Global Prime: Daily Market Digest

[IvanGlobalPrime]

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Exodus Of CAD Longs, GBP Soars Ahead Of BOE

The Forex market has finally seen the light at the end of its obscure tunnel with volatility, even if it may prove to be an ephemeral anecdote, soaring amid an aggressive adjustment in the BOC policy expectations to a significantly more dovish stance. Want to find out the rest of drivers and what currencies look set to benefit from the latest lively ebbs and flows? Dive into the report 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 Pound has been, by a fair margin, the currency paying the most dividends for those with long-side exposure ahead of next week’s BoE policy meeting. Price action, which in the case of the Pound, has been rather constructive this week, goes a long way to decipher the true intentions of the market, diminishing the risk of marrying you to a bias just because the hype as of late it’s been that the BOE may lower rates next week. Well, it turns out, the market had clearly other intentions, aided by the highest quarterly business optimism among UK factories (UK CBI report) since April 2014. The Aussie is another currency flying high after a solid jobs report in Australia even if remains at the very tail of performing currencies in January. Again, such behavior, may have defied logic if one had been fixated in the US-China trade deal as the catalyst for higher prices as opposed to price action and the monitoring of the AUD index, which told us a different story. The Swissy, meanwhile, is a currency that just keeps on giving those those committed to buy the dips in what’s, together with the USD, the top performing currency this month. In stark contrast, the Canadian Dollar was completely annihilated by market forces as the BOC did a 180-degree turnaround on its monetary policy stance, openly recognizing that lower rates are back on the table for the next few months. In response, the CAD saw one-way transit flows. The Euro is the currency to shift the focus towards in the next 24h, as the ECB is up next. As I argue in today’s report, watch out for some type of hawkish surprise by the CB, even if just at the margin. The Yen, amid a mixed-bag of risk dynamics, with US equities and global bonds in stand-by, also portrays choppy price action amid a short-term correction of its bear tendencies. China’s efforts to contain the coronavirus has also contributed to appease market fears even if the situation is still fluid, with the WHO to decide today if the crisis is declared an international emergency. Lastly, the Kiwi is going nowhere fast, with an absence of fundamental drivers as of late.

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

Narratives In Financial Markets

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

The Pound soars as BoE rate cut bets unwound: The Pound continues to roar ahead as the top performing currency aided by the latest rise in the UK CBI report, which saw quarterly business optimism among UK factories jumped sharply, highest since April 2014. The strengthening of the Pound also comes as a by-product of the market going through second-thoughts on the BOE rate cut pricing for next week. The odds of a 25 bps rate cut on 30 January when the BOE meets fell under 50% from over 70% on Friday.

Johnson's Brexit to go into law: In other Pound news, even if that’s water under the bridge for Mr. Market, Boris Johnson's Brexit deal passed through UK parliament and the law goes to the Queen for royal assent. Remember, this was fully priced in on election day when Johnson secured a majority in parliament. Right now, as a driver for the Pound, we must focus on the UK economy, the BOE rate cut pricing and the ongoing negotiations of the future trade relationship with the EU.

The CAD was taken to the woodshed: This was in response to the BOC policy statement, which came more dovish-than-expected. Even if the BOC left rates unchanged at 1.75% as expected, there were a number of factors that worsened the outlook for rates to remain neutral. The chance of a Bank of Canada rate cut for the March 4 meeting has gone up to about 30% in the OIS market from 6%, while in April 15, odds of a cut rose to 51% from 22% yesterday.

Plenty of dovish remarks by the BOC: The BOC removed the description of the key rate being 'appropriate', which is a hint that they see downside risks to maintaining it where it is. The BOC added dovish remarks such as they will watch closely "to see if the recent slowdown in growth is more persistent than forecast." They also pointed to the resilience of the Canadian economy but outlined indicators since Oct MPR as mixed (the surprise index is at the lowest since 2009). The Bank also argued that the Canadian economy is no longer operating close to capacity, while noting that indicators of consumer confidence and spending have been unexpectedly soft.

Polox reaffirms dovish turnaround: If CAD traders did not have sufficient reasons to justify the short exposure, BOC's Poloz presser clearly hinted that a rate cut was considered by noting that the lowering of the interest rate wasn't warranted 'at this time', with financial vulnerability concerns weighing against cut. Poloz said that “the overall excess capacity in the Canadian economy has increased, which will bring a degree of downward pressure on inflation,'' while adding that “we received a string of disappointing consumer readings”, with much of BOC deliberations today, as Poloz notes, “ focused on persistence of slowdown.” All around, some dovish stuff to digest for CAD traders.

Canadian CPI inflicts further pain to the CAD: The Canadian December CPI came slightly softer at +2.2% vs +2.3% y/y expected, leading to a further deterioration in the CAD outlook. The details on the core measures were not very encouraging either as both the median and trim also failed to post as steady results as expected. Ironically, while the expectations could not be met, all three BOC core measures have found a base above the 2% BOC mandate.

WHO holds decision on coronavirus for Thursday: In terms of the ongoing concerns about the spread of the coronavirus, the World Health Organization decided to delay its decision on whether to declare coronavirus an int'l emergency. They will meet again on Thursday to make a decision. The WHO director General Tedros said that “the decision on whether to declare coronavirus outbreak and international emergency until Thursday,'' adding “Coronavirus is an evolving and complex situation.” Tedros went on to say “our team is on the ground in China to investigate the outbreak and get more information.”

China seeks to contain virus: The markets seems to have calmed on the coronavirus concerns as according to China's CCTV, the Chinese city of Wuhan where the virus originated from, did suspend outbound flights and rail services. Hu Xijin, a mouth-piece for the Chinese government working for the Global Times, tweeted: “Shutting down outbound transportation of a provincial capital city is unprecedented in China since 1949. Didn't do so even during SARS in 2003. This is a forced step since virus is expanding fiercely. It will greatly increase the chance of epidemic being contained.” It’s worth noting, however, that the report death tolls has doubled in the last 24h with 10 people so far dead and hundreds infected.

Aussie jobs remove the risk of a rate cut by the RBA in Feb: The Australian December employment report came in much better than expected with the unemployment rate dropping to 5.1% (expected 5.2%), while the headline employment change was +28.9K, almost triple the expected 10.0K. In terms of the breakdown of full vs part time jobs created, the full time employment chang was barely changed at -0.3K, with the part time at +29.2K. The participation rate came at 66.0% as expected. The report should remove the risk of a rate cut by the RBA next week despite the concerns on the economic impact of the bushfires, which is seen as a double-edged sword as it will also create more jobs during the recovery.

ECB a EUR long risk event? The ECB policy meeting is due today and is likely a non-event despite the balance of risk, if the latest minutes is anything to go by, could be a hawkish surprise. In the last minutes, the ECB did outline a mild increase in inflation and growth outlook. The ECB, sooner or later, may have to recognize the improving data we are seeing even if that’s occurring from the context of depressed conditions. Similarly, another admission that may aid the EUR is the fact that fewer headwinds exists as US-China trade deal and Brexit have relaxed. Watch for the discussion about the risk balance shifting to "neutral" in coming meetings.

Trump warns on EU tariffs: Something for EUR traders to keep an eye is the latest warning on EU tariffs by Trump. Trump said “I have a date in my mind for EU tariffs, it is a fairly quick date”. For now, the statement should only be read as a warning if he can't get a deal with the EU, even if he still admitted that his base case is a deal to be struck with the EU before the US election.

As does Mnuchin... US Treasury Secretary Steven Mnuchin also flexed his muscle on Europe, saying that the US could use tariffs on automobile imports against countries that decide to apply their own taxes on technology companies. “If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies,” Mnuchin said. “We think the digital tax is discriminatory in nature.”

SNB committed to intervention if CHF keeps appreciating: The SNB member Maechler said the Swiss Central Bank remains committed and ready to intervene in FX markets if needed, with FX reserves a result of monetary policy. The headlines come after the US treasury put Switzerland on the watchlist as a currency manipulator, even if that has done little to tame down the interventionist commentaries by the SNB.
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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!

