Global Prime: Daily Market Digest

[IvanGlobalPrime]

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Epic Risk-Off Unwinding, Blink And You Missed It


If, as a trader, you are yet to do the hard yards in financial markets, the last 24h provides a great opportunity to understand in all its splendor the dynamic and efficient nature of the markets. One hour it may look like all hell breaks loose, while in the next, the psyche can change in a dime. Find out in today's report the chronicles of what's happened and where do we stand in the FX outlook?

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

Most of the volatility on Wednesday was concentrated along the Asian hours. Initial panic selling triggered by the prospects the US declaring war to Iran were relatively quickly met with the realization that such idea was unjustified judging by the delay for Trump to make any formal statement. What set out to be a very cloudy outlook for risk-sensitive assets shifted into an epic short-squeeze that lasted until the final hours of New York. If, as a trader, you are yet to do the hard yards in financial markets, the last 24h provides a great opportunity to understand in all its splendor the dynamic and efficient nature of the markets. One hour it may look like all hell breaks loose, while in the next, the psyche can change in a dime. After the headlines broke out of an attack to US personnel in Iraq by Iran, it became a binary outcome to figure out. Without much fact-checking available, the immediate premise was that Trump would need to strike back (war?), leading to a sudden fall in equities, bond yields, buying of Yens, Swissies, Gold. However, as Trump delayed its appearance with an official response until the next day, it acted as a revealing clue that an escalation of the conflict was probably not on the table. As Europe and American markets came online, the U-turn day kept playing out, only to get a final boost as Trump downplayed the attack with market friendly headlines.

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

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

A short-lived scare after all... What looked like terrifying prospects of a war breaking out between the US and Iran had the Iranian-led missile attacks against air bases housing US troops in Iraq claimed any casualties, turned out to be, at the end, the precursor setting the stage for an epic short squeeze in risk. As a consequence, assets most sensitive to risk dynamics, the likes of the Japanese Yen, the Swiss Franc, Gold, Oil, equities, bond yields, displayed major V-shaped rotations.

Delay for Trump to respond main driver to unwind positions: Initially, the fear and uncertainty of the unknown (what the US response to the Iranian attack would be), led to an immediate panic selling in markets during Asia. However, evidence that no US lives were accounted for in the attack, alongside the delay by Trump to respond (main driver in the risk recovery), led to a quick re-assessment that the panic selling was unfounded. The short-squeeze was well and alive and the recovery in risk never looked back.

Trump backs off from direct confrontation: During the early hours of Wednesday in the US, it was confirmed via a speech by the man himself, that Trump won’t be seeking further confrontation with Iran for now, set out the perfect storm for leveraged trading (risk seeking) to make a huge comeback.

Trump applies pragmatism given the circumstances: In the much-awaited Trump speech, the US President addressed some of the most pressing questions. But the bottom line, and the binary outcome to trade markets in a volatile day, was the admission that the US and Iran tit-for-tat retaliation may be over. This became obvious when Trump stated “Iran appears to be standing down, which is a good thing.” If one wishes to get deeper insights into the key highlights of the speech, I recommend this BBC report.

Iran's action an act of saving face: After the dust settled, a Reuters report surfaced that it was Iran’s strategy from the get go to deliberately sought to avoid US military casualties in strikes, citing US and European sources. The strike, therefore, was more symbolic than anything else, acting as a “warning shot”. This looks, therefore, to have been a tactic to save face by Iran without going to war, and as long as they believe it has served its purpose, that’s what matters to gain certainty that Iran is now done messing around with the US military capabilities. Besides, Iran stated that they'll stop attacking if there is no response from the US, according to US media in Tehran.

US VP Pence postpones speech on Iran: Further evidence that the US intends to de-escalate the tensions in Iran for the time being, is the fact that a scheduled speech by US Vice President Pence on Iran, was postponed. Vice President Pence was scheduled to speak on Monday 13 January at the Foundation for Defense of Democracies' National Security Summit in Washington.

Market ready to re-calibrate its focus? After this final and somehow bizarre ‘showdown’ orchestrated by Iran, financial markets might be on the cusp of moving on to re-calibrate the focus where it matters. This means the attention may finally move away from the inconvenience of having the constant headline-drips of US-Iran conflict to instead re-focus on the global outlook and trade with China and the US set to sign the trade deal on Jan 15.

Comprehensive trade deal with the EU virtually impossible: The series of Brexit-related news put pressure on the GBP on Wed. UK PM Johnson met with the EC President von der Leyen. While the British politician remains stubborn in that a deal must get done by the end of 2020, the EU stands by its firm believe that such a scenario is near impossible. The EU and UK will have to prioritize what they want agreed by the end of 2020, assuming there is no extension to the transition period. In looks likely that the UK will be seeking a Canada-style FTA by the end of the year.

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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 has kicked off 2020 with analogous bearish tendencies as it closed last year, with the pressure to the downside not abating, even if similarly, deep downward extension are failing. Notice, in the last window, the actual 5-day vol remains below the monthly vol average. The bear trend remains validated by both the market structure and the enhanced moving averages as a proxy to understand dominant smart money flows. Wednesday's daily candle portrays sell-side commitment increasing as reflected by the spike in aggregate tick volume activity, which occurs in the context of a bear trend in compounded volume (see 13ema applied to OBV). It’s worth also remembering that the EUR seasonal pattern in Jan is very negative.

The GBP index could be setting up the stage for another test towards a major structural pivot point in the chart. However, the technicals pose challenges as there are conflicting daily signals preventing a well defined bias. Let’s break it all down. Firstly, on the positive side, the enhanced moving averages tracking the smart money flows is turning bullish for the first time since Dec 18, at a time when the buy-side volume has picked up the most since the UK election day, even if Wed’s Doji-like candle is far from inspirational for the bulls. Besides, the market structure is bearish until acceptance can be found above the resistance line overhead. The vol in the index remains below its monthly historical, which has obviously been distorted by the UK election. Lastly, note that as in the case of the EUR, the GBP also tends to suffer in January.

The USD index has found a fresh leg to the upside after the volatile 24h of forex trading, and judging by the close of the candle finding acceptance at the highs of the day by the end of business in NY, the volume it carried (highest since Aug 26th last year!), alongside the fact that the USD tends to attract heavy positive flows in January, my bullish stand has been reinforced. The overall sell-side volume pressure via the 13ema applied to the OBV is also turning bullish. That said, this Thursday and Friday the prospects a further bullish extension will be challenged by the ongoing bearish structure, which remains backed up by the smart money trend, as depicted by the bearish trajectory of the enhanced moving averages. It was an appealing proposition to be a USD buyer at the trend lows, less so at these levels.

The CAD index is the best positioned to keep extending its gains in the following days/weeks. The index shows ideal conditions to jump on the bandwagon of the currency to scalp this market intraday or if you are a trend following traday, then it also satisfies the pre-requisites. Engaging in the accumulation of CAD long inventory has the backing of the price structure, the smart money flows via the enhance moving average, the aggregated tick volume trend, even the relatively low volatility in the index when compared to the monthly historical is another positive as those looking to capitalize on trends prefer this one to develop in a low vol fashion. 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 printed a sizeable bearish outside day candle that accomplishes on its own right the purpose of guiding us in the next probably direction (down). Price action candles of this high-quality calibre are few and far in between and widely scattered, so we must pay attention. The candle negates the bullish price structure and brings back into focus a retest of the previous lows in line with the dominant flows as per the smart money flows (enhanced MA). The aggregated tick volume is also screaming that the commitment to lower the valuation was very high. Remember, while the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82, the preponderance of evidence so far is that the currency may continue to struggle this month.

The AUD index offers a very enticing risk-reward to turn bullish from these lows. There is a case for the Aussie to build some legs from this critical level of support as it’s proven to be the most important base being respected since its first test back in early Oct last year. While the smart money flows are negative, be reminded that we are in the context of a wide range in the index (drawn in a white rectangle). The bullish pin bar off this key support carries the type of tick volume I’d personally like to see to cement this view about a tentative shift in flows. Besides the forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index has printed a commanding bullish outside day that implies the risk for higher levels, with my view being that a squeeze to its most recent trend high may be in the making. The price structure is supportive, as is the enhanced moving average tracing the dominant flows, with the tick volume also backing this bullish view. As the technicals stand, and with no fundamentals in NZ to distort the trend, playing against this currency is not a good move imo.

The CHF index shows a positive trend and even if the bearish outside day candle raises the prospects for a further setback, the chances for follow through in this market is less likely. If shorting the CHF, you’d be going against the smart money flows, the price structure and the aggregated volume pressure when we apply a 13ema to the OBV. There are way too many contradictory signals to make the case for a short-side bias. 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

USD Demand Steady, US NFP UP Next


The ebbs and flows remain supportive of the USD, a very realistic scenario to start the year that is now coming to fruition. I've reiterated for weeks the risk of a turnaround in fortunes for the world’s reserve currency, mainly predicated on the combination of the outperformance it shows during January alongside the cheap valuation it was trading at the turn of the decade. What's the next driver for the USD? What's the status in the rest of FX? Let's find out...

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 bout of risk appetite that originated soon after the Iranian missile attacks to US-controlled air bases in Iraq stood the course through Thursday’s trading as the air clears with seemingly no intention from either side to engage in further retaliatory conflicts. The ebbs and flows remain supportive of the US Dollar, and as the regular readers of the Daily Edge are aware, I have reiterated for weeks the risk of a turnaround in fortunes for the world’s reserve currency, mainly predicated on the combination of the outperformance it has in January alongside the cheap valuation it traded at the turn of the decade. The market has also retained a sell-side bias in the Japanese Yen as the preferred instrument to deleverage from. The Kiwi, amid no apparent distinct catalyst, and the Pound, pressured by dovish remarks by BoE’s boss Carney, fell at an even more rapid pace though. In the case of the Pound, the macro outlook, with the EU expressing left and right a comprehensive trade deal this year is ‘effectively impossible’, looks quite grim, which is also part of the reason the GBP is under pressure as the market has shifted the attention towards the phase of trade negotiations. Still al long way to go though. The Swiss Franc, meanwhile, continues to defy logic and for now is a train headed northbound steadily. The single currency (Euro) put up a decent performance too, even if lagging behind the strongest contenders for Thursday (USD, CHF), with no fundamental catalysts of note. Lasty, the Aussie and Canadian Dollar, on balance, were little change. The market are now awaiting the US NFP and Canadian jobs report as the next volatility booster in the currency market.

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 speakers bring nothing new to the table: There was a large line up of Fed speakers on Thursday, with Fed's Williams, Fed's Barkin, Fed's Evans, Fed's Bullard, Fed's Kashkari and Fed's Kaplan all chiming in, even if what was shared in terms of monetary policy or the economy was of little relevance for Mr. Market. It’s going to be a tall order that some of these policy-makers come forward with an off-the-cuff market moving comment at this stage as the market has come to believe the Fed rates are at an optimal level.

China confirms trade deal signing day: The Chinese commerce ministry confirmed that its vice premier Liu He will go to Washington to sign the Phase One trade deal between the 13 and 15 of January. The deal signing will be set for 15 January at 1130 ET (1600 GMT), according to China. Both sides remain in close communication on particular arrangements on signing. This is the final evidence that was needed and acts as an anchor to promote the risk trades to build up on the ongoing momentum.

BoE Carney tilts towards the dovish side: The intervention by BOE's Carney (here) knocked down the GBP during the London session, after the verdict was that his view on policy is leaning, at the margin, more dovish than before. Carney stated that the “rebound projected in BOE forecast for this year is not assured.” Other headlines that stood out included that UK growth has slowed below its potential or that policy space has been reduced due to the risks of the global economy trapped in a low rates cycle.

EU-UK at odds on trade negotiations: With skepticism by the EU side very high on reaching a comprehensive trade deal with the UK by the end of 2020, EU chief Brexit negotiator, Michel Barnier, said that the time frame for a new relationship deal with UK is hugely challenging. Barnier emphasized that given the time constraints, they will have to prioritise what we need to do this year. He was clear in that even in the best case scenario that the EU were to agree on every point of the future relationship with the UK, it would take more than 11 months. This timing problem is a problem weighing on GBP.

Smooth sailing for BoJo’s Brexit deal bill: PM Johnson's Brexit bill passed the House of Commons by a vote of 330 to 231 in favor, and is now expected to be lifted into law by the upper House of Lords. This bill ratifies and formalized that Britain officially leaves the EU on January 31 with an exit deal. However, the focus of the market, ever since the day the election was won by UK PM Johnson, has shifted to the period of complicated negotiations with the EU in order to strike the best possible trade conditions. As long as PM Johnson's remains hardlined on his idea to leave by December 31 2020, there is a clear risk of sustainable negative sentiment towards the Pound on a "no deal" scenario.

