a precursor of what I’d expect to be the onset of a shift to a more constructive price action for the interest of buyers going forward. I continue to see this price action as a communication that the market will be actively seeking out further buying opportunities in the Aussie, hence why a stance of buying the AUD at fair or discounted prices seems a sensible move. The fact that the market came lower early in the week, tapped into liquidity, only to see the mark-up phase in a very explosive fashion, tells me this has the footprint of smart money aiming for a shift in trend.

The NZD index remains on a solid uptrend as the higher highs and higher lows clearly depict. It won’t be easy, barring any fundamental shocker in New Zealand, to revert this trend as the currency is now further anchored by the US-China trade deal. The only view I continue to support is to retain a long-sided bias outright. The Kiwi continues to offer one of the cleanest trends as the overall flows in G8 FX have been steadily seeking out longs.

The CHF index saw fresh multi-month lows after a dovish SNB on Thursday, only to see strong buy-side pressure, in a move that continues to reinforce the notion that the market certainty has appetite to keep buying the currency every time it gets overextended. The failure to elongate the price structure beyond each bearish breaking point is a pattern that keeps on giving for those patient enough to await for oversold conditions in CHF as a precondition before engagement. The Swissy, very much like the Euro, remains quite weak, but the slow-paced decline at a macro level is far from encouraging to keep a permanent bearish view.

Important Footnotes

• 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
• 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

The Euro Finds Buyers Despite Dismal EZ PMIs

The ebbs and flows have been well contained to start the week as the market dials down the overall interest to engage in trades after the hectic volatility in the heaviest traded currencies on the back of last week's UK election result and the confirmation of a trade deal by the US and China. In today's report, I frame the context present to be better prepared to tackle the markets this Tuesday.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The Euro, the US Dollar and the Canadian Dollar found the most demand to start the week. While the move in the Euro defies the fundamental logic as European PMIs disappointed quite badly, it plays into the view that the overall flows to accumulate long inventory in the single currency remain present, fueled by the uptrend in the EUR/USD. The range-bound conditions in the Euro index also indicate the Euro is in a rather stable position. The rise in the US Dollar on Monday occurred in a clear context of a bearish trend, a dynamic that has been dominating proceedings since the start of December, while the timid appreciation in the Canadian Dollar supports my case for a potential bottom at an index level. With US equities making fresh record highs (S&P 500 up 33% YTD), the Yen remains the currency most punished as the index extended the downside. The Sterling, after the outsized UK election-induced spike, is accelerating the current downside pullback. The outlook in the Aussie and Kiwi remains firmly anchored by the latest developments in the US-China trade domain as both countries announce preparations for a signature ceremony to seal Phase One deal. Lastly, the Swissy remains a stubborn one, unfazed by ‘risk on’ flows to instead be more influenced by the benefits of a removal risks in Brexit after the landslide victory by the Conservative party.

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.

European PMIs disappoint: The much-awaited European flash manufacturing PMIs turned out to be a disappointment amid expectations that the tentative green shoots seen in some Eurozone countries, including Germany, could find some sort of consistent traction to further cement the idea that the growth slowdown phase is bottoming out. Without exception, the readings out of France, Germany and the Eurozone as a whole came rather poor in what’s ben a dire year amid China’s trade war.

Worst slump in Eurozone PMIs since 2013: After the EZ manuf PMI came at 45.9 vs 47.3, Markit, the sponsor behind the indicator, wrote the following remarks: "The Eurozone economy closes out 2019 mired in its worst spell since 2013, with businesses struggling against the headwinds of near-stagnant demand and gloomy prospects for the year ahead. The economy has been stuck in crawler gear for fourth straight months, with the PMI indicative of GDP growing at a quarterly rate of just 0.1%."

Not encouraging UK PMI even if politics eclipses all: Out of the UK, the December flash manufacturing PMI also underwhelmed at 47.4 vs 49.2 expected, which increases the likelihood of an economic contraction in the UK in Q4. Markit notes that: "The economy contracted for the third time in the past four months. The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified.”

US PMI the only positive: The PMI fest concluded with a slightly higher-than-expected reading in the US, where the Markit services PMI came at 52.2 vs 52.0 expected. Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said in the release: "The surveys bring welcome signs of the economy continuing to regain growth momentum as 2019 draws to a close, with the outlook also brightening to fuel hopes of a strong start to 2020. Business activity, order book and jobs growth all accelerated to five-month highs in December, buoyed by rising domestic sales and further signs of renewed life in export orders.”

Lack of details on the US-China trade deal: The Chinese foreign ministry issued a statement in which it announced that more trade information regarding the Phase One trade deal will be released in due course. The official source added that “working levels officials from both sides are in contact.” For now, the market is behaving as if the deal is done and dusted despite the specifics/details disclosure.

US equities keep making record highs: Despite the trade deal is still devoid of all the substance/details one would wish, equities remain unfazed and in the US in particular, the groovy mood has led to both the S&P and Nasdaq making fresh record highs, even if the reaction in the US bond yields is much more lethargic. As a result of the steady demand in equity indices, the Yen remains under the cosh as the worst performer in the currency market as this environment promotes risk-taking strategies to thrive.

The EU warns the UK on tough negotiations ahead: As The Times reports, the European Union has been clear that it won’t budge to UK’s Conservatives pressure to get a trade deal done following the big win. As it was put by a senior Brussels source, the EU will not “cut its own throat” with a post-Brexit trade deal next year if Boris Johnson refuses to align Britain’s economy to single market rules. Michael Gove, the cabinet minister tipped to become Britain’s lead negotiator from February, said “what I can absolutely confirm is that we’ll have an opportunity to vote on the Withdrawal Agreement Bill in relatively short order and then we will make sure that it passes before January 31. We will have concluded our conversations with the EU about the new framework of free trade and friendly co-operation by the end of next year.”

China’s fundamentals keep showing signs of stabilization: Monday’s raft of monthly activity data out of China reinforced the positive fundamental vibes as the readings were all on the positive side, with industrial production particularly strong after a print of 6.2% from 4.7%. Retail sales were also strong at 8% y/y vs expectations of 7.6%.

MYEFO suggests the RBA to carry the burden: In Australia, Monday’s Mid-Year Economic and Fiscal Outlook (MYEFO) carried downgrades to the economic outlook, leading to a reduction in expectations for wages growth, which in turn saw the government lower its ambitious call for a budget surplus in coming years. Besides, as the NAB research team notes, “the government did not announce any material fiscal stimulus, with additional spending – on drought, aged care and a slight bring-forward of infrastructure projects – only totalling $1.2b in 2019-20 and $1.1b in 2020-21. This suggests the RBA will have to continue to carry the burden of supporting growth.”

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Professional Insights Into FX Charts

The EUR/USD shows a firm bullish bias based on the weekly and daily market structure as higher highs and higher lows get printed. However, here is a word of caution. With Friday’s spike ending up with such a strong reversal back down after the 100% proj target was met, I wouldn’t be surprised if the market now enters a period of distribution with Friday’s high marking potentially this quarter’s high as liquidity is about to evaporate as Christmas nears. Still, any deep retracements in the Euro towards a point of equilibrium creates a potential opportunity.