As the charts below illustrate, we have a number of currencies, that when matched, are starting to trend quite nicely. Today, as part of my analysis, I use a set of fibonacci-derived weighted moving averages (13, 21, 34), which is going to provide great insights on what currencies are currently showing the strongest versus the weakest ebbs and flows.

To start with, we can see the EUR index still dominated by the sell-side pressure exerted by the slow money even if the currency has found support where one would have expected ahead of the ECB. Please, read above my note on why the EUR may see a hawkish surprise, which would then make you understand why such support may have been perceived as an appealing pricing to gain EUR long exposure ahead of the ECB policy meeting. The GBP, meanwhile, is a market that has finally had a breakthrough by breaking a key resistance and along the process, realigning the set of triple fibo-derived moving averages. GBP is a buy on weakness heading into the BOE decision on Jan 30. While the Pound is a currency justifying long exposure on better price dealings, so is the USD, with the 3 moving averages aligning at a time when the price structure is bullish, after the break of highs earlier this week. The CAD, on the flip side, shows the most bearish tendencies, with the potential for further weakness a real possibility as this is a sudden and sharp fall driven by an aggressive shift in tone by the BOC to more dovish. The set of triple moving averages are all in line with the bearish trend, therefore, upon a release of the sell side pressure since the market is exceedingly overextended, aim to be a seller on strength. The JPY continues to recover from the bottom found even if the technicals, as the red slope in the triple moving averages depict, suggests sell on strength is the way to go for now. The AUD index has recovered very strongly from the lows after a stellar Aussie jobs report, even if selling on this appreciation may kick in at fairly regular intervals based on technicals. The NZD index has also turned dovish based on the triple moving averages for the first time mid Oct, however, the price structure is yet to validate the bear trend (we remain in a range for now). Lastly, the CHF index has printed a sizeable bullish pin bar (lower shadow) after the market got busy buying the sharp dip seen on Wednesday in reflection of the underlying bull trend in dominance.

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

Euro Battered Post ECB, Coronavirus In Focus


The end of the week certainly ends on a much higher note than its beginning as volatility in certain currencies has jumped significantly on the back of Central Bank-centric movements alongside heightened concerns that the coronavirus epidemic crisis in China may take its toll on the Asian and global growth this quarter as more cities go on lock down. Find out all the latest in today's report...

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

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

Quick Take

The whippy movements in Forex extended on Thursday. The Euro fell miserably amid the lack of hawkish emphasis by the ECB, with the tentative green shoots seen in the Euro area nothing out of the ordinary. The remarks by the ECB statement, later reaffirmed by Lagarde, was an admission that the ECB will be slow to shift its well-anchored dovish bias. An interesting market to trade in the last 24h as volatility certainly did not lack either was the Aussie, initially emboldened by a strong employment report out of Australia, however, since the market is still fixated about an escalation of the corona virus in China and connecting the dots with lower local growth, it weighted on the Aussie later on. As we know, the number one currency to act as a proxy for all things China is the Aussie. While the jobs data was a positive input for the AUD, even to the point of lowering the RBA rate cut odds in February to just 25% from 60%, it clearly isn't the only focus at present. On the contrary, the NZD has enjoyed strong buy-side flows, with more fuel added to the intraday rally following an upbeat in the NZ CPI q/q figures. This should keep the RBNZ powder dry (no cuts) near term, even if the upside may prove still limited as China’s coronavirus plays out. The volatility in the Yen wasn’t too shabby either, with the currency appreciating strongly amid the sharp falls in global yields. The Canadian Dollar, recently battered, finally reverted its exceedingly oversold conditions, even if the BOC dovish turnaround from Wednesday is the type of development that can act as the onset of a prolonged sell-side campaign as technicals and fundamentals are starting to align in favor of sellers. Lastly, the USD and the CHF traded in a stable fashion, with modest weakness on the latter, even if these currencies have only contributed at the margin to the increase in FX volatility since mid this week.

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

Narratives In Financial Markets
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
The coronavirus continues to spread in China: More cases are being reported in China, even if the World Health Organization did not declare the disease an international virus alarm. The emergency committee was far from unanimous in its decision, with some noting that the spread of the epidemic and increasing cases warrants a stronger alarm designation, while others were more prudent on the basis that the virus appears to be, for now, largely contained within China and a few other cases in Asia, alongside the efforts by the Chinese government to contain its evolution. The latest figures indicate, via China State TV, that there are now 571 coronavirus cases confirmed, despite Caixin reports that 'local doctors' estimate the total cases may be as high as 6,000. China coronavirus may have come from a snake, researchers say.
Watch impact on Chinese growth, much worse than SARS? Guan Yi, director of the State Key Laboratory of Emerging Infectious Diseases at Hong Kong University, traveled to Wuhan this week, and as Caixin reports, he left with the impression that the disease could be a generational pandemic and that “the epidemic situation was out of control." "I've experienced so much and I've never felt scared before," he said. "But this time I'm scared." There is a video doing the round about the overwhelming crowds at a hospital in Wuhan. Guan Yi said that “my conservative estimate is that this epidemic could end up at least 10 times the scale of Sars [severe acute respiratory disease]," he told Caixin today. If that happens to be true, financial markets will be on the lookout for more details and react accordingly as SARS infected more than 8,000 people globally and killed nearly 800 (death rate of about 10%) with most cases in China, which led to shaving the GDP growth by 1-2%. Therefore, it is extremely likely and a scenario the market is discounting that there will be an impact on Chinese growth in Q1, especially as it coincides with the Lunar New Year holiday.
More Chinese cities to be sealed off: There are talks that China plans to shut down a second city after all public transport in Huanggang were halted. Huanggang is a city of 7.5 million located 70km east of Wuhan. As the team at NAB notes: “Around 26m people in cities or near urban areas that are either on lockdown or have limited travel (Wuhan 11m, Xianning City 2.7m, Huanggang 7.5m, Ezhou 1.0m, Chibi 0.5m, Xiantao 1.2m, Qianjiang 1m, Zhijiang 0.5m and Lichuan 0.7m). Some Lunar New Year Festivities have also been cancelled in Beijing and Macau.”
The ECB not ready for any hawkish surprises: The ECB left its key rates unchanged on Thursday, as widely expected, noting that the rates are set to remain at present or lower levels until inflation outlook robustly converges to target, reflected in underlying inflation. They also announced that the bond buying will continue until shortly before rates are raised. The initial statement did not represent any surprise to markets. The ECB also announced the launch of its review of the monetary policy strategy, expected to be concluded by the end of 2020. It is the first review since 2003. The ECB noted that “low inflation is different from the historical challenge of addressing high inflation", therefore a more in-depth consideration on the best ways to tackle this jigsaw must be addressed.
Lagarde in no rush to veer off the easing course: As ECB’s President Lagarde took the stage, the Euro started to fall after a bleep higher, in what appeared to be a dynamic set out on the grounds of a market disappointed by the lack of any hawkish surprise. Lagarde opening statement outlined that the incoming data are in-line with the baseline scenario, with manufacturing still a drag. On inflation, Lagarde said that “there are some signs of an increase in inflation”, but “that's in line with expectations”, which reaffirmed that the ECB won’t rush to adjust policies due to factors not preconceded. The nail in the coffin for the most optimistic came when she mentioned that “in light of continued subdued inflation outlook, monetary policy has to remain stimulative for a prolonged period of time.” In terms of growth, Lagarde said “near-term growth expected to similar to rates observed in previous quarters”, reiterating that “risks are tilted to the downside but less pronounced.” Besides, Lagarde said that weaker growth momentum is delaying the passthrough of inflation.
Aussie jobs shine, risk of an RBA rate cut lowered: The Australian December employment report came in much better than expected with the unemployment rate dropping to 5.1% (expected 5.2%), while the headline employment change was +28.9K, almost triple the expected 10.0K. In terms of the breakdown of full vs part time jobs created, the full time employment chang was barely changed at -0.3K, with the part time at +29.2K. The participation rate came at 66.0% as expected. The news has suppressed the chances of a rate cut by the Reserve Bank of Australia rate cut on Feb 4 from around 60% to around 25%.