Iran not ready to stand down? While the markets appear to have clearly ‘move on’, there was a brief spell of unrest on Thursday, reflected by a quick intraday appreciation in the Yen (fully reverted in no time), after an Iranian commander told the state television that the missile attacks from 2 days ago was not aimed at killing US troops, but to damage military machines, and that missile attacks on US targets started operation that will continue across the region. This implies Iran may not be done, even if from the US side, they’ve maintained the version that Iran is standing down.

Evidence points at Iran as responsible for the plane crash: The NY Times claims to have obtained evidence via a verified video of a missile hitting the airplane that crashed over Tehran. This new piece of information follows the view held by the Canadian and British government, who have pointed the finger at Iran as the responsible in what appears to be a major miscalculation that they remain adamant to admit.

BoC Poloz took the stage: BOC Governor Poloz updated the market about his view on the economy and policy. Poloz said strikes and bad weather contributed to mixed data in Q4, adding that “it seems potential downside risks of the trade disputes have eased as US China approach a deal.” One can have access to the full script at a fireside chat via the following link.

It’s US/Canada jobs day: This means we are going to get a lift in the potential volatility in the currency market, especially on the USD and CAD pairs. The consensus is for non-farm payroll employment to rise by 160k, even if the unofficial number has been adjusted slightly higher following this week’s ADP and non-manufacturing ISM employment reads, which came strong. In the case of Canada, the employment figures, which have been very volatile as of late, point at a positive jump of following the huge mess of -71.2k in November.
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 retains a bearish view despite the gains netted in the last 24h. All signs, from the market structure to the tick volume dynamics, promote the idea of selling it on strength. The enhanced moving averages as a proxy to track smart money flows also backs up the bear view. Besides, the EUR seasonal pattern in January is the most negative of the year.

The GBP index accumulated 3 days of unclear price action. I’ve anticipated the currency to struggle in its attempts to be breaking its overhead resistance and so far, this is what we are seeing. The string of Doji-like candles justifies to take a step back from any high conviction in GBP long trades, unless paired with currencies even weaker (JPY for instance). The market structure is bearish until acceptance can be found above the resistance line overhead. As in the case of the EUR, the GBP also shows a poor track record during the month of January.

The USD index keeps finding fresh legs up ahead of the US NFP. Trading the currency in the next 24h will carry heightened risks if you don’t account for the spike in volatility. The follow through continuation follows the highest tick volume candle since late August. The enhanced moving average as a proxy of the smart money trend has finally turned bullish too. I’ve reiterated for weeks that the USD was always going to be an interesting long play if the setups occurred, with the seasonal for the month of January the best registers for the currency in the whole year.

The CAD index saw a setback, but the interest to keep engaging at discounted prices remains elevated, as reflected by the sizeable low shadow daily candle. The accumulation of CAD long inventory continues to have the backing of the price structure, the smart money flows via the enhance moving average, the aggregated tick volume trend, low volatile trend. The seasonals for the CAD are also positive, averaging over 0.33% of gains in January.

The JPY index, on the back of a huge bearish outside day candle, has accomplished the anticipated follow through supply. The next 24h bias remains bearish but it carries higher risks of the price whipsawing around on the release of the US NFP, with the JPY one of the most sensitive currencies to react to the data points, alongside the USD. A retest of the previous lows in line with the dominant flows as per the smart money flows (enhanced MA) remains my base case. The seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82, be aware.

The AUD index continues to offer a decent risk-reward scenario to ponder bullish ideas going forward. The case for Aussie longs is predicated on the fact that a macro level of support, which has proven very sticky since its first test back in early Oct last year, has now been reached. Here is where one could expect a shift in order flow. Remember, in the context of a wide range as is the case in the index (drawn in a white rectangle), the smart money flows via the enhanced moving average loses its relevance when the extremes of a range get tested. The bullish pin bar off this key support with the spike in tick volume reinforces the bullish view. Besides the forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index, despite Thursday's setback, if we consider the overall structure, remains bullish heading into Friday. The commanding bullish outside day has been ineffective in attracting buy-side flows on dips this time, even if it’s still my view that this is a market that runs the risk of facing deep pockets of demand the lower it goes, especially around current levels of support.

The CHF index shows a positive trend and there is no reason to fight this trend so far, as no technical exists that the tide might be about to turn. That said, if you are playing with a more strategic approach, remember that shorting the CHF at these levels, not only can offer a decent pricing despite going against the trend, but it also pays handsome swaps against higher beta FX. The forex seasonals for CHF is for the currency to average 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

USD Fails To Keep Momentum Post US NFP


The US Dollar could not justify further gains after last Friday’s US December non-farm payrolls came softer-than-thought. The Aussie, on the flip side, has benefited from local fundamentals in what tends to be a particularly strong month for the currency. The Sterling remains under pressure as the BoE hints at lower rates. What else is going on you may wonder? Keep reading to find out...

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

After an impessive start of 2020, the USD was unable to keep attracting buy-side flows, with the US NFP not justifying the extension of that momentum. The headline employment figures came a tad below expectations even if the real catalyst keeping bulls at bay came in the form of wage pressure, lowest print since July 2018. The Aussie, on the contrary, drew the steadiest buy-side interest since the very start of the Asian session last Friday in response to an outsized upbeat reading in Australian retail sales. This time, the Kiwi was able to play catch up and managed to successfully piggy-back the momentum of its neighboring peer. But even amid USD weakness, other currencies such as the Pound or the Canadian Dollar didn’t capitalize on it, especially the Pound, with the selling tendency from Friday extending at the open of Asia today as interbank dealings were dominated by supply imbalances in response to the dovish remarks by Bank of England MPC member Vlieghe. The Yen continues to retain a clear bearish bias even if by analyzing the index, one must be aware that the evolving flows show volume tapering, with weakness led by momentum accounts vs real money. The EUR, as it’s been the case for some time, keeps showing dull movements with low vol the norm. Note, this week’s economic calendar is lighter than usual, dominated by second tier events.

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.

NFP disappoints, USD sold: Last Friday’s US December non-farm payrolls came softer-than-thought at 145K vs 160K expected, with a slightly higher revision of the last read to 266K from 256K. The unemployment rate stood unchanged at 3.5% vs 3.5% expected as was the participation rate at 63.2%. The avg hourly earnings disappointed at +0.1% m/m vs +0.3% exp, with the yearly reading showing an avg hourly earnings of +2.9% y/y vs +3.1% exp, lowest since July 2018. As a result, the dominant flows ended up being USD negative.

US Manufacturing deep into recession: The component of employment in US manufacturing fell by 12k, which when combined with last week’s poor manufacturing ISM number, keeps validating the premise that the manufacturing sector in the US is deep in a recessionary phase due to the US tariffs, with no end in sight to get much better this year despite the phase 1 trade deal about to be signed up. As the team at NAB notes, thel U.S. National Bureau of Economic research (NBER) noted in a report that “U.S. companies and consumers are paying almost the full cost of U.S. tariffs, and the impact of those duties on import volume magnifies over time.” It said “the 2018 tariffs – many of which were applied in October – are only now having their full impact on U.S. import volumes”.

Canadian jobs up, wages down: The Canadian employment report for December surpassed expectations by coming at 35.2K vs 25.0K estimate, a much better result that November’s disastrous -71.2K print. The full-time employment change was 38.4 K vs -38.4 K last month, while the part-time employment change came at -3.2 K vs -32.8 K last month/ The unemployment rate improved to 5.6% vs 5.8% estimate and 5.9% last month. The hourly wage rate for permanent employees YoY dropped to 3.8% vs 4.2% estimate, which is a marked decline from last month’s 4.4%.

Reports of another attack in Iraq: Over the weekend, there have been reports of four people wounded in a rocket attack on a base in Iraq. It is thought that US military personnel were housed at the Balad air base,. However, so far, the reported wounded appear to be Iraqi soldiers, with no word on any US casualties. There is no official claim as to who conducted the attack. Markets will be in high alert to any further escalation between Iran and the US, even if the base case by the US is that Iran aims to stand down from further retaliatory offensive against US targets.

Pound under the cosh to start the week: We’ve seen sell-side pressure on the Pound during interbank trading after weekend comments by Bank of England MPC member Vlieghe, who said he is ready to cut interest rates if data does not improve. The policy-maker detailed that “personally I think it's been a close call, therefore it doesn't take much data to swing it one way or the other and the next few [MPC] meetings are absolutely live. I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer." The FT describes Vlieghe as a member with a solid track record to have provided early hint in policy direction. Back in Sept 2017, a hawkish speech by him was the precursor to the first BoE rate rise for a decade, materialized 2 months later.

US threatens Iraq if military forced out of the country: Amid pressure from the Iraqui government for the US to abandon military operations in the Middle East country, the US is reportedly threatening Iraq with the seize of the central bank accounts in the NY Fed if the army is forced out of the country. Iraq's care-taker government voted last week to expel US troops fighting ISIS since 2014 after the killing of the Iraqui general Soleimani. According to the WSJ, “an adviser to the prime minister, Abd al-Hassanein al-Hanein, said that while the threat of sanctions was a concern, he did not expect the U.S. to go through with it. If the U.S. does that, it will lose Iraq forever," he said.

Iran admits human error caused plane accident: In what should be barely any surprise, Iran has finally Iran admitted that it accidentally shot down the Ukrainian airliner that killed all passengers last week. The Iranian military says that it. The statement by the Iranian military said that the plane "took the flying posture and altitude of an enemy target", hopefully providing some closure to the heart-broken families. The news ignited further protests against the Tehran government by their own people, while the international community, including France, the UK and Germany have issued a statement strengthening the rhetoric towards their commitment to monitor that Iran sticks to the 2015 nuclear deal and urging to reverse all measures that violate it and are noncompliant.

AUD boosted by retail sales & seasonals: The AUD was the standout performer last Friday. The initial buy-side pressure emerged off a strong 0.9% retail sales number in November, far better than the market consensus (0.4%), in what represented the largest increase since November 2017. A look at the details revealed that clothing, department store and household goods sales drive the overall increase, with the Bureau of Statistics noting an exceptionally high boost to sales from Black Friday sales. Despite the upbeat data, judging by the pricing of rates, the February RBA meeting is live, with next week’s December employment report a key data point to impact the prospect of a cut.

This week’s economic calendar is lighter than usual: Events in the calendar will be mostly second tier, with the exception of some US and Chinese data, even if unlikely to act as anything else other than a brief spell of fast price fluctuations. In China, we get December activity readings and Q4 GDP, while in the US retail sales and CPI are due. In Europe, the ECB will release its latest minutes, expected to cause little volatility. Besides, be reminded that on Jan 15, the US and China are scheduled to sign the Phase 1 trade deal.

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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 does not offer fresh new insights from the existing bearish outlook. Last Friday’s US NFP-induced volatility kept the index confined within Thursday’s price range, a pattern that keeps playing into the view of the depressed vol dominating the currency (see bottom window). Technically, bears remains in overall control judging by the market structure to the tick volume dynamics, cementing the idea that any excessive demand towards the EUR faces selling. The enhanced moving averages as a proxy to track smart money flows backs up the bear view as does January’s EUR seasonal pattern, averaging more than 0.5% in losses since 1982.

The GBP index appears to be failing to accept higher levels and with a second failed test of a critical resistance area overhead, followed by a bearish close on Friday, the risks are building up for further losses this week. That said, Friday’s candle does not carry sufficient tick volume to up the odds of follow through. The market structure is bearish, anchored by the enhanced moving averages tracking the main trend by the smart money category. Besides, be reminded that as in the case of the EUR, the GBP also faces the prospects of a poor performance during January.

The USD index shows little new evidence that the bearish pressure ignited on the back of a disappointing US NFP last Friday may find further legs down. The enhanced moving average as a proxy of the smart money trend has stabilized in bullish territory, while Friday’s bear candle carries little tick volume comparatively (no major commitment from real money accounts). The compounded tick volume trend (13ma applied to the OBV) stays bullish too, which increases the risk of keeping USD short exposure. The seasonals for January are extremely positive too.

The CAD index is a market that has my blessings to engage in buy-side business on weakness for a resumption of the uptrend. There are enough elements that I like as part of the index to think that sooner or later this market will attract the regrouping of the smart money buying. The area between the 38.2 and 50% Fibonacci retracement offers good value. The index continues to have the backing of the price structure, the smart money flows via the enhanced moving average, the aggregated tick volume and even the low volatile nature of the trend (ideal conditions). The seasonals for the CAD average over 0.33% of gains in January.