The GBP/USD is a market that I personally label as only ‘buy on dips’ but not blindly at any level. I’d like to see, at the bare minimum, a pullback towards the 1.3250 where the origin of the demand imbalance was established. For those more aggressive, a retracement into the 50% equilibrium point around 1.3280 may also represent a good opportunity to start seeking out for trade setups before the next leg up. Remember, a period of consolidation into year year is likely as the market liquidity thins out starting next week.

The USD/JPY remains in an overall bullish path even if one must be aware that the crossing of these two currencies represents trading the two weakest links in the G8 FX space. That, combined with the fact that on the weekly we are very high and trading straight into a level of horizontal resistance, really puts me off to be looking for longs at these relatively hefty levels. Even if both timeframes are aligning, my involvement to get dealing in this pair would only come at the most recent lows and not at the highest it’s been in more than 6 months.

The AUD/USD trades at a point in the chart where any long intraday setup has enough backing from the higher timeframes (daily and weekly) to anchor this bias. Besides, the latest bullish leg has now seen a retracement to the tune of 50%, an area in the chart I dub ‘point of equilibrium’. As long as there is concurrence in the higher timeframes, as is the case in the AUD/USD based on market structure, then this is a prime location to actively look for longs if the setup exists.

The USD/CAD outlook, judging by the market structure in the weekly and daily, looks set to face bearish pressures in coming weeks. Monday’s price action, closing below the prior swing low, is a testament that validates this premise. Any upward correction in the rate has my attention to short this market in the coming days, in what I ultimately project to be a market settings its sights towards a macro default target of 1.3050 (100% measured move).

Important Footnotes

• 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
• 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

UK PM Throws Cold Water To Soft Brexit


The Pound has given back all the UK election day-induced gains after the UK Prime Minister Boris Johnson threw cold water to markets by announcing a planned change of law as part of the Brexit deal bill to prevent an extension in the Brexit transition period beyond December 2020. What does this mean for the GBP? What currencies are best positioned to do well under the current conditions? Find out in today's report as I provide an update in the latest fundamental and technicals in the G8 space.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The waxing and waning in the valuation of the Sterling, with an average daily range of well over 1% since the UK election outcome, portrays how unpredictable and treacherous the environment to trade the Pound remains now that the market is looking past the election and re-calibrates the drivers based on what lies ahead. The latest selling round, courtesy of Bojo planning to set a hard deadline for Brexit to Dec 30, 2020, has resulted in the evaporation of all UK exit poll-led gains in the Pound, and represents a harsh reminder that it is far from certain that a smooth transition out of the Eurozone will ensue. The bottom line is that a wild ride trading the GBP awaits in 2020. On the flip side, the Euro and the Swiss Franc, have benefited the most from the lackluster performance in the Sterling, as portfolios appear to have reshuffled swiftly away from an overexposure in the Sterling and diversify into the other European-based currencies. The Canadian Dollar, in line with the bullish projections established since last week in the technical analysis section of this report, continues to attract increasing demand flows as the bearish cycle in the index decays. The dovish stance retained by the RBA minutes didn't help the Australian Dollar, which continues to pullback even if the outlook is fairly constructive judging by the recent break of structure in the index. The Kiwi, meanwhile, had a similar weak performance akin to the fragility seen in the Aussie, even if the currency also maintains a bullish outlook going forward. Last but not least, two of the currencies most punished in December, that is, the USD and JPY, managed to recoup some of its ample losses despite the respective indices still display clear bear trends.

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 worst performer as UK PM flexes his muscle: The Pound has given back all the UK election-induced gains after the UK Prime Minister Boris Johnson sent a stark reminder to markets by announcing a planned change of law as part of a Brexit deal to prevent an extension in the Brexit transition period beyond December 2020.

Market telegraphs risk of hard Brexit back: The market got spooked at the possibility that with less time and a lot more to negotiate, the UK may end up leaving the EU without a trade deal, resulting in a hard Brexit. As a reminder, EU's chief Brexit negotiator Michel Barnier said last week that hashing out a "comprehensive" free-trade deal by the end of December 2020 would be a near impossible task.

Dynamics to trade GBP in 2020 to remain volatile: The strategic move by UK PM Johnson to amend the Withdrawal Agreement Bill by ruling out any possibility for an extension of an extra 1 or 2 years, which the market expected to still be a possibility in case no agreement could be reached by the Dec 2020 deadline, suggests the GBP trading dynamics in 2020 looks set to be as volatile, if not more, than in 2019.

Bojo can always change his mind if he wishes: It’s important to note that if BoJo (Boris Johnson) has a change of heart next year, he could still revise the law once again by introducing a new bill that will enable an extension of the negotiations beyond the deadline of Dec 2020 if he finds it appropriate. What has changed is that Bojo has now a strong mandate after the landslide win in the UK election, and that allows him to flex his muscle to force the EU to come to the table and put pressure for an agreement in 2020. Bojo is most definitely going to be looking to capitalize on this stronger negotiating position.

RBA minutes retains tentative dovish stance: The outcome of the RBA Dec minutes was more dovish than expected after the Central Bank stated that they will reassess conditions, which reinforces the notion that the RBA is monitoring closely the evolving state of the economy before potentially taking the plunge again by further cutting rates if they so require. This resulted in a lower Aussie. The key passage read: “Members agreed that it would be important to reassess the economic outlook in February 2020, when the Bank would prepare updated forecasts. As part of their deliberations, members noted that the Board had the ability to provide further stimulus to the economy, if required.”

RBA’s Harper cites rush to cut as unwanted: RBA board member Harper told the WSJ that a pause in the rate-cutting cycle was needed by stating “rushing to cut rates further could have risked overstimulating the economy”. Harper added that “in this environment, you don't want to jump the gun”, further reinforcing the view that the actions taken by the RBA to lower rates in 2019 “is globally induced.”

NZ fundamentals keep improving: The NZD also traded weaker despite the ANZ NZ business outlook survey continues to show an improving trajectory. The business Confidence stood at -13.2 vs -26.4 last, while the activity outlook printed 17.2 vs 12.9 last. The ANZ summary of the key points detailed that “the lifts in the manufacturing sector was particularly strong. Services and manufacturing are the most upbeat sectors; construction remains the least optimistic but is improving rapidly.” The green shoots observed in the New Zealand economy as of late take some of the pressure from the RBNZ to cut rates further. On the flip side, the latest GDT dairy auction was non-supportive for the NZD, after a larger fall than expected to the tune of 5%.

US government shutdown to be averted: The US House passed a number of funding bills that would avert a government shutdown. The spending bill is worth $1.4 trillion, with the Senate to take the baton and eventually vote.

US housing thriving: In the US, the news that housing starts and building permits came better than expected adds to the optimism built, and further cemented by the improvement in the private NAHB index to the highest level since 1999 yesterday, which supports the view of a thriving housing market.