The Kiwi bought after better NZ inflation figures: The NZD jumped after higher than expected inflation data in New Zealand. The NZ Q4 CPI q/q came at 0.5% vs 0.4% expected. Furthemore, according to the bureau of statistics, “The trimmed-mean measures - which exclude extreme price movements - ranged from 2.0 percent to 2.1 percent for the year. This indicates that underlying inflation is higher than the 1.9 percent overall increase in CPI. On a quarterly basis, trimmed means ranged from 0.4 percent to 0.5 percent.” Since the RBNZ mandate is to maintain inflation within 1-3%, the result will likely keep the RBNZ at bay (neutral) near term.
What’s ahead? We have the calendar packed with economic news, aside from the ongoing virus crisis news, that may lead to further unrest. In Europe, the German PMIs will be published, with the focus to be commanded by the developing notion of whether or not further tentative signs of stabilisation exist in the manufacturing sector. The data will be followed by Eurozone PMIs, with the same focal point of understand to what extent there is more evidence of a recovery. The UK PMI will also be released, and as of now, every piece of fundamental data counts ahead of the BoE meeting next week, with markets pricing around 60% for a cut. Also watch more speakers out of Davos such as BoE’s Haskel, ECB’s Largarde and BoJ’s Kuroda, even if none of them are expected to move the markets, especially after the recent policy decisions by the ECB/BOJ.
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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 has confirmed the breakout of its range structure, what this means is that the leeway for further downward pressure has now expanded. By measuring a 100% proj target from the last bracketed area, my expectation is for the EUR weakening dynamics to continue to be a dominant thematic until the 0.50% proj extension is reached. All the visual cues via the set of triple fibo-derived moving averages (13, 21, 34), which acts as an even more robust replica of the smart money tracker MAs, point lower, with the price structure in agreement. The move lower in the EUR is in line with the negative seasonals outlined since the start of January.

The GBP index has found a resolution away from its prior range, with the price structure and the set of triple moving averages in alignment, which is what must be seen to cement a bias. So, with the direction (bullish) revealed by the preponderance of objective technical evidence, I am looking to see an extension of the buy-side campaign until the 100% proj target, which is found at around 1.35% from the breakout point. What this means is that the GBP looks likely to be a technical-led buy ahead of Jan 30 BoE meeting. Remember how extraordinarily well the Pound has been holding up this week amid the negative news as of late? That’s always a powerful sign. The volatility in the GBP remains very suppressed below the monthly average.

The USD index continues to show a consolidation pattern with little directional bias of note. Instead, on the back of the poke by price into higher highs earlier this week, the market has found equilibrium around those levels, which is a positive sign. Remember, at this point, the price structure has been validated as bullish because of the breach of the prior highs, which when combined with the all green set of MAs (13, 21, 34 LWMA), it acts as a powerful technical combination that communicates the risks are skewed to the upside. The long bias is what I’ve subscribed to since the beginning of the year and I remain holding this view. As a reminder the move higher in the USD obeys the logic of forex seasonals as January tends to be a positive month for the world’s reserve currency. Actually, it’s proven to be the best over 30+ years.

The CAD index, after a sharp adjustment in its value lower, has finally found sufficient demand imbalance to rebound quite strongly, in what looks like a combination of aggressive profit-taking and bargain hunting following a momentum-led play on the back of a dovish BOC. The outlook for the currency has clearly turned out to be more negative after the breakout of its range, in a move that carries with it the fundamental backing of a surprise by the stance of the BOC, which should prove to be a factor weighing on the CAD as it pullbacks towards the mean. The seasonals for the CAD are positive in January, but the BOC decision overrides that. Sell on strength is the way to go and my newly adopted default view since the last 24h.

The JPY index has extended its rebound, even if it’s starting to struggle at the area of resistance one would have expected, taking as reference the mid-Dec highs. The recovery in the Yen emanates from a key location where I warned it could represent an inflection point amid the tapering of tick volume right into a macro support with the added clue of a compression-like formation by new lows not finding acceptance, which is a telling sign. There is still a long way for the JPY market to validate a bullish trend off the daily as even if the set of moving averages (13, 21, 34) all turn with a higher slope, the price structure will also be a prerequisite. The buying wave in the JPY has occurred on the back of recent record highs in the S&P 500, even if the main driver now appears to be, on ad-hoc basis, the coronavirus crisis and the risk-off as a consequence of it. Technically though, the bulls don’t yet have a case off the daily.

The AUD index has not been able to capitalize on the initial Aus jobs-led up move, in what appears to be a market with limited interest to accumulate AUD-long inventory as long as the coronavirus crisis keeps spreading in China. Why? Because the market is starting to connect the dots between an escalation of the crisis and lower Chinese growth. And as we know, the number one currency to act as a proxy for all things China is the Aussie. The currency, at the index level, is nonetheless approaching its macro support, so be on the alert for any buy-side opportunities in the Aussie to arise if further weakness to the tune of 0.3% occurs. As reiterated earlier this week, 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 is a rare exception in which despite the pick up in volatility, we are still confined in a familiar range that has got to first broken before a cleaner directional call can be made. However, since the range occurs in the context of a rising market, my outlook is more inclined to be a neutral to bullish as the dominant flows have been to the upside. From a structural standpoint, buying weakness at support levels makes sense, which if you check the latest action on Thursday, that’s exactly what we’ve seen, the NZD bought off support. 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 triple moving averages tracking the smart money flows.

The CHF index keeps exerting downward pressure after the rally run out of steam at precisely the symmetrical 100% proj target, creating stronger supply pockets via market makers, profit-taking activity and contrarian traders. The bullish trend, nonetheless, remains the base case, but once these 100% macro targets are met, a release of the buy-side pressure tends to occur, so one must be more strategic by engaging in key areas of support, which is exactly what we saw on the first pullback, the index coming into a support and bouncing off of it. If you are after getting paid positive swaps, then CHF shorts is the way to go, just remember that you’ll still be in the ‘heros’ camp by looking to fade a strong trend amid limited technical backing. Such bet may be turn out to be a smart one, but tonnes of patience may be required.

Important Footnotes

• Market structure: 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
• 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

It's All About The Corona Virus, Risk-Off Settles In

Be on high alert as this is one of those weeks when, as traders, there may be a a higher-than-usual number of opportunities up for grabs as the coronavirus keeps spreading like wildfire in China with more cases popping up around the world. Risk off has settled in and the usual suspects (JPY, CHF, Gold, USD) are faring quite well. If you are interested in getting more detailed insights, keep reading the report...

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

Let’s get started…

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

Quick Take

The threat of the Corona Virus hitting much harder than thought the Chinese growth prospects, and as a consequence, the global GDP outlook this first semester, is a reality that the markets are starting to decisively account for, as demonstrated by the sharp falls in equities globally or proxies for China such as the Aussie, Kiwi, the Yuan itself, or the appreciation of safe-havens the likes of Gold, the Yen or seeking out protection by buying fixed-income (bonds). Originated in China, the virus is now thought to have infected more than 100,000 people in China, and is now spreading to other countries such as Japan, India, Hong Kong, the US, France, Australia and more. Aside from the BOE policy decision this week (50/50 chance of a rate cut), the virus spreading news is going to dominate the proceedings. Even the FOMC or Aussie CPI may prove to be just small hiccups in volatility as opposed to the movements that the coronavirus developments may produce. The markets are in clear risk-off mode and if the virus continues to get worse, there may be great plays on the horizon this week with a marked improvement in volatility to be expected, even if sadly, it’s for the wrong reasons. Be on high alert as this is one of those weeks when, as traders, there may be a lot of opportunities up for grabs. At this stage late in January, the best performing currencies continue to be the USD, CHF, GBP and the JPY, with the latter appreciating very rapidly as the coronavirus topped the headlines. On the other side of the spectrum, the AUD and NZD are the two stand out losers, with the outlook for the EUR and CAD not looking good at all from an index technical perspective.

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

Narratives In Financial Markets

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

Risk-off as coronavirus tops the headlines: The rapid spread of the coronavirus, not only within China, but with more cases popping up across the world, the market keeps understandably taking notice by depressing the valuation of risk assets, within a context of hefty levels, while the Yen is the main beneficiary. On the flip side, the Aussie and Kiwi are the currencies most negatively affected as these act as the most direct play to reflect one’s view on China as synthetic instruments in Forex.