The JPY index was the main defeated currency from the sudden recovery in risk appetite from last week. By looking at the amount of tick volume as a proxy of the capital committed ever since the outside bearish day, I’d say the risk of a reversal backup is increasing. What the volume taper suggests is that the recent sell-side flows are devoid of real money and that the one-way traffic seen has been characterized by trend following momentum strategies. The overall bias is bearish and on balance, that’s the direction most likely to keep playing out, but when the index trades this low with no backing of the aggregate tick volume pattern, I’d be concerned. Besides, the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82.

The AUD index keeps cementing my bullish view even if price has already run away far enough to see little value being a buyer at these levels. I’d be expecting a setback on any break of Friday’s high as the midpoint of its range lies overhead. The current leg up originated off a level of macro support, which has proven, again, to be a reliable location to shift the focus to AUD longs. Being able to read market patterns is incredibly valuable, and in the case of the AUD index, the premise of trading it in the context of a wide range (drawn in a white rectangle) made sense. The bullish pin bar off this key support with the spike in tick volume was the catalyst. The forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index has regained its bullish footing by attracting further buy-side pressure of a key level of static support. On balance, the overall outlook remains bullish this week. The price structure is supportive of higher prices, as is the fact that the enhanced moving averages tracking the smart money flow remains pointing higher. The compound tick volume (13ma to OBV) is, however, communicating that the selling pressure is dominant (red flag). The volatility to be trading NZD pairs remains above the usual monthly average.

The CHF index continues to display a positive trend, hence taking contrarian short positions carries a significant amount of risk as no technical backing exists at this point. The price structure is bullish, the smart money moving average supports this view, as does the overall tick volume pressure. As I’ve emphasized before, if you are counting on global growth to pick up this year, from a longer term strategic approach, shorting the CHF at these levels pays well in terms of swaps. The forex seasonals for CHF is for the currency to average 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

Pound Unloved As BoE Rate Cut Priced In


Chatter has it that the US is about to remove the label of 'currency manipulator' from China ahead of the signing of the trade deal. The news helped to spark further buying momentum in risk assets as carry FX is promoted via a higher AUD, EM FX. The Pound remains under the cosh as a rate cut by the BoE is fully priced by Sept. If you want to get the full picture, keep 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 & Youtubeweekly 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

With US equities making fresh record highs and the low vol environment persisting after the brief US-Iran shake-out scare, it is no surprise to see the Japanese Yen struggling for a fourth day in a row, while the consistent buy-side pressure on the Swissy continues to defy to a certain degree defy logic based on the current carry-trade environment promoted. Chatter that the US will no longer label China an FX manipulator as a gesture ahead of the signing ceremony of the trade deal this Wednesday has undoubtedly fueled the risk sentiment. The indisputable winner this year continues to be the US Dollar, with most of the US NFP-led losses recouped, partly due to the positive technical outlook and the seasonal anchoring it shows through January. On the other side of the spectrum we find the Pound, which sees no end to the sell-side momentum as the market now fully pricing in a rate cut by the BoE by Sept this year following dovish remarks by Bank of England MPC member Vlieghe and a gloomy Q4 GDP in the UK. The Aussie and NZ Dollar continue to recover some ground, emboldened by ‘risk on’ flows but most importantly, by the news that the US will ease its rhetoric towards China’s FX practices. The Euro, with low vol still the norm, managed to put on a decent performance with steady demand flows, while the Canadian Dollar remains in an overall bullish bias even if the last BOC business survey figures did not provide the help needed to see further buying interest on Monday.

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.

Chatter China no longer labeled FX manipulator: The US is about to remove the label of 'currency manipulator' from China, in what’s seen as a gesture ahead of the signing ceremony of the trade deal. China's delegation landed in Washington today ahead of Wednesday's signing. According to Fox's Edward Lawrence, “Senior Administration Official tells me Foreign Exchange report is expected to come out before China signs Phase One trade deal. Source in #China tells me today the Chinese will be removed as a currency manipulator in the report. Chinese trade sources wanted off to sign #trade deal.” The news sparked further ‘risk on’ and lifted the Yuan, assisting the AUD and NZD.

GBP selling as market fully prices BoE rate cut: The Pound was hit by consistent selling flows in Asia and Europe after Bank of England MPC member Vlieghe said he is ready to cut interest rates if data does not improve. The policy-maker detailed that “personally I think it's been a close call, therefore it doesn't take much data to swing it one way or the other and the next few meetings are absolutely live. I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer." Then came the dismal UK November GDP data, much weaker than expected at -0.3%, trouncing the Pound further as the market fully prices in a BOE rate cut by September this year.

Record highs in US equities: In fact, the S&P and Nasdaq printed fresh record highs. The final numbers show the S&P rising shy of 23 points or 0.70% to 3288.00, while the Nasdaq rose 95 points or 1.04% to 9273.93. The US 30 bond yield, amid the tepid outlook for inflation and still a shaky outlook for global growth, remains confined within a small range, no showing the same impetus as equities.

Fed speakers come and go with no relevant headlines: Fed's Rosengren and Fed’s Bostic both spoke. Rosengren remains optimistic on his view that inflation will pick up towards the 2% mark and that he is watching higher asset prices (records for Nasdaq and S&P) as well as trade and the headwinds of global growth slowdown. Bostic said that there is no justification not to "sit back and let the economy evolve". He outlined the "weakening of consumer patterns" and "changes in business hiring and investment plans."

BoC business outlook deteriorates, data leaked: The Bank of Canada Q4 business outlook survey came lower with future sales at +11 vs +23 prior, with a major human error as the BoC leaked the numbers earlier on its website. Looking at the details, investment intentions collapsed to +11 vs +28 prior, while employment picked up to +43 vs +31 prior. The rest of the numbers were, on balance, weaker than the previous report.

NZ business confidence keeps improving: The NZIER business opinion survey for Q4 improved to -21 vs -40 prior with a smaller proportion of businesses expecting a worsening in general economic conditions. The news follows the recovery in the ANZ's New Zealand business confidence index, in what represents further confirmation that the NZ economy, in terms of business conditions, is improving. For a summary of the report published by NZIER, please visit the following link.

China trade, US CPI, earning season eyed: In terms of economic indicators for today. China trade figures for December are scheduled for a tentative time release during the Asian session. The market is expecting a rise in both exports and imports in yr/yr terms. In the US, the CPI data is expected to come at 0.2%. It’s also important to monitor the start of the US earnings season with banks such as JP Morgan, CitiGroup and Wells Fargo all reporting before the opening bell. These numbers will affect the sentiment in equities, which remains sizzling hot, and in turn the behaviour in ‘risk on’ trades.

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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 shows an upside break above the smart money tracker (enhanced MA), however, I’d qualify this rise in the currency as a low quality one. The reason being is found on the tapering of tick volume on the way up, never a good sign as it indicates the lift of prices does not carry sufficient buy-side commitment to expect a lasting effect. If we throw into the mix the fact that the 13ema applied to the OBV retains a bearish slope, this should raise your alarm bells that engaging in EUR longs when it trades in these relative highs is much riskier. The volatility in the EUR-pair, as the last window indicates, remains quite low. Besides, January’s EUR seasonal pattern, as mentioned, is poor, averaging more than 0.5% in losses since 1982.

The GBP index has expanded the downward bias and looks set to retest a key level of macro support judging by the multiple times this area saw buyers re-emerge (last time Dec 23). However, we are still not there and the risks are building up for further losses until hit. Monday’s price action carries sufficient tick volume to expect follow through supply to be retained. The market structure is bearish, anchored by the enhanced moving averages tracking the main trend by the smart money category. Besides, as reiterated on several occasions, as in the case of the Euro, the Pound faces the prospects of a negative performance during January.

The USD index displays a bullish outlook even if the price structure is not necessarily supportive. However, when taking a holistic approach to the chart, there is enough evidence to think the USD has a decent chance of keep extending gains from here on out. Firstly, the breakout of the resistance line last week on huge volume raises the prospects of buying on dips in case we see shallow pullbacks towards a retest of that area. Next, the enhanced moving average as a proxy of the smart money trend has stabilized in bullish territory. Besides, the USD, despite a poor US NFP, has recovered most of the ground after Friday’s losses. The compounded tick volume trend (13ma applied to the OBV) also stays bullish, which means greater buy-side commitment and high risk of keeping USD short exposure. The seasonals for January are extremely positive too.

The CAD index is a market that has buy on dips written all over the wall if judging by the technical picture. In fact, the last retracement seen last week was bought up at the 38.2% fibo retracement, indicative of the high interest to engage in buy-side business on weakness. My base case is that the area between the 38.2 and 50% Fibonacci retracement offers good value to see buyers flexing their muscle for an eventual squeeze higher. The index continues to have the backing of the price structure, the acceptance above the prior resistance line and the smart money flows via the enhanced moving average. Besides, the aggregated tick volume supports the trend as it communicates buy-side commitment prevails, with the low volatile trend also providing the ideal conditions. The seasonals for the CAD are positive (+0.33%) in January.

The JPY index has landed at a level of support with volume tapering for the last 4 days. This is not a good omen if you keep short exposure in the JPY, even if the preponderance of technical evidence is as bearish as it gets from a price structure perspective or sentiment (record high in the S&P), which means it won’t be easy to turn the bearish tide. I am just trying to emphasize that this type of acceleration seen in the daily into a support level is a low quality leg, mostly dominated by intraday trend trading/momentum accounts vs real money. That said, as mentioned yesterday, the overall bias is outright bearish and on balance, that’s the direction most likely to keep playing out until there is a shift in market dynamics. Remember, the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82.

The AUD index could have reached a temporary top if we only focus on assessing the technical picture. The price did run away far enough from its macr support to make me think buyers, for the time being, may remove the foot off the gas pedal. The setback or temporary pause I am expecting is predicated on the basis that the midpoint of its macro range has been met. This midpoint caused the market to react and reverse in the majority of past interactions. The time to engage in AUD longs off a relatively cheap valuation was last week when the level of macro support was tested, knowing that it had proven a very reliable location to shift flows. The forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index, on balance, keeps its bullish outlook as it finds a base at a key level of static support with the overall volume pressure as assessed by the 13ma off the OBV turning upwards once again. The price structure also anchors the long bias, even if the enhanced moving averages tracking the smart money flows has flattened out. The volatility to be trading NZD pairs remains above the usual monthly average, so still a good market to trade.

The CHF index displays the most bullish trend out of the G8 FX space. Taking a contrarian short position just because the currency carries a negative swap when shorting it is not enough of a justification. There is no technical backing to be bearish this market at this point. The price structure is bullish, the smart money moving average anchors this bias, as does the overall tick volume pressure. The forex seasonals for CHF is for the currency to average losses worth 0.53% in Jan since 1982, even if this month looks like an outlier.

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

US-China Set To Sign Trade Deal Today


The forex market portrays a Swissy that defies any logic, a US Dollar that consolidates at elevated levels, a Euro that trades in a dull low vol environment in a context of steady demand, a Pound that despite calls for a cut by the BoE finally shows some signs of shorts taking profit, a Yen that remains a victim of the risk appetite dynamics, an Aussie on 'stand-by' ahead of the US-China trade deal ceremony... Want to find out the rest of drivers and the outlook for each of the G8 currencies, then 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 FX Chart Insights
• Educational Material

Quick Take

The Swiss Franc’s stellar performance should be of no surprise by now as the currency continues to defy gravity and traders seeking out swap dividends through short exposure are getting trounced. Despite the chatter of lower rates by the BoE this year as evidence through dovish remarks by members of the committee and poor growth numbers mount, the Pound managed to print some solid gains, with another important test today via the UK CPI figures. The market is pricing a 50/50 chance of lower rates by the BoE by the next meeting in February. The US Dollar, in congruence with its seasonals, retains a bullish outlook after a flattish performance with a slight spell of selling hitting the currency after soft US CPI figures on Tuesday. Similarly, the Canadian Dollar also nudged lower despite it clearly retains a bullish bias at an index level. The Aussie and Yen trade on stand-by, with the overall outlook bullish and bearish respectively, but a reset of the flows will occur today as the market reacts to further details emerging as part of the US-China Phase One trade deal, with the signing ceremony scheduled today. Lastly, the Kiwi trades on a softer footing with the next catalyst, again, based on China trade headlines.