German IFO, CPIs, Lagarde speech eyed: The German IFO survey is a key market mover for the EUR today. Following the softer than expected German Manufacturing PMI on Monday, today’s print takes a whole new dimension as another disappointment, amid a rising Euro, may offer some excellent opportunities to consider strategic shorts on the basis that the German slowdown is still facing downside risks. Additionally, in terms of economic data, inflation readings in the UK and Canada will command the attention of the market, alongside the latest Brexit headlines. There is also a speech by ECB Lagarde in the European morning to be monitored closely.

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Professional Insights Into FX 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index has gone through a major buying spree in the last 48h of price action, taking the index to its highest level in weeks. The move reaffirms the notion that the outlook for the single currency, technically speaking, has improved as the market took out a significant prior high. Note, when the Euro trades this high, in the majority of cases, follow up demand will be limited on the basis of strong sitting cluster of offers as the market finds it opportunistic to add EUR short inventory given the attractiveness of the swap it carries. The move from the low to the high has been too fast too quick and a retracement is to be expected before a trend resumption.

The GBP index has experienced the type of impulsive gyration off the top that could cause a shift in trend even if it’s still way too premature. What’s clear is that this is not the type of slow and corrective pullback one would expect to gain confidence in engaging in buys in expectations of a resumption of the uptrend. The impulsive nature of Tuesday’s down candle, alongside the close near the low of the day by NY, suggests there has been a change of heart in the GBP valuation. The currency trades low enough for buy side opportunities to definitely be available but I wouldn’t be as inclined to endorse an outright and perma bull case after what I saw the last 24h.

The USD index still shows a downward trajectory as the most likely course of action as part of a bearish cycle that is yet to be finalized. Therefore, the upward correction in the last 24h is still perceived as an opportunity to engage in a short bias if able to pair the currency (USD) against the strongest contenders out there, with candidates abounding (CAD, EUR, CHF, AUD, NZD). The ultimate target I am fixated with in the index would be the double bottom from July. It may or may not happen, but to me that’s a clear target that suggest unfinished business to the downside.

The CAD index continues to prove the premise of a meaningful bottom found as a base scenario that is playing out as initially envisioned. Remember, the bullish case for a pick up in the CAD demand flows was predicated on the fact that the bearish cycle had reached a late phase in its maturity as portrayed by the decreasing magnitude of each down leg (-1.76%, -1.46%, -1.15%). The sizeable bullish print printed on Dec 13 was another major clue that the market ha snow transitioned into a buy the dip mentality. More upside is expected as I believe this could be the onset of a much larger run to the upside. Be mindful of the Christmas period though (low vol).

The JPY index shows a clear bearish trend still playing out and nothing has really changed this outlook in the last 24h of price action. As mentioned on Monday, I wouldn’t be expecting a reversal of the bias around these levels, which makes me think that selling the currency on rallies is a sensible strategy against the full complex of G8 FX. The higher the market goes, the greater the opportunity to sell on strength in my opinion. Longs JPY remains a dangerous proposition as the macro environment continues to improve after the US and China have seemingly managed to delay a further trade war escalation. The record highs in US equities is another major stone in JPY longs’ shoes that reinforces the bearish bias.

The AUD index, following the break of structure last week, is back trading in what I perceive to be a hot area to seek out long opportunities. The pattern in the daily chart is what I refer to as a potential ‘RHS’ (Right Hand Shoulder) formation, which may or may not work, but it offers a phenomenal risk reward to look for longs on the basis that the prior swing low will hold. I still think this is a market where buy-side has dried up but remains absent of sell-side smart money involvement, with the tapering in volume from the peak supporting this view. Therefore, I anticipate the correction to be a genuine opportunity to actively look for AUD longs.

The NZD index is another currency that remains on a solid uptrend as the higher highs and higher lows clearly depict. The setback on Tuesday is nothing more than a small blip in what’s still a market with a buy on dips mentality based on the market structure. The Kiwi continues to offer one of the cleanest trends and I wouldn’t, at this point, consider a counter-trend bias as the technical picture has not yet given indications of reaching its full maturity phase, unlike what we saw in the CAD index where the decreasing magnitude in the legs was more revealing.

The CHF index has displayed a very interesting pattern that could have certainly been exploited by those with an avid approach to adapt to it. What I mean is that every time a new low was made, the market failed to extend lower, to instead see consistent strong buy-side pressure. The failure to elongate the price structure beyond each bearish breaking point is a pattern that has provided phenomenal results for those engaging at these cheap prices. The breakout of structure by taking out the prior double top has improved the overall outlook too.

Important Footnotes

• 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
• 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

Aussie Flies After Aus Jobs Overwhelm Expectations


The Australian jobs came better-than-expected. Was this a result that could have been somehow anticipated based on statistical data? I prove this point by looking at a dot plot of deviations. Also, did you notice the strength in the Canadian Dollar? Again, this is a scenario well telegraphed in the Daily Edge. Would you like to get access to more gems, keep reading...

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.
Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into Pro FX Chart Insights
• Educational Material

Quick Take

The Australian Dollar has attracted the most buy-side interest as we head into the European session after a huge beat in expectations in the Australian employment figures. The latest run up in the Aussie has now allowed the currency to overcome the British Pound in net gains this December, as the latter continues to suffer from the renewed uncertainty of a hard Brexit should UK PM Johnson keep the hard-line stance of exiting the EU (deal or not) by the end of Dec 2020. The currency that keeps showing the most consistent buy-side flows is the Kiwi as evidence mounts that the New Zealand economy has turned an important corner in its growth outlook, as reflected by the upbeat NZ Q3 GDP figures released just hours ago. This improvement in fundamentals has the market anticipating a prolonged neutral stance by the RBNZ. The Canadian Dollar is hands down the currency showing the best performance this week, and as readers of the Daily Edge can attest, this is a long play I’ve hinted based on cycle dynamics at an index level. The Swissy is surprisingly strong as we head into the last week of real trading before books are closed for the year, but with negative swaps and a ‘risk on’ appetite dominating, I personally can’t see the CHF sustaining these relatively lofty levels for too long before sellers step in. The Euro, meanwhile, is unable to get out of 2nd gear, and the bias is far from certain despite the pattern of buying weakness has worked well this December. The German IFO, which came upbeat, should continue to support this buy on discount dynamics. Last but not least, the USD and JPY remain by far the most fragile currencies this month, and if one looks at the indices, both currencies are trading in lockstep in December. Remember, Dec tends to be the worst performing month for the Greenback due to tax incentives, while the Yen has fallen out of bed as the macro risks events (trade, brexit) have relaxed.

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.

EUR dismisses German data: The familiar pattern of a counter-intuitive move in the opposite direction of German fundamentals played out again on Wednesday, similarly to what we saw on the back of the German PMI disappointment. Traders must understand that the market will tend to front-run these events ahead of time based on the setting of expectations. This time, Germany’s December Ifo business climate index came at 96.3 vs 95.5 expected, the Current Assessment went from 98.8 from 98.0, while expectations rose to 93.8 from 93.0 expected.