The coronavirus keeps spreading like wildfire: The number of China coronavirus virus cases is estimated to have risen to nearly 100,000 according to a whistleblower who broke the news via social media and reported by the NY Post, and the death toll is now approaching the 100 mark. The market is very worried, as clearly reflected in the price action of not only forex but also equities and bonds, that the Chinese and potentially global growth outlook may take its toll in the order of 1% to 2% this quarter.

More than 50 million people are in lockdown situation: The fact that China is looking to contain this epidemic by all means possible since pretty much day 1 was already a major red flag telling us that the risk levels appeared much higher. By now, China’s measures have resulted in more than 50 million people in lockdown and unable to leave cities as the order to shut down of more than a dozen cities continues to be in place.

Lockdown of Chinese cities too late? One important piece of information not to underestimate is the fact that prior to Wuhan going on full lockdown, over 5 million residents left the province headed to their respective homes in motives of the Chinese new year celebrations, according to the mayor Zhou Xianwang. The South China Morning Post reports, citing the Health commission, that battling the epidemic is becoming more complicated as the Chinese State Council extends the Lunar New Year holiday to February 2.

Virus carries high reproduction and mortality rate: But there is more evidence of the bleak outlook for the short-term containment of this disease. According to various sources citing research papers out there, the basic reproduction number of this virus, which essentially means how many people each person passes the virus to another on average, stands at a scale of 2.5 to 3.5, when aggregating most findings. The higher it is, the more countries will struggle to quarantine the spreading of the virus. Besides, other papers estimate the mortality rate to be dangerously highs at about 15%.

Infection estimates not looking good: According to UK virus researchers, the estimate is that 250,000 people in Wuhan will have coronavirus in 13 days, spreading to nearby cities and countries next. This data points projected seem to be in line with the current actual numbers revealed by the whistleblower. If these estimates on the transmission parameters for the Wuhan coronavirus prove to be accurate, the outlook for the health situation and the Chinese economy overall looks very bleak near term. Dr Jonathan Read said an explosion in the number of cases is less than two weeks away. By February 4, he writes that "our model predicts the number of infected people in Wuhan to be greater than 250,000 (prediction interval, 164,602 to 351,396)." The paper makes the observation that “these projections make strong assumptions.”

US embassy in Iraq attacked by rocket: Weighing further on risk dynamics is the news that the US embassy in Baghdad was hit with a rocket. There have been no casualties but one hit the US Embassy, according to al-Sumaria. It is thought that all these attacks continue to be orchestrated by the Iranian government as a means of retaliation to force the US military forces out of the region after the death of Iran’s highest-profile military commander by the US. The Iraqi PM condemned the attack.

Green shoots out of Germany, Eurozone continue: There were a number of positive takeaways in last Friday's Germany and Eurozone January flash manufacturing PMIs, both coming above expectations. To make it more encouraging, the beat occurred in both the manufacturing and services prints, even if these recoveries are still happening in the context of contraction readings below the 50.00 mark. It’s positive to see that the drag from the decline in manufacturing activity is receding and that the contagion into services was not as bad as some had feared. However, the coronavirus out of China is certainly a major threat to this more constructive outlook as growth is likely to stagnate.

BoE in focus amid improving UK manufacturing data: One even that will command the attention of the market this week is the BoE policy setting decision, with the chances of a cut in rates a 50/50 show at this point. The latest economic news out of the UK came in the form of the UK January flash manufacturing PMI, which saw a decent beat at 49.8 vs 48.8 expected as the post-election sentiment continues to improve. The report outlined a marked improvement in business sentiment after the election, with the services and composite are at their highest level in sixteen months. Markit notes that: "The survey data indicate an encouraging start to 2020.”
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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 offers no change in its well-anchored bearish outlook from a daily perspective with the breakout of its range structure allowing further leeway until the 100% proj target. My expectation is for the EUR down-cycle dynamics to remain unperturbed for the tiime being. All the visual cues via the smart money tracker moving averages hint the same bearish bias. The move lower in the EUR is in line with the negative seasonals outlined since the start of January.

The GBP index continues to be a market that, based on technicals, shows the risk of being bought up on weakness as the price structure and the smart money tracker moving averages align in the same bullish direction. Barring any major surprise by the BOE on Jan 30 this week (a rate cut this week is a con flip with 50/50 priced in), technicals reveal that an extension of the buy-side campaign until the 100% proj target is the base case for me, which would produce a gain of circa 1.35% from the current levels. The stubbornness of the Pound not to fall on bad news this month was a powerful hint that this market remains overall bullish.

The USD index keeps revealing bullish flows as the recent consolidation pattern is on the cusp of breaking out to the upside in what would cement even more the bullish directional bias. The equilibrium found at monthly highs for a number of days was always a strong positive sign f a market accepting the new higher valuations, a prospect backed up by the price structure following the breach of the prior highs, and coupled with the smart money tracking moving averages all pointing higher. All these developments indicate a powerful technical combination that communicates the risks are clearly skewed to the upside. The long bias is what I’ve subscribed to since the beginning of the year and I remain holding this view, with such stance backed up by forex seasonals in the month of January, the best month of the year for the USD.

The CAD index retains a bearish outlook after finding a minor point of support in the form of a key swing low in the chart, in what’s thought to have been aggressive profit-taking and bargain hunting following the momentum-led play post a dovish BOC last week. The breakout of its range has led to adopt a sell on strength bias as the base case in line with the price structure and the set of moving averages tracking the smart money directional flows. The seasonals for the CAD are positive in January, but the BOC decision easily trumps these statistics.

The JPY index appears to have further upside room until faced with the next level of resistance, which is not far overhead, and the next logical area to struggle. As long as the market is caught up in this risk-off phase driven by the coronavirus, the JPY market becomes the currency to flock off to in order to seek protection away from the deleveraging of financial conditions. Even if the trend is still not backed up by a shift in price structure to bullish, the rest of moving averages that most accurately define the directional bias by the smart money have all turned bullish. This is a market not yet dominated by bulls from a slow money standpoint, and so far, opportunities are arising in the context of the fast money taking control of timeframes below the daily.

The AUD index is not finding any respite to the sell-side pressure, with the macro support at the bottom of its broad range not acting as an area where AUD-long inventory is building up in away meaningful way amid as the coronavirus crisis keeps spreading in China. The fall in the Aussie is a clear statement of intention by the market that the currency is one of the most susceptibles to the prospects of slower growth in China. All technical indicators as well as the market structure portrays the adoption of selling on strength as the sensible strategy to stick with.

The NZD index remains trapped in a short-term range that must first break in either direction before a cleaner directional call can be made. The risks are building up for the resolution to be to the downside if risk aversion continues to pick up. Don’t forget, the resilience by the NZD has been impressive as bets for lower rates by the RBNZ have been priced out. Being a buyer at support or seller at resistance within the range has paid good dividends as of late.

The CHF index trades in between two key inflection points. To the upside, the bullish momentum stalled at the symmetrical 100% proj target where supply pockets via market makers, profit-taking activity and contrarian traders emerged. To the downside, the index has bounced off a key horizontal support line. I wouldn’t be surprised if a range gets created out of these two edges. Note, however, that the bullish trend is still in play with the measurements of smart money flows and the price structure all aligning to the upside.