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

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

US inflation pressures nowhere to be found: The US December CPI came soft at +2.3% vs +2.4% y/y expected, with real avg weekly earnings also disappointing at 0.0% y/y vs +0.8% prior, while the real avg hourly earnings came at +0.6% vs +1.1% prior. These numbers are dismal even if seasonal bearings were at play.

Fed to stay sidelined: Despite the US boasts a tight US labour market, without real wage gains, it’s hard to think the Fed will find it compelling to tighten by any stretch of the imagination. It confirms the US labour is tight due to low quality jobs being produced otherwise wages would pick up. The US Dollar was hit by a small wave of weakness on the aftermath of the event. The soft US inflation reads keeps well and alive the chances that the Fed may need to resort to further rate cuts even if the outlook for the economy is more optimistic. The market is pricing about 90% chance of a cut by Dec 2020, which is still a long shot away.

US-China trade deal (truce) will be signed today: Ahead of the event, Trump has ben bragging by calling it a “big, beautiful monster” of a deal. Nonetheless, a headline that caused some brief intraday selling in risk assets, including the USD/JPY, detailed that US officials want to verify first that the phase one trade deal is being adhered before removing further tariffs. It is thought that the data at which further removals may happen won’t be before the US election. The delay in the planned Dec tariffs and a reduction in the rate on $120B in Chinese products still stands. This likely refers to tariffs of 25% on $250B in goods and 7.5% on another $120B.

Details about the deal are coming to the surface: According to Politico, China is set to buy more US energy, manufactured goods in trade deal. The report also reveals that China will buy $200 billion of U.S. goods over a two-year period in four industries, with the target for manufactured goods purchases worth around $75 billion. China will also promise to buy $50 billion worth of energy, $40 billion in agriculture and $35 billion to $40 billion in services, Politico notes.

GT backs up emerging China-US trade details: Global Times editor Hu Xijin, who acts as China’s mouthpiece, has confirmed via social media reports of new commitments by China to buy US products. He stated the following via Twitter: “As far as I know, China did make a commitment to expand imports from the US. China has a huge market which is growing quickly. It will be more of a test for the US whether it can provide enough products that Chinese market welcomes and are competitive in price.”

China removed as currency manipulator by the US: The Treasury's semi-annual report did not list China as a currency manipulator in what’s seen as a political move ahead of the US-China trade deal signing today. The report says China made 'enforceable commitments to refrain from competitive devaluation' in phase 1 trade deal, adding that China needs to take necessary steps to avoid a persistently weak currency and that China also agreed in trade deal to publish relevant data on exchange rates and external balances.

CHF unstoppable: The Swiss franc continues to defy gravity after the US Treasury added the SNB policy practices in the watchlist of accounts to monitor as currency manipulators. Swiss officials noted that they don't manipulate currency for export advantage but rather the interventions are only motivated by monetary policy with the objective to counteract the effect of too strong franc. You can’t make this stuff up. In itself the statement is contradictory.

China trade data beats expectations: China December trade data showed exports rose 9% y/y vs +2.9% expected, while imports also saw a huge beat at +17.7% y/y vs +8.6% expected. These numbers represent the largest rise since October 2018. The Aussie found some footing after the data but the overall flows were rather dull and tamed ahead of finding out further details in the US-China trade deal today.

Even Fed’s George endorses moderation in policy: It was quite revealing to see the biggest Fed hawk, Ms. George, Fed's George, to give up on inflation and hence her endorsement of rate hikes. She said it is appropriate to hold rates for now to assess economy, noting she sees benign inflation and that headwinds to business spending are likely to persist alongside expected continued weakness in manufacturing.

Earnings seasons starts with big profit jumps by big names: Even if the Q4 earnings season started on a strong footing, equities in the US were flat-lined after headlines emerged that the US is not expecting further tariff cuts until after the elections. Nonetheless, JPMorgan or Citigroup reported solid profits. JP Morgan’s profits was up 21% and Citigroup 15%. It’s worth noting the comments by JP Morgan CFO noted that “the U.S. consumer remains in very strong shape, both from a credit perspective and spending sentiment,” and that among corporate clients “sentiment is at least certainly better than it was six months ago. So we have a constructive outlook as we’re heading into 2020.”

US inflation, China trade deal key events of the day: There is no data of interest in Asian while in Europe, attention shifts to the German Q4 GDP and UK CPI, with the latter the data to inject most volatility as the market is now fixated in the chances of a rate cut by the BOE this year, with January easing priced at about 50%. In the US, all the focus will center around further details on the US-China phase one trade deal with the US PPI data an early aperitif to contend with but far from being a mover today.

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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. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

If you found the content in this section valuable, give us a share by just clicking here!
The EUR index is finding dip buyers after the recent upside break found a base at the retest of its Monday’s demand imbalance departure. The smart money tracker (enhanced MA) has turned bullish but a red flag is the fact that the buy-side tick volume is tapering, never a good sign as it shows dubious commitment by buy-side accounts. The 13ema applied to the OBV retains a bearish slope, which means the current rally is a dangerous one to commit to. The volatility in the EUR-pair, as the last window indicates, remains quite low. January’s EUR seasonal pattern, I won’t get tired of reiterating, averages over 0.5% in losses since 1982.

The GBP index found buy-side interest at an area that traders should have anticipated to act as a reactionary level as it aligned with a macro support. The move on the way down approached the support on tick volume tapering, with the counter demand forces picking up the volume flows. As a word of caution for those looking to play GBP longs, remember that the market structure retains a bearish formation, anchored by the enhanced moving averages tracking the main trend by the smart money category. Another component that warrants prudence to engage in long exposure is the compounded volume pressure, with the 13ema applied to the OBV displaying a bearish slope. Besides, GBP faces negative seasonals during January.

The USD index continues to communicate a bullsh storyline in line with the positive seasonals. The icing on the cake would be the breakout of the previous swing high, even if the acceptance found above the smart money tracker (enhanced moving averages) reveals the market has found value at significantly higher levels than those traded earlier in the year. The breakout of the last static resistance line came on a sizeable volume, which has led to the reinforcement of the notion of buying on dips in case we see shallow pullbacks towards a retest of that area. The compounded tick volume trend (13ma applied to the OBV) also shows a bullish slope, which means buy-side commitment is elevated and hence should support the bullish view.

The CAD index remains in a buy on dips mode with the latest price action not altering a bit the constructive technical picture. My base case continues to endorse the idea of looking for opportunities between the 38.2 and 50% Fibonacci retracement, a location that offers good value to see buyers re-grouping for an eventual squeeze higher. The index has the backing of the price structure, the acceptance above the prior resistance line and the smart money flows via the enhanced moving average. Besides, the aggregated tick volume supports the trend as it communicates buy-side commitment prevails, with the low volatile trend also providing the ideal conditions. The seasonals for the CAD are positive (+0.33%) in January.

The JPY index, following a sequence of volume tapering for the last 4 days, found a greater degree of absorption on the way down, even if this does not alter the bearish bias. The list of reasons to keep the bearish bias intact is plentiful, with the price structure bearish and the risk sentiment adding pressure to the Yen as a safe-haven (record high in the S&P on Monday). The compounded tick volume slope (13ema to OBV) points lower too. Remember, the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82, even if not playing out so far.

The AUD index continues its struggle to break any higher with the midpoint of its macro range acting as a nut too hard to crack after the elongated move up off a support area. I personally see the Aussie poorly positioned to engage in long positions even if in the next 24h, China-US trade sentiment will rule price action and anything can happen. The time to engage in AUD longs was last week off a relatively cheap valuation at the level of macro support. I remain in wait and see in the Aussie until the picture clears up following today’s US-China trade deal headlines. The forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s.

The NZD index has entered a short-term consolidation phase in the wider context of a bullish trend, The index found a base at a key level of static support with the overall volume pressure as assessed by the 13ma off the OBV currently in the process of flattening out. The price structure anchors the long bias, despite the fact that the enhanced moving averages tracking the smart money flows has confirmed a bearish turn. The volatility to be trading NZD pairs remains above the usual monthly average, which is a good signal to seek out opportunities.

The CHF index has strengthened further and is by far the most bullish currency. This has turned out to be a monster of a long trade for those buying the Swissy at cheaper levels even if holding positions, remember, carry significant negative swaps. This is a trend trading/momentum type market, with those looking to engage in swing trading having no chance to buy at these levels unless they want to do the ‘harakiri’ to themselves. If you are a contrarian or long-held strategies are applied to benefit from positive swap payments, this market may also be fitting. The price structure is very bullish, the smart money moving average anchors this bias, as does the overall tick volume pressure. The forex seasonals for CHF is for the currency to average losses worth 0.53% in Jan since 1982, even if this month looks like a clear outlier.

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 Swissy Is The Indisputable Darling Of FX


The Swissy keeps flying amid a low volatile environment, with the currency the only exception trading with movements above the monthly vol averages. The rest of the FX complex portrays a depressed picture with movements as dull as they get with the US-China trade deal ceremony proving by and large a non-event for FX. Even the GBP sees its lowest imp vol in 6 months. Want to find out more nuggets and be prepared to tackle the trading day? In that case, 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 FX Chart Insights
• Educational Material

Quick Take

We find an analogous picture in terms of top performers, with the Swiss Franc still stealing the limelight from the remaining G8 FX, which by and large, continues to show volatility shrinking by the day. Out of all the indices analyzed in this report, the only exception to display a weekly volatility above its monthly average is the Swiss Franc, the rest shows the dullest movement for quite some time, with even GBP stuck at an implied volatility that is the lowest since July 2019. In this environment, with equities in the US making marginal new record highs, and the US-China trade deal signing ceremony largely a non-event as no surprises emerged, the Yen continues being promoted as one of the preferred shorts, even if the easy gains playing short the currency, I believe, have already been made, especially considering the macro support it faces at an index level (more on the charts section). The Euro keeps gaining strength with the market now shifting its attention to today’s ECB Minutes, with the focus on the ECB’s framework review, set to start next week, and any potential adjustments to the inflation targets. A speech by ECB’s Lagarde at 10.30pm AED will also command the attention of the market. GBP continues to show stubbornness to accept lower prices despite the soft data as of late (downbeat UK growth, UK inflation lowest in 3 years, BoE member more dovish), which is quite telling. Despite the resilience shown, the market is now pricing a 70% chance of a BoE rate cut on Jan 30th. The North American countries, despite marginal weakness on Wed, are nowhere near violating the evidence that keeps both the USD and CAD in an overall bullish path for the month. Lastly, the AUD and NZD struggled to find demand even if the low vol dynamics are supportive overall.

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 officialize phase one trade deal, market impact limited: Details of the phase one deal were finally released after Trump and China’s Lui He signed the documents that formalize the temporary truce between the two powerful nations. The news had very little repercussions in terms of market action given the leaks and build up of expectations. The agreement will be effective 30 days after signing, with the deal calling for $200 billion in added Chinese purchases of US goods above 2017 levels. As part of the deal, the agreement prohibits misappropriation of trade secrets through electronic surveillance and requires forfeiture of machinery used to produce counterfeit goods. Lighthizer was optimistic by noting that “it is not the administrations intention to wait until after the Nov elections for phase two deal”, adding that “this is the only way for further tariff reductions is a phase two deal.” Remember, the outline of most purchases by China was leaked during yesterday, so the market reaction was limited.

Focus on implementing phase 1 deal before next phase: Liu He took the time to read a letter from President Xi, in which the leader expressed his hope that the US side will treat Chinese companies fairly and that China and the US can resolve differences, and find solutions based on dialogue. Xi showed willingness to stay in close touch with Trump, with both sides set to follow through on trade deal to achieve greater progress . It was also stated that China will strictly honor phase one agreement. As per the next step, focus is now on implementing phase 1 deal to create favourable conditions for the next phase.

UK inflation at its lowest level in 3 years, BoE rate cut around the corner? The soft UK December CPI, which came at +1.3% vs +1.5% y/y expected, a three-year low, with traders having to refer back to November 2016 to see a headline number this low. This has given the BoE even more reason to flex its muscle and justify a rate cut in coming months. The sub-components of the report also came quite poor. As a response, the Pound saw sell-side pressure pick up even if it managed to revert the move in its entirety later on. Pricing for a BoE rate cut at the upcoming BoE meeting stands near 70%, up from 50% previously, and is fully priced by May from Sept.