Is Germany setting the stage for improved EUR fundamentals? The German IFO data plays into the view that the start of 2020 is setting up to be more encouraging for the outlook in Germany and the Eurozone overall, even if it needs more hard data to back up this trend. If the fundamentals in Germany provide further evidence that the economy is turning the corner, this could definitely spur further demand for EUR-denominated assets as the ECB may, at the margin, sounds slightly more optimistic, even if we must be aware that policy settings variations will take a fair number of years. It’s a slow moving ship.

Canada’s CPI seals the deal for a neutral BOC into 2020: The inflation reading out of Canada came better-than-expected, and that was reflected in the steady demand flows hitting the currency ahead and during the event. The CPI details showed that the average of the three core measures edged up to 2.15% from 2.1%, the highest since 2009, with improvements in the headline to 2.2%, which had been expected. This data releases allows to cement the notion that the Bank of Canada will stay away from cutting rate, at the bare minimum, until a new Governor takes over Poloz post when he retires mid-2020.

Inflation readings out of EU, UK uneventful: In the UK, the CPI was unchanged at 1.5%, a marginal increase from the 1.4% expected, while the core reading remained steady at 1.7% in line with the market consensus. This limited deviation in the UK inflation barely budged the GBP, as the focus remains firmly in Brexit. In the Eurozone, the November final CPI stood at +1.0% vs +1.0% y/y prelim, while the core CPI came in at +1.3% vs +1.3% y/y prelim. The data out of Europe leaves no new insights.

SNB reminds the market no need to cut rates further: SNB's Governor Mr. Jordan, who has been dominating headlines, even if the content lacks meat in the bone, reiterated that “no further rate cuts are needed at the moment.” Jordan, nonetheless, said that “if there is a need to act, the SNB will deepen further negative rates”, while making a familiar point about the potential scenario in which the SNB tightens policy, which in his view, “would lead to a strong appreciation of the franc”, which is an undesirable outcome for the Swiss National Bank as it runs the risk, as Jordan puts it “to turn inflation negative and economic growth will slow down significantly as such.”

PBOC remains in easing mode as rate cut proves: In China, the PBOC implemented a rate cut to the 14-day reverse repos to 2.65% from 2.7%, which is the first reduction in over 3 years, and follows the lowering of the 7-day rate in November, which also marked the first cut in over 4 years. According to Capital Economics, the move “is a sign that the PBOC remains in easing mode and may be just enough to convince banks to make another 5bp cut this Friday to the Loan Prime Rate (LPR), the benchmark upon which loans are now priced." On Friday, the monthly prime rate setting will be announced.

Fed’s Williams sticks to the familiar script: There was nothing surprising in the comments by Fed's Williams on CNBC, noting that he feels good about where the economy is going and expects inflation to move closer to the 2% target. He added that monetary policy is in a good place Remember, Fed's Williams is the President of the NY Fed and acts as the role of Vice Chair right under Powell, hence his thinking process is closely monitored by market participants. He is also a permanent voter on the FOMC board.

Japan more optimistic on growth trajectory: The Japanese government did upgrade its growth forecast for the next fiscal year. The modifications included a nominal GDP growth of 1.8% for fiscal year 2019 (1.7% previously), real GDP growth of 1.4% in fiscal year 2020 (1.2% previously) and nominal GDP growth of 2.1% for fiscal year 2020 (2.0% previously). The inflation projection was left unchanged.

Evidence mounts the NZ economy has turned a corner: The New Zealand Q3 GDP came improved at 0.7% q/q vs 0.5% expected, which led to a rise in the New Zealand Dollar as a result. Again, this positive deviation plays into the view that the NZ economy is turning a corner and therefore should keep the RBNZ powder dry (no rate cuts).

Aussie jobs overwhelms, historical data gave a hint: The Australian jobs data came better-than-expected after the unemployment rate ticked lower to 5.2% vs. 5.3% expected and the employment Change jumped to +39.9K, way above the +15.0K expected, even if the prior reading in Oct was revised to -24.8K. The breakdown of full time vs part time employment comprised a change of +4.2K in the former and +35.7K in the latter. The participation rate was steady at 66.0% as expected.

This is the preview I posted ahead of the event in Global Prime Discord room:

If you found this fundamental summary helpful, just click here to share it!
Recent Economic Indicators & Events Ahead

Source: Forexfactory
Professional Insights Into FX 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index retreated quite sharply from the highest level in weeks. The move tames down the outlook to neutral ahead of the holiday season. The single currency, technically speaking, remains in inconclusive range-bound conditions, with market makers at both ends of the distribution phase at an index level dominating the proceedings.

The GBP index, on the back of the impulsive gyration off the top, finds itself retesting the previous area of most relevant resistance (as per the number of interactions it had), which should be acting as a location where GBP buying activity picks up steam. I remain inclined to think that the currency trades low enough for buy side opportunities to be available soon.

The USD index remains in a downtrend and based on technicals, the most likely course of action is for the bearish cycle to remain in place, even if the tapering off volumes through the holiday season may easily result in a distribution period with no sufficient flows to set a discernible directional bias over the next 2 weeks. But if technicals are our main guide, then I believe the area where the USD trades at can attract once again the attention by sell-side accounts. The ultimate target I am fixated with in the index would be the double bottom from July.

The CAD index has, unquestionably, move into a bullish phase, which ironically makes the validation of a shift in market structure, the worst pricing to engage in CAD longs. Therefore, one must be patient for a retracement that would provide more value to be a buyer. This pullback is due soon as the elongated bar up carries relatively low aggregated tick volume. Remember, I’ve been endorsing the idea of a meaningful bottom found in the index as a base scenario, and fast forward to today, we can see this playing out as initially envisioned.

The JPY index has shown limited movements in the last 24h. The clear bearish trend remains intact. I will reiterate that as these levels, a reversal of the bias is not my main case, especially now that the US and China have agreed on a phase one trade deal. Selling the currency on rallies remains a sensible strategy against the full complex of G8 FX. The higher the market goes, the greater the opportunity to sell on strength in my opinion.

The AUD index, following the break of structure last week, is back trading in what I perceive to be a hot area to seek out long opportunities, with the technicals reinforced by the beat in Australian job figures, a risk event that cements the bullish directional bias. The pattern in the daily chart, nonetheless, remains valid as a potential ‘RHS’ (Right Hand Shoulder) formation, which tends to offer a juicy risk reward to look for longs expecting the prior swing low to hold.

The NZD index has printed a bullish outside day, which further underscores the solid uptrend, graphically depicted by the higher highs and higher lows printed. The buy on dips mentality should prevail but note that the absence of volatility over the next few weeks may risk the market entering a distribution phase where a lot more head-fakes tend to occur, in other words, the trading environment may turn much choppier until the 2nd week of January.