Important Footnotes

• Market structure: 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
• 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 Shadow of Corona Virus Grips The Market

Judging by the movements in equities, bonds or currencies as the deleveraging of financial conditions continues incessantly, we seem to have reached the point in the coronavirus saga where the rubber has met the road. Markets hate unpredictability, which is where we are at in trying to understand the possible ramifications for China's and the global growth outlook. While in the context of a tragic context, for traders, this has resulted is a pick up in volatility in line with the heightened uncertainty that exist. If you wonder where we stand in FX, 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

As the coronavirus woes extend, so does the upside in the USD, JPY and CHF. These 3 currencies has expanded the gap versus its main peers in the G8 FX space as market participants take no chances and resort to the safe-haven appeal of classic plays. If you ask me, it is no wonder as the outlook for Chinese growth, and as spillover effect, the global GDP outlook is looking bleaker by the day with more than 50 million people in China on lock-down mode and over 100,00 cases diagnosed in Chin alone. What’s going to be absolutely critical is the rate of reproduction of the disease and whether or not there may be tentative signs that China is able to contain it. While one may take slight comfort from the fact that China seems to be doing all it can, one wonders if it’s too late to mitigate the spreading as it’s thought that more than 5 million Chinese from ground 0 where the virus originated from left the city of Wuhan before the ban on travelling. It definitely looks like the market may be on tenterhooks for another week or two until there is more clarity on the true outreach of this disease. A currency that depicts like no other the worsened outlook towards China near term remains the Aussie and to a lesser extend the Kiwi, taken to the woodshed as the favorite short play to express the dire view on the Chinese economy to start 2020. There is a third camp of currencies (EUR, GBP, CAD) that found rather stable dynamics notwithstanding the pick up in risk aversion. This is important to note, because this is a week with higher than average trading opportunities for the avid trader to capitalize on the increase in volatility that we are seeing in financial markets, so making a distinction of the most one-sided flows is critical to catch the strongest trends at play. This is a healthy improvement in volatility, even if sadly, once again, for the wrong reasons. Remember, while you definitely must be accounting for the FOMC or Aussie CPI this week, make no mistake, there is a thematic overriding it all, and that’s the coronavirus propagation. The markets are in clear risk-off mode as also reflected by the largest one-day fall in the S&P 500 since October.

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

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

Risk-off dynamics prevail: Fears of the coronavirus spreading took hold and as a consequence, the S&P 500 had the worst day since October last year, while the global fixed-income market continues to be the place to be (sharply lower global bond yields), alongside a reinvigorated Yen, Franc and the US Dollar, these 3 dominating the FX board.

What's the latest news on the coronavirus? More than 50 million people over a dozen of Chinese cities remain on lock-down mode as China cranks up the efforts to contain the spreading of the epidemic, which so far has cost the lives of nearly 100 people with over 100,000 cases diagnosed, according to a Chinese nurse who blew the whistle on the topic through social media over the weekend. The rate at which new cases are popping up day after day is exponential and quite concerning.

Can the virus be contained? The main driver to panic sell is the fact that with the reproduction rate of the diseases fairly high (2.5-3.5 according to research papers) and the preventive measures potentially too little and too late, there may be hundreds of thousands of more cases in coming weeks with the containment being a challenge. If that’s the case, it may have dire consequences for the Chinese and potentially the global growth outlook, with estimates ranging from Chinese growth shaved between 1% to 2% this quarter. The behavior of the market suggest this is a scenario being discounted as the fall in the CNY, AUD reflect.

Global supply chain at risk? As a prelude of how costly this virus can be to the global economy and its global supply chain, China's Zhejiang province announced that companies are not allowed to return to work before Feb 9. Once these companies run out of inventories, if the fluid situation in China prevents the return of workers into the factories, it may represent a hit to the global supply chain and growth as a result.

Trade relationship between the EU-UK looks bleak near term: The European Commission's Head of Task Force for Relations with the United Kingdom Michel Barnier reiterated its pessimistic stance by saying that there is no possibility of a frictionless trade agreement between the EU and the UK, outlining the Brexit hurdles that lie ahead. Barnier said that there will be no compromise on single market,' never, never, never'. For a complete round up of all the comments made by Barnier, you can check it here.

Trump's impeachment process continues: A sideshow, even if it's necessary to be reporting on, as one never knows all the twists that may occur, is the impeachment process of Trump in the Senate. The market has so far shrugged off this as a non-event as Republican are in control of the Senate and for the impeachment to be enacted, it requires ⅔ to vote in favor of the resolution. The plot has thickened though, as CNN reports, “President Donald Trump's former national security adviser has upended the Senate impeachment trial, and new revelations from John Bolton's draft book manuscript could turn the tide on whether senators call for witnesses.” This follows Sunday night's New York Times bombshell that Bolton's draft manuscript says Trump told him US security assistance to Ukraine was conditioned on investigations into Democrats.

US new home sales hit a 5-month low: US new home sales for the month of December disappointed at 694K vs 730K, even if the rude health of the housing market in the US is undeniable. The downbeat is just a small blip in what’s an otherwise very solid uptrend in the number of houses sold in the US amid low supply. It represents a 5 month low for new home sales with the average selling price rising to $384,500 versus $377,600 in November. The USD barely budged as the focus is elsewhere.

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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 retesting the backside of its broken January range in the context of a well-anchored broad bearish trend from a daily perspective. Technically, it should represent a major challenge for buyers to retake much higher levels as the breakout off the range structure was clean and acceptance was clearly found below the previous support. Besides, the sell-side campaign is still ongoing as the 100% measured move (proj target) is still to be met. Therefore, my base case is for the EUR down-cycle dynamics to stay in place for the time being. The visual cues via the smart money tracker moving averages are unambiguously bearish too. The move lower in the EUR is congruent with the negative seasonals the currency faces in January.

The GBP index has found equilibrium above its prior double top, which constituted the high of what became a broken range last week. Based on technicals, the main bias remains to buy on weakness as the core approach, a view backed up by the price structure and moving averages that most accurately track directional movements (smart money). The buy-side campaign towards the next 100% proj target remains the base case, a gain of ~ 1.35% from current levels. Bear in mind, the BOE meets on Jan 30 (a rate cut this week is a con flip with 50/50 priced in), hence technicals will be trumped by the policy decision, hence why lightening up exposure on GBP ahead of the event is a sound measure to control unnecessary risks.

The USD index keeps expanding to the upside, a movement in complete agreement with the constructive technical outlook promoted in this report through most of January. There is further room for the index to appreciate until the 100% projection target gets hit. The increase in buy-side volume on Monday, alongside the solid close by NY close, only reinforces the long bias. The bullish view finds the backing of all the critical elements I personally monitor to define a bias such as the price structure, coupled with the smart money tracking moving averages all pointing higher. The risks continue to be clearly skewed to the upside. The icing on the cake has been the support of seasonals in the month of January, the best month of the year for the USD.

The CAD index shows no changes to its bearish outlook, a view that is supported by the latest bombshell from the BOC to turn unambiguously more dovish. On the back of finding support at a key swing low in the chart after an overextended downside move, and while there may be further upside based on the removal of liquidity into higher attractive levels, this is a market that remains a sell on rallies in line with the price structure and the set of moving averages tracking the smart money directional flows. While the seasonals for the CAD are positive in January, the 180-degree turnaround by the BOC hinting a cut overrides these statistics.

The JPY index has finally landed at a critical inflection point in the form of a macro horizontal resistance, which is precisely where the upside has stalled by the end of business in NY. While the moving averages tracking smart money flows point at a bullish environment, we need to see a breakout of the price structure to gain confidence on the commitment by the slow money. So far, courtesy of the panic selling driven by the coronavirus woes, the JPY has undoubtedly benefited as shorts were unwound and fast money jumped on the bandwagon. However, this is the level that represents a real challenge technically speaking. Should risk-off prevail, the JPY will remain the currency of choice to seek protection from the deleveraging of financial conditions. What’s clear is that opportunities to find trades will keep popping up at regular intervals as the volatility in the currency keeps rising.

The AUD index has well and truly broken its broad range, one that was in place since Sept last year, as the market keeps dampening AUD-long inventory as the coronavirus crisis puts a major dent in the prospects of Chinese growth, hence AUD succumbs as a proxy. The fall in the Aussie continues to reflect that the currency is the most fragile to the current news driving markets and with all the technical indicators pointing down and the 100% proj target yet to be met, the adoption of selling on strength strategies is a sensible approach to subscribe to.

The NZD index has finally found a resolution outside of its short-term range, leading to the worsening of its outlook as the new base case is for the 100% proj target to be hit next. This means that around 0.5% of downside exposure is likely before buy and sell flows balance out. With risk aversion not abating, the NZD, akin to what we are seeing with the AUD, is a currency with susceptibility to weaken further, an outlook not challenged by bearish technicals. Being a seller on strength is a view that now gets cemented by what price action depicts in the chart.