Saunders reaffirms endorsement for lower rates: BOE's Saunders gave a speech, noting that aggressive steps will be needed given the limited monetary policy space in existence. Saunders, who talked with no mincing, said that “the economic data justifies a rate cut” and that “it probably will be appropriate to maintain an expansionary monetary policy” with “possibly lower rates further in the future.” In terms of his projections, Saunders said “most likely outlook is a further period of subdued growth”, with his gloomy remarks not ending there, as he added that “economic growth is sluggish, spare capacity is rising, inflation is subdued,'' while expecting that as Brexit uncertainty continues, “it may weigh further on the economy,”

German growth lowest in 6 years in 2019: Adding to the bitter flavour of headlines during the European morning, the German economy confirmed that the growth expansion through 2019 was the weakest in six years. The details revealed that the Manufacturing activity remains one of the main draggers. The report indicates that struggles remain in factory conditions and exports continue even if there is some early tentative evidence that may prelude to improved conditions in 2020.

US Beige Book paints a murky picture: The US Beige Book, prepared by the New York Fed with data collected on or before Jan 6, detailed that the US activity continued to expand modestly in the final 6 weeks of 2019, with several Districts noting the growing importance of online shopping. The near-term outlook remained modestly favorable across the nation as consumer spending continues to grow at a modest to moderate pace. With regards to headwinds caused by the trade war, the report notes that in many districts trade and tariff uncertainty continued to weigh on some businesses. As per wage growth, it was modest to moderate in most districts, while employment was steady to rising modestly. The Dallas and Richmond Districts noted above-average growth, while Philadelphia, St. Louis, and Kansas City reported sub-par growth.

Ruble taken to the woodshed as Russian government resigns: The Russian ruble fell sharply to the tune of 0.5% vs the US Dollar after Prime Minister Medvedev announced that the Russian government had submitted a resignation and that Putin will now be tasked in deciding the makeup of a new government. Reports detailed that Putin is looking to carry out a nationwide vote to extend more power to parliament and the PM.

Second-tier economic data in North America disappoints: The economic data in the North American session, by and large, was on the negative side, with the US PPI coming at +0.1% vs +0.2% expected, in line with a soft US CPI the prior day. On the flip side, the US empire state manuf index ticked up but remember this is considered a low-tier event. Meanwhile, in Canada, existing home sales dropped by 0.9% vs +0.6% prior. The report on the plummeting of Canadian home sales revealed that while the headlines looks indeed very poor, listings are low and the market it's tightening up again, which makes the data more volatile.

What’s on the economic calendar today? In terms of relevant economic indicators, traders attention will shift to the ECB Minutes, with focus likely on any new inputs with regards to the upcoming ECB’s framework review, set to start next week, and any potential adjustments to the inflation targets. A speech by ECB’s Lagarde at 10.30pm AED will also command the attention of the market. In the US, Philly Fed/Jobless Claims at 12.30pm AEDT will be due, alongside the most high-impact event of the day, which comes in the form of the US retail sales, at the same time 12.30pm AEDT.
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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. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

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

The EUR index keeps finding dip buyers after the upside resolution above its enhanced moving average (smart money tracker), with the turn of slope in the indicator confirming the dynamics were turning more positive. Wednesday’s bullish bias came after the index found a base at the retest of its Monday’s demand imbalance departure. I must state that the compounded tick volume via the 13ma applied to the OBV does not shows the commitment by buy-side accounts that would suggest the run has further legs to go but at this point price action won’t agree. The volatility in the EUR-pair, as the last window indicates, stays depressed. January’s EUR seasonal pattern, I won’t get tired of reiterating, averages over 0.5% in losses since 1982, which makes any sustainable rise in the value of the EUR this month a dubious scenario.

The GBP index shows very little net changes from 24h ago even if the currency keeps receiving disappointing news that makes the prospects of a BoE rate cut a near-term reality. On the heels of a rebound off a support line after tick volume tapering, the GBP has challenged late sellers but be wary of the rise having limited legs as the market structure retains a bearish formation, anchored by a bearish enhanced moving average tracking the smart money bias. Besides, the compounded volume pressure, with the 13ema applied to the OBV, still displays a bearish slope. Do not forget that GBP does not have the backing of seasonals during January.

The USD index, despite its Wednesday’s setback, it does not show sufficient sell-side commitment via tick volume to make me worried that this retracement is a meaningful one that may put the current bull run in complete jeopardy even if the overall market structure still disagrees with this view that I hold. However, my bullsh storyline is built upon solid grounds too. I’ve said for days that the cherry on top of the cake would be a breakout of the previous swing high (Dec 20, 2019), but for now what I see keeps me constructive. First off, the acceptance found above the smart money tracker (enhanced moving averages) tells me the market sees a higher valuation. Secondly, the breakout of the last static resistance came with a storm of buy-side volume, hinting buying on dips in case we see shallow pullbacks towards a retest of that area. Them we see the compounded tick volume trend also in bullish territory, and last but not least, if one month sees the USD buying accelerate based on seasonals, that is January.

The CAD index has little to add. I stand by my high conviction that this market is still displaying a clear path of least resistance towards the upside. This means strategies that engage in a buy on dips approach should do well, as already seen in the last 24h where the test of the 38.2% Fibonacci retracement saw a wave of buying pressure erupt. My base case is supported by all the key elements I tend to monitor on a daily basis, that is, I have the backing of the price structure, the acceptance above the prior resistance line and the smart money flows via the enhanced moving average pointing in the right direction. Besides, the aggregated tick volume supports the trend as it communicates buy-side commitment dominant, with the low volatile trend setting up the ideal conditions. The seasonals for the CAD are positive in January too.

The JPY index has come to a crossroads technically speaking as the index faces a macro level of support as depicted by the horizontal white line in the chart. This is a level of reference that dates back to March/April last year. While in the short-term the list of reasons to keep the bearish bias remains intact, with the price structure bearish and the risk sentiment adding pressure to the Yen as US equities keep printing record highs, if I had to bet in one single area where the JPY may attract buying out of the last month, this is it. But again, the conditions it faces short term for a meaningful rebound are poor, with the compounded tick volume slope (13ema to OBV) still pointing aggressively bearish. Remember, the seasonal pattern for the Yen averages +0.25% in Jan since Jan ‘82, even if not playing out so far.

The AUD index by no means offers a clear cut bullish bias at this stage substantiate such premise as long as the midpoint of its macro range continues to act as resistance overhead. In my last analysis I mentioned that I personally see the Aussie poorly positioned to engage in long positions despite the hype around the China-US trade deal. I’d call this market neutral with no objective technical evidence to be too optimistic unless equilibrium is found above the range midpoint. While the smart money tracker loses some of its insight elements when trading within a range, it worth nonetheless noting that the slope is still pointing lower. The forex seasonal pattern is positive to the tune of +0.54% in Jan since the early 1980s for the Aussie.

The NZD index has solidified the profile of a short-term range in the wider context of a bullish trend. As negative, the overall volume pressure as assessed by the 13ma off the OBV has shifted to bearish, while the enhanced moving averages tracking the smart money flows has also confirmed a bearish turn. The price structure, however, does not validate a bearish bias yet. The volatility to be trading NZD pairs has fallen below the usual monthly average now.

The CHF index may be on the cusp of curving out a more meaningful top, or at least, the area reached at an index level is as relevant as it gets for longs to seriously ponder closing positions. I state this premise on the basis of the price hitting its 100% proj target and stopping on its tracks right at that precise point. It’s starting to look like a market trading out of whack and sooner or later, especially with the positive swap offered to short CHF, it risks coming down. It doesn’t mean the fast money won’t continue piling into this trend, but the forces driving the ongoing demand imbalance are likely to dry up at these key junctures (100% proj). As said, if you are a contrarian, value trader or deploy long-term strategies, this market may be fitting.

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 thi 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 & NZD Thrive, JPY Remains Unloved

The Sterling and New Zealand Dollar attracted the most demand in a week that remains characterized by the suppression in volatility. Neither a fairly vacant weekly economic calendar nor the US-China trade deal ceremony acted as catalysts to increase the hype and subsequently we are left with tight market ranges to contend with. What's going on as we head into Friday? Keep reading to find out.

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 New Zealand Dollar and the Pound were the top performing currencies. The former was boosted by an upbeat ANZ inflation indicator, leading to calls for the RBNZ to cement its neutral bias for the foreseeable future. Too premature to think the language may shift to hawkish though, even if the jump by 0.8% q/q is above the RBNZ target. The Sterling’s rise, in my opinion, has a lot more to do with the slow money re-engaging in weakness as the weekly trend remains bullish, even if reason to turn more bearish are also piling up with the BoE more likely to cut rates in the next few meetings (pricing of a cut has gone to near 70% for Jan 30). The Euro, the Aussie and Yen were the main laggards for the session. It is especially counter-intuitive to have seen the Euro perform so poorly as the ECB revealed a more upbeat tone in its policy minutes, with the outlook for inflation and growth slightly more constructive. The sell-side pressure on the Yen, for a 7th consecutive day, shows that the ‘trend is your friend’ in this market, one that continues to move in opposite lock steps to record equities in the US. The Aussie’s struggle has more to do with impending technicals at an index level, even if the latest Chinese data dump today should provide interim support as upbeat numbers emerged. The Swissy paused its hot rally after reaching a weekly 100% proj target in the index, while the US and Canadian Dollar saw weakness bought up aggressively through the NA session.

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.

Not so fast Pence… US VP Pence said the US and China “have already begun discussions on a phase 2 deal”, which would be a positive development, if only true. However, judging by the comments from China’ Vice Premier Liu He, who said “we might get nothing if we rush to a second job before the first one is properly done. I don't think it is a wise choice to impatiently launch new stages of talks”, there seems to be little meat in the bone on Pence’s remarks.

The ECB more upbeat on inflation and growth: The most relevant development from the ECB December monetary policy meeting minutes was the remark that “there are some indications of a mild increase in core inflation”, adding that “there had been solid upward movement in underlying inflation, excl. holiday prices.” As per the economic trend, the ECB noted that “data pointing to weak but stabilising growth dynamics.” The remarks on inflation and growth led to an initial rise in the EUR that got fully reverted.

No new clues on ECB strategy review: With regards to clues about the upcoming strategy review the ECB is set to conduct, the ECB minutes read: "Finally, it was also suggested that some broad guidance be communicated about the forthcoming strategy review, including the likely timeline, although it was generally seen as advisable to refrain from public discussions on the strategy prior to the envisaged launch of the review by the Governing Council early in 2020."
US retail sales lift the USD: US December advance retail sales came at +0.3% vs +0.3% expected, however, the core reading jumped to 0.7% vs 0.5% expected, which led to a wave of USD buying, as positive revisions to prior data were also confirmed. Most of the gains in the indicators over 2019 came from 'food and beverage' stores, 'health and personal care' and gasoline stations.

USD anchored by 2nd-tier data too: Adding to the positive tone in the USD, the Philadelphia Fed business outlook for January stood at 17.0 vs 3.7 estimates. The index is the highest level since May 2019 when it reached 17.5 and represents a nice rebound from the depressed levels it sat at in prior months. But as the team at NAB notes, “the Philadelphia region is less exposed to trade with China, such that the strength in the headline and orders readings should not be seen as a harbinger of strong nationwide (ISM) data when released at the start of February.”

Eleven US troops injured in last week’s Iran missile strike: A report has emerged that at least 11 US soldiers were injured in the Iranian missile attack last week on Al Asad Base in Iraq last week. Those injured had to be evacuated to US Military hospitals in Germany and Kuwait to be treated for traumatic brain injury and to undergo further evaluation, several U.S. defense and military officials have confirmed to Defense One.

Fed’s Bowman shows the Fed is unified in its neutrality: Fed's Bowman stuck to the script from the rest of Fed members by reinforcing that there is an across-the-board consensus for the Fed to stay sidelined this year. Bowman noted that “the Fed funds are likely to remain at current levels absent a change in outlook”, adding that she is “encouraged by the outlook for housing, with low rates set to continue to support the industry.”

The US Labour Dpt bans PCs in lockup room: The US Labor Department has decided to ban computers in the lockup room, which as Forexlive reports, “could impact the information dissemination directly to users.” The intention is that they want to eliminate the competitive advantage that algorithmic traders have currently. It is applicable from March and it will lead to delays in getting the information out electronically.

Trump’s impeachment a side show as record highs in US equities prove: The Senate swore in Chief Justice Roberts for the Trump impeachment trial, which is due to start next week, and that in the eyes of the market, it is a non-event. As long as the Senate is controlled by Republicans, this impeachment trial should remain a sideshow, as clearly manifested via the price action in US equities, which keep making record highs.

NZD boosted from ANZ inflation data: The currency rose after the indicator, which happens to be a good barometer for non-tradeables inflation, jumped by 0.8% q/q. The beat on expectations makes further easing by the RBNZ a distant prospect. It has even led to early speculation that the RBNZ may shift its language to a more hawkish stance.