The CHF index shows a similar pattern to what we’ve seen in the CAD index, by which buyers have managed to step in to validate a shift in market structure from neutral to bullish. What this entails is that any pullback should attract more buying interest as per the recent ebbs and flows. However, notice that when the CHF trades this high, unless ‘true risk off’, it does deliver some great opportunities to engage in short-side action as a pick of choice to fund carry trades.

Important Footnotes

• 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
• 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

Middle East Tensions Attract Yen Demand

It's been a lively start to the Asian session as the focus continues to orbit around the escalation in the US-Iran geopolitical tensions following the death via a drone-initiated airstrike of Iran’s top military leader in Baghdad last Friday. This event set out a risk-off tone in markets since which still continues. We are starting the new decade with decent levels of FX volatility. Find out all the details in the report.
The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into FX Chart Insights
• Educational Material

Quick Take

The entrance of a new decade has brightened up the outlook for the Japanese Yen as geopolitical tensions between the US and Iran have resulted in a swift transition into risk-off dynamics dominating the proceedings in the forex market. On the other end of the spectrum, we find the Oceanic currencies and the Sterling as the worst performing amid the deleveraging off carry trades and tightening of financial conditions as both equities and bond yields fell in tandem globally last Friday. The US Dollar has been greeted with positive flows to start the year and so far has been able to capitalize on these risk averse conditions, with the extra backing of January’s seasonal pattern (best month of the year by far) also starting to pan out in favor of the world’s reserve currency. The Canadian Dollar, assisted by benign fundamentals and technicals at an index level, alongside its correlation with USD positive flows, is also taking advantage of the wave of buying pressure in the USD, even if it still exists a major contrast in the technical outlook between the two of them, in favor of the CAD. The EUR and CHF are virtually unchanged from the levels quoted to start the year, as the chart below shows, even if readers should be made aware that this is typically a very rough month for both currencies from a seasonal perspective, which in the case of the EUR, is backed up by the bearish market structure.

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.

Risk off dynamics to start the year: A lively start to the Asian session as the focus continues to orbit around the escalation in the US-Iran geopolitical tensions following the death via a drone-initiated airstrike of Iran’s top military leader in Baghdad. This event set out a risk-off tone in markets since last Friday which still continues.

Trump keeps hard-line stance against Iran: Trump gave a brief press conference , in which he reaffirmed his conviction that the strike against the Iraninan leader Soleimani was the right call to make given the imminent plotting of attacks on US diplomats and military. Trump said “we took action to stop a war, we did not take action to start a war”, and that “we do not seek regime change.”

Iran vows to retaliate the US offensive: The headlines dripping through are not encouraging as Iran says it will no longer observe limits on its uranium enrichment, according to Iranian State TV (Fars News Agency ), in a report carried by Reuters. Iran’s uranium enrichment work will have no limitations, Tehran will enrich uranium based on its technical needs. This is undoubtedly concerning as the fear is that the stock of uranium may be used for the wrong purposes such as building up the country’s nuclear bomb capabilities.

Minor attacks have followed, Iranian linkage: There have been reports of rocket attacks in the Green Zone near the US embassy in Baghdad, according to Sky, noting that multiple rockets/mortars hit the vicinity of the US embassy, with no casualties reported so far. Additionally, a US service member and 2 US Defense Dept contractors were killed in an airfield used by U.S. military in Kenya. Both attacks are thought to be linked to Iran. Trump has warned that the US will strike back, perhaps disproportionately.

Iraq wants US troops out of the country: The Iraq parliament has voted to boot out the US military personnel from the country, even if this decision is conditional to the legitimacy of Iraq's caretaker government to have the actual authority to expel the US, as well as the prime minister needing to sign the bill into law. Qais al-Khazali, the commander of an Iran-backed Iraqi militia, said that if U.S. troops do not leave Iraq, they would be considered an occupying force.

Watch for risk-off fade out as war unrealistic: If history is any indication, this conflict between the US and Ira may end up being a short-term side show before the market refocuses on new drivers. In other words, excessive risk-off may sooner than later not be justified based on unrealistic scenarios of war priced in. If Iran were to ever engage in a full-blown war with the US, it would be a suicidal act. Most likely, we will see some temporary rattling and minor attacks by Iran to save face in front of his people.

US Dec ISM manuf lowest since 2009: The US Dec ISM manufacturing came at 47.2 vs 49.0 expected, which is the lowest since June 2009. As a minor consolation, it’s worth noting that the US-China trade truce is yet to be fully captured by this month's data. Timothy Fiore, Chair of the Institute for Supply Management, detailed that “global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the phase-one trade agreement between the U.S. and China.”

The FOMC minutes sticks to its usual script: The Fed published its latest minutes from the Dec policy meeting last Friday, noting that rates are likely to remain appropriate for some time unless there's a material change. According to the main headlines, the Fed saw risks to outlook as tilted to the downside but that some risks had eased in recent months, and that a more sanguine view of risks is now emerging as a result of easing US-China tensions, along with a lower probability of no-deal Brexit. Topics for future discussion included composition of long-term Treasuries in holdings, with a transition away from active repo operations in mind.

If you found this fundamental summary helpful, just click here to share it!


Recent Economic Indicators & Events Ahead

Source: Forexfactory

Insights Into FX Index 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.

If you found the content in this section valuable, give us a share by just clicking here!

The EUR index broke into fresh multi-year lows to start the year only to see an abrupt reversal rejecting the low quotations as the risk-off market profile exacerbated. Technically, the index portrays a bearish trend as per the lower lows and lower highs printed, even if the sizeable buy-side volume off the lows (largest since mid Oct ‘19) implies that further room for a recovery may be in store, especially after the bearish leg was produced on volume tapering. Bear in mind though, the seasonal pattern for the EUR in January is very poor, accumulating, on average, losses of -0.81%. This makes the prospects of a substantial recovery dubious at best.

The GBP index looks set to keep auctioning lower towards a retest of the prior swing low judging by the technical storyline. After the decisive breakout of the Dec 12th low, which invalidated the bullish structure in this market, there has been further evidence that sellers remain committed to add short GBP inventory on the way up by rejecting higher prices. The actual pattern currently at play has high odds of at least extending towards the most recent lows in what would be characterized in the forex jargon as a squeeze trade where weak-handed buyers get run over. The seasonal pattern for the GBP is not encouraging either, averaging losses of -0.45% in Jan.

The USD index, unlike the previous successful bearish legs, it shows a lack of commitment by sell-side accounts based on the tick volume printed. The most recent impulsive leg down has come about in what I tend to dub as a false acceleration given the absence of tick volume backing up the sizeable extension that came as a result. Besides, the recovery displays the opposite pattern, with volume picking up. Note, the last leg down came to a halt at the 100% proj target to the pip before buyers stepped in. Technically, the index remains bearish, but with seasonal patterns favoring USD longs this month (January tends to be the best performing month of the year for the USD) and the trend overly extended, be on the lookout for potential long USD opportunities, even if it’s still very premature.