The CHF index continues to trade confined between two key critical levels. To the upside, the bullish momentum stopped on its tracks at the symmetrical 100% proj target where supply pockets via market makers, profit-taking activity and contrarian traders emerged. To the downside, the index has seen multiple bounces a key horizontal support line. There are technical risks that the market morphs into range-bound conditions, even if that remains highly subject to the dynamics in risk flows currently driving markets. CHF remains a top performer this month.

Important Footnotes

• Market structure: 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
• 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 USD Stays Immune To Shift In Risk Dynamics

The USD remains immune to the change of heart by the market, even if it looks like one that is still driven very much by overextended technicals rather than a substantial outlook in fundamentals. The corona virus outbreak continues to rule market behavior, and the question is, will the market be immune to it or is the risk-off set to extend in coming days? Let's find out where we stand in the FX space.

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

Let’s get started…

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

Quick Take

The financial markets finally took a bit of a breather after the disproportionate one-sided movements in instruments the likes of the Yen, the Aussie, the Yuan, bonds, gold, equities. The fact that there was no new alarming developments in the number one driver of the market since last week, that is, the coronavirus outbreak, acted on its own right as the trigger to justify what’s seen as a correction very much technical in nature, not yet enjoying the fundamental backing of a complete disregard by market forces to the virus news, far from it. It is still a real possibility that the coronavirus saga keeps getting worse before it gets better. Amid this more sanguine environment, the Yen succumbed to the improved bid tone in risk, as did the allure towards the Swiss Franc, even if both remain top performing currencies in January, alongside a USD that keeps charging higher as the US economic news keep shining. As a result of the recovery in risk appetite, the Aussie and Kiwi moved higher in locksteps. Meanwhile, two currencies also enjoying buy-side flows, even if it may not last (spoiler: watch for shorts) judging by the technical stance conducted include the EUR and CAD. In my objective technical analysis of the G8 FX indices, I make a case as to why you want to be on the alert for these currencies to be, sooner or later, engulfed by renewed sell-side pressure. Lastly, the GBP traded on a soft note as it got hit by news that the U.K. will allow Huawei to build parts of the 5G network, in a move that defies Trump, and potentially the future trade relationships with the US.

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.

Aussie inflation a touch firmer: The Australia Q4 2019 inflation came at a headline number of 0.7% q/q, which is slightly higher than the 0.6% expected. Annually, the reading stood at 1.8% y/y vs expectations for 1.7%. In terms of the core inflation, the trimmed mean, which is what the RBA historically monitors most closely, came at 0.4% q/q, which was bang on estimates, while the annual reading was 1.6% y/y, a touch firmer than the 1.5% expected. While it should not be considered a disappointment, the modest appreciation in the AUD still portrays a market skeptical to rea too much into it as the printings remain at the lower edge of the RBA target band, which has a mandate of 2 to 3% for core over the course of a cycle. Nonetheless, it may help the case for the RBA to delay potentially a decision to lower rates further.

Risk-off recedes, far from out of the woods: The appeasing of the risk-off dynamics became the dominant element ruling markets in the last US session amid the broader context of a well-anchored risk averse narrative as the ramifications of the coronavirus pan out. There is a high probability that the coronavirus news get worse before it gets better. What this means, unlike an isolated risk-off episode the likes of a US-Iran retaliatory conflict, the underlying thematic that feeds this risk averse environment won’t go so easily away. To draw some parallels, it took markets more than 3 months to get over the SARS virus in early 2003.

Technical correction in risk-sensitive assets: After the Yen, Gold or bonds experienced such heavy buying in recent days, or we saw the major sell-off in equities, there was a real risk of an unwinding of longs as the moves had gotten out of whack in the short-term, in what so far appears to be a mere technical correction. The fact that there was no new alarming news worsening the coronavirus spread outlook acted on its own right as the trigger. No new statistics on the official state of affairs with regards to related fatalities and infected cases.

Coronavirus outbreak may reach peak in 7-10 days: According to Xinhua news agency, citing respiratory expert Zhong Nanshan, the Novel coronavirus outbreak may reach peak in one week or about 10 days. "It is very difficult to definitely estimate when the outbreak reaches its peak. But I think in one week or about 10 days, it will reach the climax and then there will be no large-scale increases," Zhong said. Zhong is the head of a national team of experts set up for the control and prevention of the novel coronavirus-caused pneumonia and an academician of the Chinese Academy of Engineering.

GBP hit by Huawei news: The Pound was apparently weighted after the U.K. confirmed it will allow Huawei to build parts of the 5G network, in a move that defies Trump, and potentially the future trade relationships with the US may be put at risk. According to the WSJ: “The government said Huawei would be given permission to build noncritical parts of the country’s 5G network. Britain’s National Security Council concluded that the security risks the Chinese company presented could be managed.” British Foreign Secretary Dominic Raab said: “Nothing in this review affects this country’s ability to share highly sensitive intelligence data over highly secure networks, both within the U.K., and with our partners.”

WHO chief meets with China’s Premier Xi: The WHO (World Health Organization) chief Tedros Adhanom met with China president Xi to discuss all the measures in place to contain the coronavirus outbreak. A spokesman said that Tedros is keeping the WHO emergency committee 'in the loop' about the situation. It’s worth noting that the WHO has recently walked back some of its initial considerations, and after describing the virus risk as "moderate" over the weekend, it has finally admitted that the risk is "very high in China and at a regional level, and high at a global level". That said, it doesn't look as though they will declare the virus as a public health emergency near term, which if true, may continue to appease the markets in the very short-term.

FOMC key event eyed: The Fed meets today, and if the expectations for no change in stance were not sufficiently well telegraphed, the latest coronavirus scare reinforces the notion of a Fed on ‘wait-and-see’ near term. This is probably one of the least sensitive meeting outcomes in recent times, which should see vol in the USD or stocks well contained. Interestly, with risk aversion hitting hard the markets, which led to an exodus into US bonds (lower yields), the market now sees a Fed rate cut in September this year according to the Fed funds futures versus the previous expectations for November. Also worth noting is the latest developments in the US 3-month-to-10-year yields spread, which happens to be once again on the brink of inversion for the first time since October last year. This is the Fed’s favorite measure of a recessionary signal. So all things considered, the outlook for the FOMC looks a bit more bleak to maintain a neutral stance, even if the US data keeps roaring ahead and argues otherwise.

US data keeps the positive tone: One of the comforting developments the Fed can lean against to stand pat on policy includes the positive inputs in US fundamentals. Tuesday portrayed a good example of that, with across the board upbeat readings on durable goods orders for December, the Case-Shiller November US 20-city house price index, the Richmond Fed manufacturing index for January, or the US January Conference Board consumer confidence. Without exception, the data came better-than-expected and that helped to keep the bid tone in the USD.

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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 continues to be a firm candidate to be overwhelmed by sell-side flows based on the price structure and the positioning of the smart money trackers via the monitored moving averages. The higher the currency goes amid this technical background, the more appealing the opportunity is potentially going to be to become a seller as the context of a well-anchored broad bearish trend from a daily perspective remains as true this Wed as it did in the last 24h. Technically, it should represent a major challenge for buyers to retake much higher levels, hence my base case is holding a short EUR bias, which is reinforced by the fact that the down-cycle dynamics are still at play until the 100% proj target is met. The projected move lower in the EUR to end the week would also be in line with the negative seasonals the currency faces in Jan.

The GBP index is starting to be a tricky one to trade. Even if the technical outlook remains bullish when analyzing the price structure and the set of moving averages depicting the smart money flows, there is only a 24h window for technicals to rule before the market trades at the mercy of the BOE policy decision (a rate cut this week is a con flip with 50/50 priced in), which would cause more erratic vol. Based on technicals, the main bias remains to buy on weakness as the core approach, this hasn’t changed. Remember, by measuring the next projected symmetrical target (100% measured move), there is a juicy ~ 1.5% of topside potential in the GBP from current levels. After Wednesday’s trading is over, remember to be lightening up exposure on GBP ahead of the BOE, definitely a sound measure to control risk.