China data shines: China published a raft of y/y indicators today, including the Q4 GDP, which came in line with expectations at 6% for the year even if it marks the lowest read in 29 years. The December activity also included Industrial Production beating estimates at 6.9% vs 5.9%, Retail Sales also coming above estimates by the smallest margin at 8% vs 7.9% and Fixed Assets Investment, which also managed to come above expectations by printing 5.4% vs 5.2%.

What’s ahead in the calendar? Later this Friday, the key releases include UK Retail Sales, the final Eurozone CPI, followed by US Industrial Production, the JOLTS job openings, US building permit and the preliminary January University of Michigan Consumer Sentiment Index.

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. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

If you found the content in this section valuable, give us a share by just clicking here!
The EUR index has pulled back further from its weekly high and is retesting once again the origin of its demand imbalance departure from last Monday. The rise in the index was never accompanied by compounded tick volume via the 13ma applied to the OBV, which if positive, would show firm commitment by buy-side accounts, but that’s not the case. The volatility in the EUR-pair, a recurring theme across FX, remains very depressed. January’s EUR seasonal pattern averages over 0.5% in losses since 1982, hence a bullish bias this month is a dubious scenario.

The GBP index has established in a range phase, which disallows the clarity necessary to call for a particular direction based on the index alone. What’s encouraging from the 3-day rise we are seeing is that the sequence of tick volume is higher than the last move down. Add into the mix the solid close, and it won’t be that unlikely to see the range high being retested next. Besides, the compounded volume pressure, with the 13ema applied to the OBV, has now turned positive. Do not forget that GBP does not have the backing of seasonals during January.

The USD index found dip buying activity at the retest of the last resistance line, now turned support, which was an anticipated outcome based on how much volume the breakout had. The sizeable bottom tail tells us the story and I think a breakout of the previous swing high (Dec 20, 2019) is still a real possibility before the end of the month. First off, the acceptance found above the smart money tracker (enhanced moving averages) is the first important revelation and even if the compounded tick volume trend has now turned bearish, I wouldn’t read too much into it as the real money candle from last week overrides that as the key input to account for. Remember, in January, the USD seasonals are looking really good, with gains of +0.5% on average.

The CAD index shows an almost identical picture than 24h ago, with my bullish view still playing out with striking accuracy. I’ve endorsed to be a buyer on weakness and that’s precisely the type of pattern yielding the most dividends if adopted. My base case is anchored by all the key elements I tend to monitor on a daily basis, that is, the price structure is bullish, the acceptance above the prior resistance line reveals a clear storyline, and the smart money flows via the enhanced moving average pointing in the right direction. Besides, the aggregated tick volume supports the trend as it communicates buy-side commitment dominant, with the low volatile trend setting up the ideal conditions. The seasonals for the CAD are positive in January too. What else can you ask for? It could go anywhere, but the objective evidence is to remain a bull.

The JPY index found follow through sell-side commitment to extend its losses for a 7th consecutive day with the outlined macro level of support blown through. As reiterated, all technical elements keep the bearish bias intact, with the price structure bearish and the risk sentiment adding pressure to the Yen as US equities keep printing record highs, and the compounded tick volume slope (13ema to OBV) still pointing aggressively bearish. The only ‘but’ is the tapering of tick volume on the way down, even if in the grand scheme of things, it does not alter the bearish outlook. This is a market where fast money flows are dominating.

The AUD index keeps struggling at the midpoint of its macro range, which for another day on Thursday acted as a sticky resistance where the supply imbalance kicked in from. As long as the market remains below this symmetrically key level, the objective technical call is to retain a neutral to bearish bias with no grounds to be too optimistic unless, as I said, equilibrium is found above the midpoint of the range or support at the bottom of the macro range is tested. Notice, the smart money tracker, even if not as insightful when trading within a range, is nonetheless showing a downward slope cementing the less than ideal outlook for the AUD. The seasonals are positive to the tune of +0.54% in Jan since the early 1980s for the Aussie though.

The NZD index has recently established a short-term range in the broader context of a bullish trend. It is therefore no surprise that the double bottom found led to a rotation back to the other side of the range, where the currency keeps struggling to break past. The overall volume pressure as assessed by the 13ma off the OBV has flattened out, indicating a period of indecision, while the enhanced moving averages tracking the smart money flows shows a bearish slope but the range trading makes the read not as relevant. Overall, the price structure is still bullish as the range occurs as part of a rising market. The volatility to be trading NZD pairs, as the last window indicates, has fallen below the usual monthly average.

The CHF index, after hitting its 100% proj target, has found sell-side flows pick up, even if it remains extremely premature to call this the ultimate top. What’s clear though is that this is a market driven by the fast money with little value to be adding longs at these hefty levels. I mentioned that this market trades out of touch with reality and sooner or later, especially with the positive swap offered to short CHF, it risks mean reversing. For contrarians, value traders or those deploying long-term strategies, this market looks appealing if having the patience needed.

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]

The USD Is King During The Month Of January

Find my latest market thoughts

Friday's ebbs and flows were characterized by a re-resurgence in demand towards the king of currencies this January, that is, the US Dollar. Meanwhile, on the other side of the spectrum, the British Pound continues to succumb to weakening fundamental news. If you'd like to understand the latest market dynamics and outlook for G8 FX, check out this 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

We start a new week with the US Dollar at the forefront of trader’s mind amid the steady demand flows it’s shown through the course of January in line with positive seasonals. The fundamental news out of the US, with a huge 17% jump in housing starts aiding the trend, as together with the US-China phase one trade truce, reaffirms the neutrality of the Fed policies. The Swissy, after meeting its 100% measured move at an index level, has seen buy-side interest petering out as the fast money-type accounts take the foot off the gas pedal. The Canadian Dollar is the third best performing currency this year, piggy-backing the rise in the USD, and opening up a significant gap with the Euro, which follows as the 4th best currency. In the bottom half, I must say that amid very depressed volatility conditions, the outlook is mixed, with only the Japanese Yen displaying the cleanest downtrend. The Aussie, the Kiwi, and the Pound, are all confined in ranges of difference dimensions from an index standpoint, even if the British currency was the most punished in the last 24h following a dismal UK retail sales. Judging by the ebbs and flows seen as of late, the USD and CAD look best positioned to capitalize on the current market conditions, while the JPY and the GBP, with risk-on flows (S&P 500 keeps making record highs) and UK fundamentals deteriorating at a rapid pace, appear to be the most vulnerable currencies this week. Remember though, today’s trading activity is likely to be much more quiet than usual, as US stock and bond markets are closed to commemorate the Martin Luther King Jr. holiday. Later in the week, things will spice up as we get the moneta policy decision by the BOJ, BOC, ECB, Aussie jobs, Canadian/NZ CPI and EZ manuf numbers.

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.

A dismal UK December retail sales: The headline number came at -0.6% vs +0.6% m/m expected, has led to a jump to 73% in the chances of a BoE rate cut at the end of this month. The Retail sales (excl autos, fuel) fell by -0.8% vs +0.8% m/m expected. What’s worse, the numbers portray a worrying pattern of 5 consecutive month of recess in retail sales in the UK.

Fitch affirmed Germany at AAA: The rating and outlook (stable outlook) were left untouched, which is welcoming news. If Germany’s high rating is ever going to be challenged, that would have been after last year’s poor growth numbers, worse in the last 5 years. One of the reasons Fitch maintains a constructive outlook in its report is due to the fiscal surplus the country has.

US Dec housing data keeps surprising to the upside: The US December housing starts shocked, in a positive way, by jumping almost 17% to 1608K vs 1380K expected, with single family starts up to the tune of 11.2%. It constitutes the largest one-month increase in over 3 years. To the rude health of the jobs market in the U, even if the jobs created overall are poor quality, must now be added a thriving housing market. If one adds the US-China trade truce as part of phase one deal, the Fed will take comfort of all these inputs by being sidelined.

The Oil price is up after the Libyan conflict: The rival government shut down half of the oil exports, which translates into about 800,000 barrels/day of supply out of circulation. Reports indicate that the Libyan commander of the rival government Khalifa Haftar ordered to block oil exports at ports under his control. As long as these exports remain shut down, the play has been to adjust the outlook for Oil as it represents a deficit of near 1% of the world production.

The risk appetite mood won’t stop: Judging by the incessant rise in US equities, the lead that Asian traders are taking from the performance by the S&P or the Nasdaq indices could not be more encouraging, with rises of another 0.3% and 0.5% respectively to fresh record highs. Interestingly, despite the rallies, the Yen shrugged off the positive dynamics by appreciating last Friday, which marks the end of a 7-day losing streak at an index level.

China data stabilizes: China published a raft of y/y indicators last Friday, including the Q4 GDP, which came in line with expectations at 6% for the year even if it marks the lowest read in 29 years. The December activity also included Industrial Production beating estimates at 6.9% vs 5.9%, Retail Sales also coming above estimates by the smallest margin at 8% vs 7.9% and Fixed Assets Investment, which also managed to come above expectations by printing 5.4% vs 5.2%.

What’s ahead? Today’s trading activity in the US should be much more quiet than usual, as US stock and bond markets are closed to commemorate the Martin Luther King Jr. holiday. In New Zealand, the Wellington market is also on holiday. In terms of economic news, today’s line-up of events is dominated by 3rd tier data that is highly unlikely to affect currency valuations.

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. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

If you found the content in this section valuable, give us a share by just clicking here!
The EUR index poked into a higher level of liquidity before reversing its course of action back to the downside, reaffirming the range-bound nature of the market. This consolidation profile must be taken as part of the context of a macro bearish trend as per the weekly market structure. As pointed out last week, the rise in the index was never accompanied by a bullish slope in the compounded tick volume via the 13ma applied to the OBV, showing dubious commitment by buy-side accounts, and by now confirmed that the intention was to collect EUR short inventory at more attractive prices before the release of the sell-side pressure kicked in. The volatility in the EUR-pair, a recurring theme across FX, remains very depressed. No changes there. The rise in the EUR last week was also challenged by January’s seasonal pattern, negative for the EUR.

The GBP index failed to sustain any upside momentum after the catastrophic UK retail sales reading, which brings to the forefront the prospects of an immediate rate cut by the BoE. In the last few weeks, the price action in the index portrays a market confined in a range below a critical pivot level of resistance that has been respected for a couple of times. Despite fundamentals for the GBP have started in an appalling way this 2020, the daily price action is yet to confirm a breakout. What we are seeing so far is the Pound holding extraordinarily well judging by the plethora of negative news is receiving amid a stand-by in Brexit headlines. The price action candle from last Friday is bearish and puts the recent lows at risk. The volatility in the GBP, as in the case of the rest of G8 FX, remains suppressed below the monthly average.

The USD index is just a whisker away from confirming the first breakout of structure on the daily that would formalize the bullish outlook even if the bias I’ve subscribed to since the beginning of the year has been one of optimism for rises to materialize as elaborated in this report daily. The breakout higher may come any hour, and with it, it would tick all the boxes one can think of to shift the focus to fully and unambiguously bullish on the USD. We’d then be able to align the smart money tracker (enhanced moving averages) pointing up, the structure of price confirming the bullish flows, the volume pressure ditto, and USD seasonals also in favor. Full circle for bulls.

The CAD index is one of those markets that I sincerely have little to update you with as it also continues to play out the script that I had envisioned and telegraphed through my daily report. Whenever you see my chart annotations barely modified, that’s a good sign, as it means the scenarios have or are panning out as I would have anticipated based on the analysis performed. To me, the CAD is a market that one must approach from building long inventory on weakness, and as a reference where to consider a plan of engagement, I’ve endorsed to be a buyer between the 38.2% to 50% fibonacci retracement at the index. Last week, we saw the dips being bought up the moment the former fib was tested and the price never looked back. All the stars are aligning, especially after Friday’s bullish engulfing price action to see new highs created. The seasonals for the CAD are positive in January too, as in the case of the USD.

The JPY index is without a doubt the most bearish currency and with the risk flows so firmly bullish as per the record highs in the S&P 500 as the bellwether, it’s hard to make a case for an adoption of a long bias in the currency except if spells of risk-off episodes hit the currency or sellers ponder the idea of taking profits more aggressively. All the technical elements keep the bearish bias intact, with the price structure bearish and the risk sentiment adding pressure to the Yen, alongside the compounded tick volume slope (13ema to OBV) pointing bearish. However, and I reiterate, the only ‘but’ is that the tapering of tick volume on the way down is not a good sign, as neither it is that this is happening at a macro support. This is my only concern, as if the currency is to find legs to the upside, this would be the ideal location to engineer a buy-side campaign as the price is definitely very cheap by historical standards.