The CAD index, ever since mid Dec, I endorsed the vision that we were is in the midst of transitioning into higher levels judging by the market structure, one that was finally validated the 3rd week of Dec through the break of the prior swing high. Once the shift in market structure occurred, I left customers the following note: “We should let the market go through a retracement to provide us more value to be a buyer at cheaper price levels.” That is precisely what’s pan ot ever since, with the low volume pullback confirming that sell-side activity was non--committal and that buyers were lurking nearby to extend the rally. The case for a protracted bullish bias into January is my base case, with technicals and fundamentals in congruence as two positive factors that anchor the currency. The seasonals for the CAD are also positive, averaging over 0.33% of gains in Jan for the past 36 years.

The JPY index has rocketed northbound as the market resorts to the safety of the funding currency at times of escalating geopolitical tensions in the Middle east. That said, if you maintain the overall macro bearish view in the currency, the area tested at the Asian early doors represents a very good attractive location to ponder some bearish ideas in the Yen given the significance of the resistance being tested (most relevant support in Q4 ‘19). The momentum is still in favor of JPY longs but the room for further gains looks limited. The seasonal pattern for the currency is more positive than negative, averaging +0.25% in Jan since Jan ‘82.

The AUD index has come into contact with the 3rd test of an ascending trendline as part of a bullish structure context as per the higher highs and higher lows printed since mid Dec. Should an adjustment to more benign risk conditions ensue, the Australian Dollar, technically wise, looks well positioned to attract buy-side business. Note, the current bullish cycle, with only 2 legs up, appears to be incomplete, which is why this location represents a genuine opportunity to consider long positions in the AUD vs the weakest links upon one’s own entry triggers. On top of that, the forex seasonal pattern is positive to the tune of +0.54% in Jan.

The NZD index, while falling for 3 days in a row, does not justify to retain a bearish bias off the daily as the market structure remains clearly bullish. I’ve highlighted in the chart below the next key level of support where the currency may see buyers re-grouping. It remains a dangerous proposition to stay overly bearish committed in what’s proven to be the most pronounced and protracted trend in the G8 FX space in Q4 ‘19. It’s going to take more than just geopolitical headlines to revert this trend. As I point out in the chart, a measurement of the strength in the NZD trend is the fact that the last run up overshot the 100% proj target.

The CHF index has been lifted to fairly elevated levels as the pricing flirts with the topside of its last quarter’s range, making the location an appealing one to ponder shorts. Sooner or later, unless the market goes on a protracted risk-off mode, the CHF faces the clear risk of being sold as a result of the funding characteristics it offers (negative swap), which makes the currency a potential favorite candidate to act as counterpart on an increase of carry trades. The forex seasonals for CHF are not backing the bullish trend either, with losses averaging 0.53% in Jan. As a cautionary note, the rejection off the midpoint of the range suggests buyers are willing to pay higher prices, which makes the prospects of a topside breakout a scenario not to be ruled out.

Important Footnotes

• 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
• 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

European FX On Recovery Mode After Rosy EZ PMIs


The Euro, Pound and to a lesser extend the Swissy attracted the most buying flows as the EZ/UK PMIs showed significant upward revisions. The Yen, by far the outlier in terms of performance in the first week of 2020, failed miserably to sustain its gains. Will the Iran-US crisis override the improving global PMIs as a driver? What currencies look best positioned structurally wise? Find out in today's report.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• Narratives in Financial Markets
• Recent Economic Indicators
• Dive Into FX Chart Insights
• Educational Material

Quick Take

The thematic in the forex arena has swiftly transitioned from the US-Iranian crisis, which had led to an injection of risk off flows, to a more benign landscape, dominated by a sense that the global stabilization thesis into 2020 is still panning out. The European block (EUR, GBP, CHF) led the charge higher after ‘across the board’ improvements in EZ/UK services PMIs, with further backing by the notable jump in German retail sales and the EZ sentix investor confidence. The recovery in risk appetite trumped the upward trajectory of the Yen, by far the worst performing currency as the week gets underway. The Aussie is not showing signs of life so far after the China services PMIs from Caixin / Markit came at a disappointing, but most importantly, the market pricing for a February rate cut by the RBA has gone up marginally as the ramifications of the bush fires for the overall economic activity in the country play out. The Kiwi was largely unchanged for the day, with no drivers to take note of. The USD traded on the weak side despite still being one of the best performers this year, while the CAD built up on recent gains against the weakest currencies out there such as the Yen, Aussie or Kiwi.

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.

Iran-led risk-off fades: The overarching theme since last Friday has been an escalation in the US-Iran geopolitical tensions after the killing of the highest profile Iraqui military leader. This development resulted in the establishment of risk averse dynamics, although as I noted yesterday, the risks were clearly on the rise for the risk-off to fade out as the prospects of any type of full-blown war or an in-land invasion into the country was unrealistic. The positive performance in US equities and bond yields on Monday cements this view, with the market communicating that the Iran situation is likely to be a short-term side show before the market refocuses on new drivers. Any headlines that Iran has retaliated via temporary rattlings and/or minor attacks may still create volatility but hard to see this thematic sustainable.

EUR boosted on fundamentals backup: The Euro was emboldened by better Dec services PMI readings across the board. The figures printed out of Germany, the Eurozone, Italy and Spain played into the view that a tentative bottom may have been found in a sector negatively affected by the global trade war woes. The beat on estimates in Germany and Spain was particularly strong, with a positive deviation of 1 full point. While economic stagnation in these economies is still the name of the game, the evidence that no further deterioration is feeding through is an encouraging sign for now.

EZ fundamentals go full circle: The EUR found further buy-side interest as Germany’s November retail sales jumped to +2.1% vs +1.0% m/m expected (largest rise in 10 month). Consumption activity had a nice boost ahead of the holiday season. Besides, the Eurozone January Sentix investor confidence came at 7.6 vs 2.6 expected, representing more welcoming news. The dissipation of concerns in the US-China trade deal front and the temporary calmness in Brexit have definitely helped to take the reading to the highest since November 2018.

UK services PMI scratch expansionary line: The Pound was boosted piggybacking the rise in the Euro as the fundamentals in the UK also came out rather rosy, with the December final services PMI at 50.0 vs 49.0 prelim. The Composite PMI also rose to 49.3 vs 48.5 prelim. The conclusion here is akin to what’s been said about Europe above that is, the revision higher is a positive anecdotal evidence that the worst may be over, within the context of a lackluster activity in the services sector. The official statement read: "With manuf and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019.

US services PMI adds to case of global growth stabilization: The US Services PMI was also revised higher to 52.8 from 52.2, which is the icing on the cake in this idea that services PMIs around the globe are picking up in tandem. By breaking down the details, we observe that the US composite PMI also rose to 52.7 vs 52.2 preliminary, and even better, the services prices rose to 52.9 versus 50.3 in November. Highest since February 2019. The Non-manufacturing ISM later today will be another critical piece of fundamental information.