The USD index keeps charging higher, but at this point, there is a caveat. The currency, after attracting steady consistent flows, has made it to the 100% proj target. What this means is that near-term, there might be a re-adjustment of positioning to the downside at this level. This prognosis will largely depend on the outcome of the FOMC today, despite the fact that the market is expecting a rather dull and uneventful outcome this time. Technically, despite the topside may be contained based on how mature this trend is near term, the long bias is indisputably still the main case. The bullish view continues to have the backing of the price structure, coupled with the smart money tracking moving averages all pointing higher. Therefore, by warning of the maturity in the cycle, take it for what it is, just a heads up in the context of a market with risks well skewed to the upside. Remember, the support of seasonals for the USD during January is undeniable as it represents the best month of the year.

The CAD index has surged to a very interesting location in the chart where sell side pressure may re-emerge as it retests the backside of a broken range. I personally hold a short bias, reinforced by the notion that we are now at a key juncture a much higher prices while the overall bearish outlook based on the price structure and smart money MAs pointing lower. These are the areas in an index chart where you want to be trading from conditional to finding the best match to trade the CAD against and obviously getting a signal via your own setups. Besides, this is a market that if short would be backed up by the 180-degree turnaround orchestrated by the BOC hinting a cut may be coming in the next few months. All in all, I am monitoring CAD shorts.

The JPY index has respected the technical script envisioned 24h ago, when I stated that the currency had landed at a critical inflection point in the form of a macro horizontal resistance and we were likely to see the bullish momentum stall heading into Tuesday. Well, that’s exactly what’s happened as an unwinding of JPY longs plays out as the market keeps assessing how bad the coronavirus outbreak will be. My base hypothesis here is that we’ve entered a dangerous juncture in which risk-off episodes may be more protracted in nature given the lingering uncertainties for global growth that the virus is going to cause for another few weeks. This means that we are far from out of the woods, and so from here is where it gets very interesting technically-wise, as follow-up demand in the JPY may see a breakout of structure in the index. Once that happens, I will anticipate further sustainable strength in the currency.

The AUD index has rebounded off a major level of horizontal support as depicted by the two circles drawn in the chart, which is the level used as reference to have expected the relief. One thing must be clearly stated though, the Aussie found a resolution of its multi-month broad range, which in itself is a clearly bearish development. The key question now becomes. Will the low found in the last 24h become the new bottom-side of a slightly broader range or is the index in the midst of developing a more protracted bearish bias? I am inclined to think, until price structure proves me wrong, that the Aussie may remain on an ongoing selling bias, but the following caveat also applies; I think the current levels to see the currency are awfully non-attractive. If anything, this is an area in the index to be fading further downside. The fall in the Aussie has reflected a currency very fragile to the current news driving markets but in my opinion, we’ve gone down too extensively in a relatively short period of time, so be aware.

The NZD index found a resolution outside of its short-term range, therefore, I’ve turned bearish on the currency near term until the first phase of the sell-side cycle completes by price reaching the 100% proj target. Until that materializes, a rebound in the NZD would be considered an opportunity to sell on strength as the backside of the broken range gets retested. Based on the 100% proj measurement, I am looking at around 0.5% of downside potential. Notice, the moving averages tracking the intended directional bias by the smart money also validates this sell-side bias, as does the overall risk-off dynamics dominating markets.

The CHF index has increased its choppiness by starting to bounce back and forth from two critical areas in the chart. To the upside, the symmetrical 100% proj target continues to prove an area where supply via market makers, profit-taking activity and contrarian traders keeps emerging. To the downside, the index is anchored by a key horizontal support line. Whenever a cycle runs its course by meeting the 100% proj target, that’s the area in the chart that carries the most risk for a tentative shift in order flow/market structure, which is precisely what we are seeing in the CHF after a very puchy movement to the upside in the CHF the first few weeks of January. Fading the edges of what looks like an established new range starts to make for a solid case.

Important Footnotes

• Market structure: 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
• 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 Corona Virus Keeps Risk Tone Suppressed

The fears of the corona virus spreading at a faster rate-than-expected continues to suppress the outlook for a more protracted recovery in the risk profile, while the dovish tilt by Fed's Powell on inflation sends the US Dollar a touch lower. Curious to find out the rest of market dynamics at play? Keep reading below...

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 USD kept advancing further ground up until the point when a dovish tilt by Fed’s Powell on inflation during Wednesday’s FOMC press conference led to a change of heart by the market. The currency ended softer after the remarks by Powell as the market now prices about one and a half cuts by the Fed by the end of 2020 vs 1.2 cuts pre-FOMC. The EUR, which continues its recovery, finds little technical grounds to expect the current run higher to last.
When it comes to the Pound, it’s all about the BOE in the next 24h, in what’s arguably the most tense policy setting decision for some years. This unpredictability in today’s rate outcome is well reflected in the market pricing, which is not better than a coin flip, with a 50% chance of a cut today.
The CAD finds itself still engulfed in a technically bleak context with the dovish outcome by the BOC last week still reverberating and keeping the bearish outlook intact. The Yen, meanwhile, continues to be driven by the coronavirus outbreak news; while the news are not yet alarming, the continuous buy-side pressure reflects the degree of unrest still present, aided on Wed by the declines seen in global bond yields after the FOMC and the soft end in US equities.
On the contrary, despite the upbeat Aus CPI figures on Wed, the Aussie keeps struggling as the coronavirus woes are a real concern that keeps the market on tenterhooks. The fact that the Aussie has been unable to hold onto positive data-driven gains (jobs, inflation), is a very telling sign that the currency remains strongly driven by the virus as the key driver. Lastly, the Kiwi keeps the downward pressure intact piggybacking the Aussie, while the Swissy is still buoyed under such a
treacherous environment.

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.

FOMC keeps rates on hold: There wasn’t much meat in the bone as part of Wednesday’s FOMC policy statement after it decided to keep rates unchanged at 1.5%-1.75% range. However, despite the expectations for a dull outcome were high, and judging by the statement you’d think economists were right, the language used by Fed’s Chairman Powell in the press conference managed to spice things up a tad. As a result, the movement in the USD was a touch softer, even if nothing earth shattering, with the market still fixated on the coronavirus as key driver.

Powell turns more dovish on inflation: The development in the presser worth highlighting included Powell being more dovish on inflation, which may explain the retreat in the USD, by stating that the “Fed is not satisfied with inflation running below 2% and it is not a ceiling.”

Market prices 1.5 rate cuts by the Fed in 2020: There has been a change of heart by the market after Powell's remarks on inflation, as the base case now shifts to a worsened inflation outlook vs the more benign December FOMC stance. As a consequence, the market now prices one and a half cuts by the Fed by the end of 2020 vs 1.2 pre-FOMC.

Powell strikes constructive note on the economy: While more pessimistic on the prospects of inflation, Powell said there is tentative evidence to stay “cautiously optimistic” about the economy based on the easing of financial conditions, reduction on trade tensions and lower chances of a hard Brexit.

Coronavirus remains the key driver: On the coronavirus front, the market has no longer overreacted to the fluid news, as most of the cases, over 97%, as still within China’s border. Besides, more evidence so far suggests that the mortality rate is lower than SARS, even if these are still early days. The latest official stats, which must be taken with a huge pinch of salt, note 6,065 cases and 132 deaths. Beijing health official said on Wednesday that risks of coronavirus infection in the city is rising too.

WHO impressed with China’s efforts: One of the reasons that the risk-off dynamics may have not been justified to return with a vengeance is the fact that the WHO continues to consider that the coronavirus is not yet grave enough to be labeled an international emergency situation. Wednesday’s World Health Organization press briefing on the coronavirus highlighted, nonetheless, that “the last few days the progress of the virus, especially in some countries, especially human to human transmission, worries us,'' naming Germany, Vietnam and Japan. The WHO chief also recognized that he was “very impressed with the level of Chinese engagement at all levels and fight against coronavirus”, adding that “they are taking extraordinary measures in the face of what is an extraordinary challenge.”

Too early to draw conclusions on the virus spread: What’s important to emphasize in the coronavirus saga is that we are still at the bare minimum, 7 to 10 days away from the diseases reaching a potential peak. According to Xinhua, citing a top Chinese scientist deep in the weeds to control the disease outbreak, the Novel coronavirus outbreak may reach peak in one week or 10 days. "I think in one week or about 10 days, it will reach the climax and then there will be no large-scale increases," Zhong said, the head of a national team of experts set up for the control and prevention of the virus. Therefore, it’s too early to draw conclusions.