The AUD index, as in the case of the CAD, I have no much else to add, since the market continues to play out in the way I envisioned. That is, the rise of the currency run out of steam at the intersection of the midpoint of its macro range, a juncture that has proven to be a tough nut to crack for the Aussie ever since the formation of this range occurred back in Sept last year. Therefore, until violated to the upside, any objective technical call in the Aussie cannot be justified as placing too much optimism on the prospects for the currency. At best, I’d personally retain a neutral to bearish bias with a steadier outlook unfounded at this point. As a positive note for the Aussie though, the last 4 days of falls have carried a taper of volume. The seasonals are positive to the tune of +0.54% in Jan since the early 1980s for the Aussie though.

The NZD index, and at the risk of sounding like a broken record, does not show any significant action that would make me change in any way, shape or form my neutral to bullish outlook. Why this stance? Because I consider this to be a market established in a short-term range in the broader context of a bullish trend. Therefore, under this structural profile, buying weakness at support levels has definitely paid good dividends so far. Remember, in ranges, the signals can be more conflicting, so I wouldn’t add that much weight to the positioning of the compounded tick volume pressure as assessed by the 13ma off the OBV nor the enhanced moving averages tracking the smart money flows. As in the case of the EUR or GBP, the NZD also shows a range as the most accurate profile at play, with the advantage of being formed on the back of macro bull flows. The volatility to be trading NZD pairs has fallen below the usual monthly average.

The CHF index, on the back of reaching its 100% proj target, continues to find it a struggle to keep attracting further buy-side flows as one would anticipate at this symmetrical location. Despite the measured move is now complete, it remains very premature to call this the ultimate top as the fast money will probably not give up that easily in a currency that has put on a spectacular rally, which is even more meritorious, judging by the absurd low volatility elsewhere, and that half the other G8 FX currencies are trapped in ranges (EUR, GBP, NZD, AUD). If my view is any indication to go by, I’ve subscribed to the idea that this market has been driven by fast money scalping or short-term intraday trend trading strategies. Once we step out of the smaller time frames, this market is out of whack and with the positive swap offered to short CHF, these levels are incredibly interesting for the patient traders.

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

Forex Vol Shot To Pieces, CAD Outperforms


With volatility shot to pieces, the consolation we have as Forex traders is that it's only going to get better this Tuesday, following the snooze fest in currencies as the US markets went for a long weekend in commemoration of Martin Luther King Day. Even if volatility is non-existent, have you analyzed what pairs show the clearest trend in the bigger timeframes? If not, today's report will dissect this information for you. Let's find out...

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
• What Pairs Are Trending In FX?

Quick Take

If it wasn’t enough with volatility shot to pieces in recent times, Forex traders had to navigate even calmer waters though Monday as the US markets (cash equities and bonds) were closed in commemoration of Martin Luther King Day. The Canadian Dollar attracted the most buy-side interest, followed by the US Dollar, in line with the slow money directional bias through this month of January. The Pound gave us some brief spell of volatility through the European morning hours, but the momentum never picked up further steam and the market ended rotating back up recouping all the losses. The Euro, the Yen or the Swissy were a snooze fest, with no action of note ahead of today’s BoJ policy meeting and Thursday’s ECB. Meanwhile, the Oceanic complex (AUD, NZD) moved in lockstep towards the downside, ending as the worst performing currencies

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.

Forex trading quiet as US markets on holidays: The currency market behaved very quietly in line with the depressed vol levels, even if this time, it got even worse as the US markets were closed on Monday for Martin Luther King day. Anyway you slice it, the Forex market is going through the most suppressed levels of vol since the early 1970s as the race to the bottom in interest rates by Central Banks continues.

The BoJ is scheduled for today, no changes eyed: The BOJ policy statement is due this Tuesday. As it’s been the case for some time, the expectations for any change in policy are very low, with a snooze fest eyed. At this point, the BoJ may still want to sit out this one to assess the impact of the extra fiscal stimulus by the Japanese government in order to offset sales tax hike from October last year. The BOJ statement is released between 02:30 and 03:30GMT, with Kuroda's press conference due at 06:30GMT.

BoC, ECB are next in line: The Bank of Canada will follow with its announcement on policy on Wednesday, while the European Central Bank will be the last to release its decision on Thursday. The number one thematic these Central Bank are likely to emphasize is the tentative evidence of a more stable global environment, with the US-China trade deal likely to anchor these views. Even the ECB, in its last minutes last week, mentioned that there are early signs of a slight pick up in inflation and growth potentially bottoming out in countries like Germany.

IMF more optimistic on manufacturing and global trade: In its annual world economic outlook report, the IMF trimmed 2020 global growth forecast to 3.3% from 3.4% previously due to a slight downward revision to a sharper-than-expected slowdown in India. However, what really matters, in line with the above thematic Central Banks are likely to focus on, the IMF notes that it sees tentative signs that manufacturing and global trade are bottoming out partially due to the US-China trade deal. The IMF sees risks less tilted to the downside than in October, even if it warns that the US-Iran tensions, social unrest and a flare-up in trade tensions are key concerns. The China 2020 growth forecast was upgraded by 0.2 bp, now seen at 6.0% (5.8% previously) while the Euro area 2020 growth forecast is seen at 1.3% (1.4% previously). The UK 2020 growth forecast is seen at 1.4% (unchanged).

Economic impact of the Australian bushfires uncertain: According to the Australian Treasurer Frydenberg, the full economic impact of the bushfires remains uncertain. In the short-term in may take its toll on businesses confidence and consumption, which may keep the RBA on guard. However, as a caveat, with housing and construction activity set to increase and a pick up in inflation nt to be ruled out, alongside more employment available during the recovery period, the RBA will have to manage these opposing forces. The focus by the market is whether or not the RBA ends up lowering the rates to 0.25% this year (currently at 0.75%), at which point, the talk of QE will intensify.

US and France reach a truce on trade tariffs: The leaders of France and the US, Macron and Trump, spoke on the phone on Sunday, in a conversation that led to an agreement to a truce on tariffs until the end of the year. A French diplomat commented on that call saying that the leaders also agreed to pursue talks on the digital tax proposed by France until the end of the year. The news is a positive input for risk flows once the markets reopen in the US. Macron tweeted that “we will continue to work together with Trump on a good agreement to avoid tariff escalation.” The US had threatened to apply tariffs on $2.4bn of French goods as a retaliation for France aiming to collect a digital tax on US companies such as Amazon or Apple. The truce suspends this until the end of the year.

Oil shrugs off the Libyan conflict: The rival government in Libya shut down half of the oil exports (about 800,000 barrels/day of supply out of circulation). However, there are reports suggesting that the impasse may be resolved sooner than expected as rival forces are already under negotiations to lift the restrictions imposed by the Libyan commander of the rival government Khalifa Haftar. There was an immediate adjustment in the price of Oil as the blockage represented a deficit of near 1% of the world production, but that has now been priced out.

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. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

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

Note 1: The outlook for the G8 FX space has not varied in the slightest given the quiet nature of the Forex market during the long weekend in the US to commemorate Martin Luther King day. There is no point in simply re-wording it to express the exact same ideas. Therefore, Monday’s analysis still remains as relevant today when markets return to business as usual as it was yesterday. What I’ve done is to update the charts to reflect a new candle in the daily timeframe.

Note 2: I’ve introduced at the bottom, what in my opinion are some of the hottest markets to look to engage with a well defined directional bias in the coming week. Check them out.

The EUR index poked into a higher level of liquidity before reversing its course of action back to the downside, reaffirming the range-bound nature of the market. This consolidation profile must be taken as part of the context of a macro bearish trend as per the weekly market structure. As pointed out last week, the rise in the index was never accompanied by a bullish slope in the compounded tick volume via the 13ma applied to the OBV, showing dubious commitment by buy-side accounts, and by now confirmed that the intention was to collect EUR short inventory at more attractive prices before the release of the sell-side pressure kicked in. The volatility in the EUR-pair, a recurring theme across FX, remains very depressed. No changes there. The rise in the EUR last week was also challenged by January’s seasonal pattern, negative for the EUR.

The GBP index failed to sustain any upside momentum after the catastrophic UK retail sales reading, which brings to the forefront the prospects of an immediate rate cut by the BoE. In the last few weeks, the price action in the index portrays a market confined in a range below a critical pivot level of resistance that has been respected for a couple of times. Despite fundamentals for the GBP have started in an appalling way this 2020, the daily price action is yet to confirm a breakout. What we are seeing so far is the Pound holding extraordinarily well judging by the plethora of negative news is receiving amid a stand-by in Brexit headlines. The price action candle from last Friday is bearish and puts the recent lows at risk. The volatility in the GBP, as in the case of the rest of G8 FX, remains suppressed below the monthly average.

The USD index is just a whisker away from confirming the first breakout of structure on the daily that would formalize the bullish outlook even if the bias I’ve subscribed to since the beginning of the year has been one of optimism for rises to materialize as elaborated in this report daily. The breakout higher may come any hour, and with it, it would tick all the boxes one can think of to shift the focus to fully and unambiguously bullish on the USD. We’d then be able to align the smart money tracker (enhanced moving averages) pointing up, the structure of price confirming the bullish flows, the volume pressure ditto, and USD seasonals also in favor. Full circle for bulls.

The CAD index continues to play out the script that I had envisioned and telegraphed through my daily report. Whenever you see my chart annotations barely modified, that’s a good sign, as it means the scenarios have or are panning out as I would have anticipated based on the analysis performed. To me, the CAD is a market that one must approach from building long inventory on weakness, and as a reference where to consider a plan of engagement, I’ve endorsed to be a buyer between the 38.2% to 50% fibonacci retracement at the index. Last week, we saw the dips being bought up the moment the former fib was tested and the price never looked back. All the stars are aligning, especially after Friday’s bullish engulfing price action to see new highs created. The seasonals for the CAD are positive in January too, as in the case of the USD.

The JPY index is without a doubt the most bearish currency and with the risk flows so firmly bullish as per the record highs in the S&P 500 as the bellwether, it’s hard to make a case for an adoption of a long bias in the currency except if spells of risk-off episodes hit the currency or sellers ponder the idea of taking profits more aggressively. All the technical elements keep the bearish bias intact, with the price structure bearish and the risk sentiment adding pressure to the Yen, alongside the compounded tick volume slope (13ema to OBV) pointing bearish. However, and I reiterate, the only ‘but’ is that the tapering of tick volume on the way down is not a good sign, as neither it is that this is happening at a macro support. This is my only concern, as if the currency is to find legs to the upside, this would be the ideal location to engineer a buy-side campaign as the price is definitely very cheap by historical standards.

The AUD index, as in the case of the CAD, I have no much else to add, since the market continues to play out in the way I envisioned. That is, the rise of the currency run out of steam at the intersection of the midpoint of its macro range, a juncture that has proven to be a tough nut to crack for the Aussie ever since the formation of this range occurred back in Sept last year. Therefore, until violated to the upside, any objective technical call in the Aussie cannot be justified as placing too much optimism on the prospects for the currency. At best, I’d personally retain a neutral to bearish bias with a steadier outlook unfounded at this point. As a positive note for the Aussie though, the last 4 days of falls have carried a taper of volume. The seasonals are positive to the tune of +0.54% in Jan since the early 1980s for the Aussie though.

The NZD index, and at the risk of sounding like a broken record, does not show any significant action that would make me change in any way, shape or form my neutral to bullish outlook. Why this stance? Because I consider this to be a market established in a short-term range in the broader context of a bullish trend. Therefore, under this structural profile, buying weakness at support levels has definitely paid good dividends so far. Remember, in ranges, the signals can be more conflicting, so I wouldn’t add that much weight to the positioning of the compounded tick volume pressure as assessed by the 13ma off the OBV nor the enhanced moving averages tracking the smart money flows. As in the case of the EUR or GBP, the NZD also shows a range as the most accurate profile at play, with the advantage of being formed on the back of macro bull flows. The volatility to be trading NZD pairs has fallen below the usual monthly average.

The CHF index, on the back of reaching its 100% proj target, continues to find it a struggle to keep attracting further buy-side flows as one would anticipate at this symmetrical location. Despite the measured move is now complete, it remains very premature to call this the ultimate top as the fast money will probably not give up that easily in a currency that has put on a spectacular rally, which is even more meritorious, judging by the absurd low volatility elsewhere, and that half the other G8 FX currencies are trapped in ranges (EUR, GBP, NZD, AUD). If my view is any indication to go by, I’ve subscribed to the idea that this market has been driven by fast money scalping or short-term intraday trend trading strategies. Once we step out of the smaller time frames, this market is out of whack and with the positive swap offered to short CHF, these levels are incredibly interesting for the patient traders.