JP Morgan global PMI at 8-month high: The improvements in services PMIs across the European region this Monday reinforces the notion that the global stabilization thesis is playing out as we head into 2020. As a matter of fact, the J. P. Morgan Global PMI Composite Output Index rose to 8-month high at 51.7. Olya Borichevska, from Global Economic Research at J.P.Morgan, said: “The December global all-industry PMI came in positively at the end of the year reinforcing a view that activity will improve in the coming quarters. The all-industry activity PMI increased for the second month to an eight-month high. Improving trends in new order inflows, employment and business sentiment also suggest that further headway should be made at the start of the new year. International trade remains the main drag on efforts to lift growth further, so any moves that reduce tensions and barriers on this front will be especially beneficial.”

China services PMI the exception to the positive trends: The Aussie could not find sufficient buy-side interest after the China services PMIs from Caixin / Markit came at a disappointing 52.5 vs 53.2 expected. The data completes the Dec PMI series, which included China Dec PMI Manufacturing recovering slightly to 50.2 vs 50.1 exp and the China Caixin Manufacturing PMI which stood at 51.5 vs 51.6 expected.

Odds of an RBA rate cut increase: Another element that appears to be affecting the allure towards the Aussie is the bushfire crisis. The Australian PM Morrison has pledged $2bn over 2 years to rebuild the affected areas via a newly established National Bushfire Recovery Agency, with PM Morrison stating “the surplus is of no focus to me. What matters to me is the human cost and meeting whatever cost we need.” The market pricing for a February rate cut has gone up marginally, with a two-fold drivers, on the one hand, geopolitical tensions picking up, but also the ramifications of the bushfires for the overall economic activity in the country. The pricing for a rate cut is around 55% now.

US/China trade deal signing scheduled for Jan 15th: China is reportedly planning to send a trade delegation to the US on January 15 to wrap up the phase one trade deal signing, according to Bloomberg, citing people familiar with the matter. The report states that vice premier Liu He will head the delegation to seal the deal, with the dates scheduled to be in Washington from 13 January to 15 January. Market participants are still waiting to have access to the actual details of the deal to adjust valuations on the asset classes most impacted by the deal such as equities, the Aussie, the Chinese Yuan, bonds.

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Insights Into FX Index 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.
If you found the content in this section valuable, give us a share by just clicking here!
The EUR index was the top performing currency on Monday, as the market keeps pricing in more positive fundamental developments (Eurozone-wide services PMIs). The absorption candle last Friday was perfectly timed as a precursor for higher prices, a formation that was also supported by the daily aggregate tick volume structure. Whenever tick volume tapers on a successful rotation, the risk of a fade out is a scenario to always be on the lookout for. I wouldn’t be overly optimistic on follow through continuation at this stage due to the following reasons. 1. The market structure remains bearish. 2. The tick volume is decreasing. 3. Forex seasonals for the Euro in January tend to be very poor. If one is still interested in long-sided business, a retracement towards cheaper valuations would be a logical approach first.

The GBP index, so far, is not respecting the squeeze pattern formed last Friday. The commanding bullish candle raises the prospects that we may end up seeing the recent highs taken out first before the bearish successful rotation thesis. The preponderance of evidence when playing this pattern over the year, one that I learnt via Bill Williams (NYSE:WMB), is undeniable though. The current market structure in this currency index is bearish at this point, although that may be about to change if the Dec 31 high is re-taken and acceptance is found above. Therefore, more work needs to be done for the market to establish a clearer bias.

The USD index could be in the midst of a reversal from its protracted bearish tendencies. I am starting to observe technical evidence that such prognosys could be panning out in the days/weeks to come, even if it’s too premature. Firstly, after a number of successful bearish legs, the last one shows a lack of commitment by sell-side accounts based on the aggregate tick volume (volume tapering or false acceleration). Besides, the recovery displays the opposite pattern, with volume picking up last Friday, followed by low volume on a down candle on Monday. What’s more, the 100% proj target was respected to the pip, an area that tends to represent, at times, the termination of a market cycle. Seasonal patterns are also favoring the accumulation of USD long inventory this month (best performing month of the year). With that said, the index remains structurally bearish, but it is at these times, that picking the right shift in sentiment pays off most handsomely. I aim to be a USD long this month, and while we are nowhere near a full shift in the bearish structure, some initial evidence is emerging.

The CAD index, on the back of a well-telegraphed shift in market structure from bearish to bullish through late Q4, has found trend-trending account committed to keep pushing the currency into fresh lofty levels. Personally, unless you aim to scalp this market intraday, I don’t see any value in engaging in the accumulation of CAD long inventory at this stage. A bullish bias into January is my base case but allowing for a pullback is essential to lock in a better deal. The CAD, at an index levels, paints a storyline very much in congruence with my bullish view on the currency, predicated on the fact that the BOC is one of the outlier Central Banks still paying a relatively much higher interest rate than the rest of the G8 FX space. The seasonals for the CAD are also positive, averaging over 0.33% of gains in Jan for the past 36 years.

The JPY index has been taken to the woodshed on Monday by selling off across the board, and representative of this action, is the sizeable sell-side candle rejecting off resistance. The funding currency has seen its appeal evaporate amid the return of positive risk flows even if Trump is still sounding hawkish on his rhetoric against Iran. This plays into the view that Iran may end up being a sideshow the market will shrug off to instead re-calibrate the focus on the stabilization of global growth, which is positive for risk and asa result, tend to be a source of JPY selling pressure. As noted in yesterday’s report, if one maintains the overall macro bearish view in the currency, the area tested at the Asian early doors represented a very good attractive location to ponder some bearish ideas in the Yen given the significance of the resistance tested. Remember, the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82. Note, there is still some merit to play JPY longs as the daily structure remains bullish at this stage.

The AUD index was unsuccessful in finding buying interest at the intersection of an ascending trendline, with the price piercing through the level even if the technical picture still remains bullish overall as per the higher highs and higher lows printed since mid Dec. The breakout of the trendline does not carry high aggregate tick volume either, which makes the prospects for buyers to still emerge at these interesting valuation areas a scenario to consider. Note, in a reiteration of what I mentioned yesterday, that the current bullish cycle, with only 2 legs up, appears to be incomplete, hence long positions in the AUD vs the weakest links make sense. The forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index found buyers on dips ahead of a key level of support as highlighted in the chart below. There is no reason to turn bearish on this market, a dangerous proposition at this stage based on what’s proven to be the best trend to play in the G8 FX space in Q4 ‘19. Remember, a measurement of strength in the NZD is the fact that the last run up overshot the 100% proj target, which makes the prospects of dip buying if price/volume agree a good value trade.

The CHF index keeps rising, marginally breaking the topside of its last quarter’s range, even if the low aggregate tick volume implies that further extensions are a dubious scenario. Personally, if I were to trade the CHF, I’d see this location as an attractive one to ponder shorts. Sooner or later, if the trend of stabilizing global growth ensues and carry trading returns, the CHF faces the clear risk of being sold as a result of the funding characteristics it offers (negative swap). The forex seasonals for CHF are not encouraging, with losses averaging 0.53% in Jan since 1982.