What Pairs Are Trending In FX?

Note 1: These markets are best suited for trend trading strategies or those, like me, that look to capitalize in one of my accounts a directional bias prior to grabs of liquidity.

Respecting the order below, the first pair starting from the top includes the USD/JPY. This is the only major market in my radar this week for potential long opportunities. The weekly and the daily are in alignment, both showing uptrends in the respective timeframes. Next up is the AUD/CHF, having recently broken its price structure lower in the daily and weekly. The CAD/JPY, which displays a very similar picture to USD/JPY, but even cleaner in terms of price action, is another market to ponder longs if lower grabs of liquidity materialize. The EUR/CHF is another market that has been trending really nicely and should be on one’s watch list for a potential continuation of the downtrend (don’t forget we have the ECB this week). In contrast, I am looking to go long the EUR market against the JPY if a setup occurs and the timing of it does not interfere with the release of the ECB policy. A setup long on the aftermath of the ECB outcome would be ideal (waiting for market to grab lower liquidity). GBP/CHF is another market that I am firmly bearish until a macro support (yellow line) is tested.

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

Yen Bought & USD Holds Ground As Risk Worsens


The Yen is the best performing currency as risk-off flows settled in amid fears of an outbreak of the coronavirus out of China into other parts of the world. At this point, not enough evidence exists of this being nothing else than just a brief hiccup for markets, as it was the case with the Iran-US conflict. The USD keeps holding its ground steadily, while trade prepare to see an injection of volatility in the CAD ahead of the BOC. Want to find ut what else is cooking in the FX space? In that case, keep reading the report to find out the rest of drivers and the outlook for the G8 FX complex.

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

In the last 24h of trading activity, the Pound, the Yen, and to a lesser degree the US Dollar, were the best performing currencies. The British currency was mainly driven by a jump in the UK employment figures, even if the positive input has barely budged bond traders, still assigning fairly high chances of a rate cut by the BOE next week (around 70%). The Yen’s strength, as it’s been the case this year, has emanated due to panic-induced dynamics; it was the case when Iran and the US engaged in a tug of retaliatory offenses which never amounted to the worst fears, and sadly, an episode of a virus outbreak in China (coronavirus) was the prelude to another round of Yen buying. Did you notice where the Yen is finding gains from? Today’s technical outlook reveals a relevant snippet of technical information for those aiming to be on top of the market context. The USD buying, plain and simple, follows the underlying buy-side flows dominating since the start of the month. Not favored by today’s ebbs and flows, the Aussie, Kiwi and the Canadian Dollar were all laggars, in a classic move away from commodity-related currencies as the risk-off settled in, a dynamic that was reaffirmed by the sell-side flows that hit US equities as well. Note, one must put this sell into context, as the S&P 500 remains really close to its recent all-time high. Remember, the CAD is likely to attract the most volatility in the next 24h as the BOC policy meeting is due. On Thursday, it will be the time for the ECB to update the market on its latest policy settings. Until then, trading the Euro continues to be a low-key affair as the tight range in the index reflects. Lastly, the Swissy, which remains the star performer this month, keeps the upside capped after reaching its 100% projection target. Don’t underestimate the power of symmetries in Forex!

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.

Traders hit the panic button on Yen as coronavirus fear spreads: What appears to be an outbreak of a virus called coronavirus out of China, with more than 200 cases diagnosed, and other countries, including one case in the US, detected, has spread fear among market participants, leading to the strengthening of the JPY. The coronarius seems to be a pneumonia outbreak causing disease even if at this point little is known how its spreading.

One case of coronavirus in the US feeds into the fear: The CDC (Center for Diseases Control and Prevention) confirmed that a traveler from China has been diagnosed with coronavirus in Seattle. The news led to an intensification of the concerns about the disease spreading to other corners of the world as people in the same plane may have been exposed. Too early to find out the real ramifications but reports that the coronavirus has also been identified in other four Chinese cities, as well as Taiwan, Japan, Thailand, South Korea and now the US is not helping.

A wide outbreak of the virus may take its toll on growth prospects: In the early 2000, a virus under the name SARS infected thousands in China, and also Hong Kong. This resulted in a negative impact on the Chinese GDP to the tune of 1-2% points. Aside from the health effects from this virus, it is little wonder that the market may be on guard in case the virus-related diseases continues its expansion as it may affect global growth prospects. Comments by WHO spokesman, Tarik Jasarevic, noted that “more cases should be expected in other parts of China and possibly other countries in the coming days."

BoJ sticks to the script: The BoJ, as widely expected, announced no change to its monetary policy settings, maintaining the forward guidance on interest rates, noting that they will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost. We also learned that the BOJ raised its GDP forecasts while lowering its CPI estimates.

BoJ's Kuroda offers no new insights: As part of the press conference from BOJ's Kuroda, no deviation from the script was noted. Kuroda said the Japanese economy is expanding moderately and reminded the markets that under the BoJ view, the risks are still skewed to the downside mainly due to overseas factors even if he recognized that external risks are becoming smaller due to US-China trade deal. Kuroda said the government economic stimulus package has helped to boost GDP outlook. The usual caveat that “if momentum towards price target is at risk, would not hesitate to ease further” was also mentioned as part of his speech to the press. Nothing new from Kuroda.

UK jobs show an improvement in the last 3 months: The UK November average weekly earnings came at +3.2% vs +3.1% 3m/y expected, which led to an immediate intraday spike in the GBP, with gains capped early in NY as US traders came online and the thematic fully shifted to the coronavirus. A positive input helping the rise in the GBP through Europe was the 3m/y employment change at 208k vs 110k expected, which makes this figure the largest 3-month increase since last January 2019. Meanwhile, the December jobless claims change came at 14.9k vs a prior of 28.8k The data points, nonetheless, have not affected much the BOE pricing heading into next week.

German ZEW keeps recovering from dismal levels: Another encouraging data point out of Europe was Germany’s January ZEW survey current situation, which while negative, continues to recover from its worst levels, last at -9.5 vs -13.5 expected. The expectations reading was even more optimistic, at 26.7 vs 15.0 expected. As one would expect, the ZEW detailed that the marked improvement seen is driven by the US-China trade deal, as firms estimate that the negative effects from trade-related headwinds may not be as bad as previously feared. The ZEM think tank Institute nonetheless noted that growth in the country and region is still expected to remain below average despite the improved outlook.

Trump’s intervention in Davos doesn’t move markets: The speech by US President Trump in Davos felt more like an election campaign speech with little if any meat in the bone for the market to price into financial assets. Trump bragged about the US being in the midst of an economic boom like never before, while boasting with pride the trade deals with China, Mexico last week as part of a new model for the 21st century, while adding that he is creating the most 'inclusive' economy in the history of the country. On a more international context, Trump said the relationship with China has never been better and that Phase Two negotiations will start very shortly, while reminding the market (old news), that most of the tariffs to China will remain in place during Phase Two negotiations.

What to expect from the BoC policy meeting? The Bank of Canada meets today, and while the market does not expect fireworks (no change in the monetary stance), the question remains whether or not the market has acted prematurely by pricing out the easing bias by the BoC? Judging by the economic surprise index in Canada, which touched its lowest level in December since 2009, the market may have gotten ahead of itself even if the trade deals (US-Mexico-Canada & US-China eases the headwinds. According to Francesco Pesole, FX Strategist at ING, "the market’s strong repricing of rate cut expectations puts the bar for a hawkish surprise very high."

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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.

The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

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The EUR index offers a very uninspiring picture to start the year as the ranging phase expands into its 4th week following the topside failure last week. That test of higher prices did serve the purpose of grabbing higher liquidity before reversing its course ahead of Thursday’s ECB. The index is now edging closer towards the bottom-side of its range where another tug of war between buyer and sellers will be guaranteed. The outcome of the ECB policy in the next 26h will determine the next directional bias even if expectations for a change are minimal. The volatility in the index remains shot to pieces, a recurring theme across FX. The last 8 days of trading in January could still prove a challenge for bulls due to the negative seasonal pattern.

The GBP index continues to pick up momentum, but such impetus remains stuck in the broader context of a daily range, therefore, a breakout is necessary to open the floodgates to a more directional commitment by buyers. I’d say that quite unlikely judging by the increasing pricing of a BOE rate cut next week on Jan 30. What’s more, the latest spell of buy-side tick volume this week has been unable to match last week’s buy-side volume spike, which leads me to think that the firepower to break above resistance is not there and a fading of the upmove will play out. That said, it’s worth noting how extraordinarily well the Pound has been holding up amid the negative news it’s been receiving (UK jobs on Tuesday the exception). The volatility in the GBP, as in the case of the rest of G8 FX, remains very suppressed below the monthly average.

The USD index keeps extending to the upside to the point that it has finally validated a break of the previous swing high and there it confirms a bullish structure. While at this point the price structure gets formalized, the long bias is one I’ve subscribed to since the beginning of the year and those reading the report daily can attest of it. All the boxes are ticked for the index to keep its bullish outlook as we navigate the last week of January. The smart money tracker (enhanced moving averages) is now in agreement with the structure of price confirming the bullish flows, plus the volume pressure is also turning north. The USD seasonals are also in favor.

The CAD index has not been able to find acceptance above the previous high as the market shows lack of buy-side follow-through commitment ahead of the BOC risk event. The latest price pattern formation, with a double top failure, constitutes the confirmation of a range phase, one that must be assessed from the perspective of a weekly bull trend. Therefore, the path of least resistance for the CAD remains to be a buyer on weakness at key levels. The CAD is a market that continues to argue for the building of long inventory on weakness, and with the BOC not expected to provide major surprises, I am highly reluctant to think the trend is over. The seasonals for the CAD, as a reminder, are positive in January, tantamount to what’s seen in USD.

The JPY index, while it has displayed the most bearish trend this year, I warned that it had reached an inflection point amid the tapering of tick volume on the way down into a macro support as marked by the circles on the far left side of the chart. Besides, the compression-like formation by new lows not finding acceptance was also a telling sign. I said that for those contrarian or seeking out cheap valuations on JPY, this was the ideal location to engineer a buy-side campaign as the price is definitely quite low by historical standards. Remember though, the buying wave in the JPY occurs on the back of recent record highs in the S&P 500, which means the JPY is going to have to continuously rely on ad-hoc panic news (coronavirus, risk-off) to maintain the short-term bullish bias that is trying to establish. The index is far from being out of the woods at this point, with the slow money still under control of the trend, it’s just that the fast money is starting to exert more control short-term for now.

The AUD index, having clearly paid juicy profits to those looking to gain short exposure off the midpoint of its macro range, looks set to remain en-route to have another crack at its macro support from its broad range, one that remains in play since Sept last year. For weeks I’ve reiterated that the buy-side bias on the Aussie is most evident when this support gets tested, and while not there, we are getting closer once again, so be on the alert for any buy-side opportunities in the Aussie to arise if further weakness to the tune of 0.3%-0.5% occurs. The seasonals are positive in January, so that’s an added factor to consider if the index makes it all the way to the outlined area of support where consistent buying emanates from.

The NZD index remains stuck in a tight range, hence, until there is a resolution away from it, the next directional bias won’t be confirmed. My outlook for this market is neutral to bullish since I still consider this market to be in a range in the broader context of a bullish trend. Therefore, from a structural standpoint, buying weakness at support levels makes sense. Remember, ranges are the trickiest environments to trade as signals can be more conflicting, so I wouldn’t add that much weight to the positioning of the compounded tick volume pressure as assessed by the 13ma off the OBV nor the enhanced moving averages tracking the smart money flows. The volatility to be trading NZD pairs remains below the monthly average.

The CHF index, as I anticipated, has found the topside limited by the 100% proj target, a symmetrical target that tends to draw attention from market makers, profit-taking activity and contrarian traders to create enough of a supply imbalance to cap further progress. The bullish trend is still undeniably bullish, but even the price action from the last 24h, depicts an interesting pattern, with the CHF starting to be sold on strength as the upper shadow on Tues shows. I remain skeptical that to call this the ultimate top as the fast money will probably not give up that easily in a currency that has performed best this month. If you are after getting paid positive swaps, then CHF shorts is the way to go, just be aware that this will be still against a firm trend, even if the technicals look overstretched and the 100% proj suggests a potential top. As reiterated, these levels are incredibly interesting for the patient traders.

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