Important Footnotes

• 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
• 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

Special Report: US-Iran On The Verge Of War?


The commanding driver in the Forex market is the unfolding crisis between the US and Iran after news broke that Iran has retaliated against airbases in Iraq targeting US forces. The dynamics has shifted in no time to full-blown risk averse conditions, and the number one question the market is asking is, will the US declare war to Iran? As a result, volatility in FX, especially in the JPY, CHF, has ballooned.

The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

• Quick Take
• News Summary Of The Iran-US Conflict
• Recent Economic Indicators
• Outlook For Instruments Most Affected By The US-Iran Crisis
• Educational Material

Quick Take

One of the immediate effects whenever the dark clouds of war prospects hover around is the increase if volatility. Sadly, that's precisely what we saw in the opening of the Asian session after news broke out that at least 30 missiles had landed at Iraq's Ain Al-Asad airbase among other locations, targeting US forces. The retaliation by Iran to the death of its highest military profile leader has now taken long, and the open question now remains, to what extend will the US strike back? Will a war be declared? The buying of the Japanese Yen and the Swiss Franc currencies was fast and furious, as it was the sell-off that hit the Oceanic currencies (AUD, NZD). The rest of G8 FX (EUR, GBP, CAD, USD) were not greatly affected by the ebbs and flows as a result of the jump in risk aversion. Instruments were the panic mode was immediately noticeable included equities, where the S&P 500 futures wiped out all the gains since mid Dec, the price of Oil, which received a punchy spell of demand, alongside the further defiance of gravity by a flying gold. The fluid situation heralds the clear risk of unraveling into a full-on war, with the ramifications being heightened volatility in Gold, Oil, the Yen, Swiss Franc, Bond yields and equities. Should the US refrain from engaging in further retaliation, a major relief rally could be in store. Much will depend of whether the attacks have claimed US casualties.

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.

News Summary Of The Iran-US Conflict

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

• Just ahead of the Tokyo open, news broke out that at least 30 missiles had landed at Iraq's Ain Al-Asad airbase among other locations, which contain US forces, Reuters news agency reported. Several sources, including CCN, Bloomberg, Washington Post immediately confirmed that the airbase had been hit, followed by a statement via a US defence official.
• As per the official reactions so far, the Pentagon said it is aware of media reports of the bombing but made no comment. Meanwhile, the White House says it is aware of reports of attacks on US facilities in Iraq, while reports detail that Trump has been briefed and is monitoring the situation.
• There have been reports of a second shelling at an Iraqi airbase where US military personnel resides. An Iraqi security source told Reuters at least seven rockets fell inside Ain Al-Asad air base in Anbar province. Pentagon is working on 'initial battle damage assessments', confirming via Pentagon spokesman Jonathan Hoffman that another Iraqi airbase was targeted in Erbil.
• White House press secretary Stephanie Grisham has said: "The president has been briefed and is monitoring the situation closely and consulting with his national security team."
• Reports have emerged that Iran's Revolutionary Guard claimed responsibility for the attack, warning the US and regional allies against retaliating, adding that any US counterattack will be met with a more crushing response, according to state-owned Press TV. It also warned other countries hosting US forces will be targeted if they launch attacks on Iran.
• This aggression by Iran, including the bold bravery to claim responsibility for the launching of these rocket attacks represents a major escalation, one few could think was possible given that it almost assures direct war against the world’s military superpower. This attack genuinely represents a major risk to a full blown-up war before the week is over.
• If it ends up unraveling into a full-on war, the ramifications for the volatility about to hit Gold, Oil, Japanese Yen, Swiss Franc, Bond yields or equities cannot be sufficiently overstated.
• Trump will be forced to act against this aggression, especially if the attack claimed US casualties in the region. US casualties will prompt an escalation from Trump no matter what, especially with elections this year. Trump’s response, citing his own statement, “may be disproportionate.”
• if sources confirm no US casualties, expect a short-term reprieve in risk-off, even if the dark clouds of war prospects will keep hovering for days on end. There are so far conflicting reports, with CNN reporting no casualties, while other sources note there are casualties. If no casualties, it'll mean Trump has leverage as a US response may be less likely or at least more limited.
• Donald Trump is reportedly preparing to deliver a speech about the missile attacks in Iraq. Not confirmed yet. White House correspondent Kaitlan Collins tweeted: "Aides are making urgent preparations at this hour for Trump to address the nation. The specific timing TBD & could be delayed given we are still learning info but two officials say a speech is being prepared and plans made for Oval address."
• Iran has stated that they'll stop attacking if there is no response from the US, according to US media in Tehran. The report reads that if there is no retaliation from America for these latest attacks then Iran will stop attacking. But if America attacks then their response will be crushing and wide spread

If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory
Outlook For Instruments Most Affected By The US-Iran Crisis

The reaction in the Forex market has been to take the Australian Dollar to the woodshed, while the Yen got bid to the boots, leading to a sharp fall in the AUD/JPY. This is one of the markets that may see the most pronounced one-way traffic as the reshuffling of portfolios into the safety of the Yen and away from beta currencies creates the perfect bearish storm. By drawing a 100% proj target, we can see that just ahead of 73.00 is the next logical target for the pair, which from a liquidity standpoint, makes sense, as the area is found below a double bottom.

One of the characteristics witnessed across the board as news of the Iranian attack broke out is the increasing tick volume (sell-side commitment), which in relative terms, tracks very closely real volume in spot forex. I tend to label this type of pattern a ‘real money or smart money acceleration’. More often than not, when it happens, rebounds tend to provide sell-side opportunities.

Another asset that has taken off, further extending its bullish momentum, and never looked back is Gold. By resorting to a weekly timeframe, we can observe that appears to be more technical room for the asset to keep printing gains, with the 100% proj target at $1,658.00. Before reaching such hefty elevation, profit taking is likely to be taken circa $1,625.00. Remember though, should the US declare war to Iran, these levels should act as a baseline for reference but the unorderly vol could easily see these levels broken quite easily. Note, the prospects of war is the single most reliable source of predictability for gold’s upward trajectory.

As we turn the focus to the USD/JPY, it’s completed a bearish successful rotation, which should open the doors to further downside in due time. The projections, based on the last 2 bracketed areas broken, indicate that 107.20 down to 107.00 is the next bearish target. Note, the pair remains greatly overextended even if the current risk-off environment suggests that shallow rebounds should be expected as the prospects of direct war between the US and Iran went up.

As per Oil, the prospects of war and the disruption of production in the region has led to an immediate buying of the instrument, currently trading above the $65.00 mark, with the round number $66.00 the next relevant horizontal support to account for if you are holding longs. Above that level, each $2 interval offers the next macro resistance as the chart below illustrates.

In the equity market, the S&P 500 futures have suffered the largest fall since late November, wiping out the gains made since mid December in one single candle. The downside room looks like is wide open until the next 100% proj target around the 3,158.00 is tested, a level that coincides with a critical level of prior resistance, expected to act as support on a backtest.

Important Footnotes

• 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
• 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