Update on CoronaVirus by China: Xinhua reports that 7811 are now infected, with 12 167 suspected cases, 170 dead and 1370 in serious condition. This is a 1,228% increase in infected people since last week. The disease is, for now, spreading faster than predicted. Check in this link a table where it provides a handy comparison table. If the data provided by officials or leaks suggests that the rate of reproduction is above estimates, it will feed into the risk-off.

China's GDP to be shaved by at least 1% this year: New statistics provided by the Chinese Academy of Science reveals that the extent of the impact from the virus on GDP growth could be in the 1-1.2% vicinity from 6% y/y to just under 5% in Q1, which would imply a slowdown on the growth trajectory to about 0.3% in Q1 from 1.5%, which helps to explain why we’ve seen such a severe decline in the AUD since late last week. An important caveat is that this forecast is based on the huge assumption that the virus outbreak will peak by mid-February and peter out by the end of March, as stated above.

Oil suffers the consequences of the coronavirus: The price of Oil has also been dramatically affected by the outbreak of the coronavirus in China, as the travel/tourism industry has been gravely impacted. More airlines around the globe are canceling direct flights to China as a result of preventive measures implemented. The cartel group OPEC has announced that it’s considering moving the March meeting to Feb to find emergency measures that may help re-balance the demand/supply conundrum.

RBA Feb rate cut ruled out after Wed’s Aus CPI: The odds for lower rates by the RBA in February were reduced further to just 10% on the back of a not too shabby inflation readings out of Australia on Wednesday. As a reminder, the Aussie inflation came at touch firmer with a headline number of 0.7% q/q, which was slightly higher than the 0.6% expected. In terms of the core inflation, the trimmed mean, which is what the RBA historically monitors most closely, came at 0.4% q/q, which was bang on estimates.

Downside risk on Thursday’s US Q4 GDP: Ahead of Thursday’s US GDP Q4 print, the data published out of the US on Wednesday does not provide a good omen as the iss in US goods deficit and inventories creates downward pressure in the reading, which has a consensus of 2.1%. As the NAB tea notes: “Importantly for the outlook, Q1 GDP could be soft as well as imports recover from the tariff uncertainty and as Boeing weighs on Industrial Production and the manufacturing sector more broadly.” The latest US pending home sales on Wed was also very disappointing at -4.9% versus +0.5% estimate, with sales slow by fewer listings.

BOE the event of the day: With the prospects of a hard Brexit largely reduced, which allows the BoE more maneuver to act based on UK fundamentals, this is probably one of the most intriguing policy statement outcomes in years. It’s going to be a close decision, and as a reflection of this unpredictability, the market is pricing a 50% chance of a cut today. The worsening of the UK ‘hard’ data supports the call for lower rates, but that must be reconciled with improving sentiment indicators ever since the election in December.

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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 moving higher in what still appears to be a technical correction that may soon face increasing sell-side pressure as the currency heads straight into the origin of a supply imbalance from Jan 23. I will say this. Whenever a chart corrects higher as in the case of the EUR in an environment dominated by a bearish price structure coupled with all smart money trackers via the monitored moving averages pointing lower, I get laser focus to spot opportunities, in this case, the potential for short positions in the currency. The higher the currency goes amid this technical background, the more appealing the opportunity is. As a reminder, from a technical standpoint, my base case is also reinforced by the fact that the down-cycle dynamics are still at play until the 100% proj target is met.

The GBP index has definitely become one that I will sit out from trading until the dust settles post the BOE meeting. The net balance is for the risks to still be skewed to the upside based on technicals, as there is congruence between the price structure and the set of moving averages that act as my guidance to spot the smart money flow intentions. However, we are at the mercy of the BOE policy decision, which carries a highly unpredictable outcome in its rate call today. After the decision is out, and vol settles to relatively normal dynamics, long setups in line with the overall bullish outcome make a lot of sense, hence I’d say that buying on weakness upon the agreement of price action remains the way to go unless technicals prove us wrong. Also, as in the case of the EUR, by measuring the projected symmetrical target (100% measured move), there is a not too shabby +1.5% of topside potential until the up-cycle completes.

The USD index has reached its 100% proj target, with the added caveat for those holding long positions that a key resistance comes immediately overhead, alongside the fast that there is an obvious tick volume tapering this week. What this means is that the risk of a setback towards lower levels is a scenario to start anticipating with a higher degree of conviction. However, be aware that such contrarian view would be against the strongest trend in January, so you might want to think twice before shorting the USD. My remarks are more a warning for those holding USD long exposure to be on high alert as the tide may soon be turning near-term. Therefore, while technically the topside looks mature, buy on dips is still the main case in line with the backing of the price structure, coupled with the moving averages tracking smart money flows.

The CAD index, as warned, has faced sell-side pressure off the retests of the backside of its broken range, which occurred on the back of last week’s BOC dovish tilt. The technical read I have in this market is still bearish, with the short bias aided by the bearish price structure and across-the-board downward slopes in the smart money MAs, all pointing lower. I wouldn’t be surprised in the slightest if we see follow through sell-side continuation that sees the index extend its decline all the way towards a retest of the equal lows carved out last week. Just as I’d be surprised that the EUR index breaks through that noted supply area, in the case of the CAD, the preponderance of technical evidence indicates bear side action is more likely.

The JPY index is retesting the critical resistance where the currency has stalled from but on much lower tick volume than its first pass. What does this mean? It portrays a significant reduction in the number of committed buyers, which will make a breakout of this area much more challenging, hence why shorting the Yen at these levels remains an appealing proposition. As I noted yesterday, my prognosis has shifted near term in such as way that I believe the movements in the Yen from earlier in the week were out of whack, even if one must recognize that the Yen will continue to have the backing of what’s turned out to be a more protracted risk-off environment as the coronavirus hype is unlikely to go away for a few weeks. That’s a source of uncertainty for the market and strength for the Yen. The question is, at what levels the market will feel comfortable re-engaging in Yen longs. I think is too early for a rally resumption.

The AUD index is resting at another hugely relevant macro support. In fact, this level where it’s landed after the aggressive selling in recent weeks corresponds to the double bottom found last August. However, this support found occurs in the context of a bearish resolution of a multi-month broad range, which carries clearly bearish connotations. In the near term, while the coronavirus risk is obviously a major drag for the Aussie, technically-wise, it represents good value to consider long AUD opportunities against the weakest links such as the EUR for instance. I remain of the view that the current levels to sell the currency are not attractive, hence why for the brave souls, this is an area in the index to be fading further downside. The fall in the Aussie has reflected a currency very fragile to the current news driving markets but we’ve gone down too harshly in a relatively short period of time, and that tends to be unsustainable.

The NZD index, as reflected by its price action, has stuck to the bearish script I had subscribed to ever since the breakout of its multi-week range. This technical development made me turn bearish on the currency near term until the first phase of the sell-side cycle completes, which will occur, in my book, once the index reaches the 100% proj target. Until that materializes, a rebound in the NZD would be considered an opportunity to sell on strength. Since the sell-side follow through, the downside potential is about 0.4% based on the 100% proj measurement. Notice, the moving averages tracking the intended directional bias by the smart money also validates this sell-side bias, as does the overall risk-off dynamics dominating markets.

The CHF index has entered a consolidation phase by creating a double rejection of the highs in a context of lower volatility as depicted by the bollinger bands flattening. This means that the most attractive areas to engage in trades, judging by the index, is at the edges of the range. Notice, to the upside, the symmetrical 100% proj target gave us the signal to start anticipating the potential formation of a range, while to the downside, the index found demand imbalance at a key horizontal support line. As a result, we’ve morphed into a consolidation. In the grand scheme of things though, the overall picture remains neutral to bullish as the range settles in the context of a bullish rally that managed to find strong legs in January.

Important Footnotes

• Market structure: 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
• 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

NCoV Hits AUD Hard As BoE Fuels GBP


The Forex market continues to find it a logical play to keep the Yen and Swissy bullish trends intact as the NCoV outbreak plays out. At the same time, the BoE policy decision acted as a powerful spring board for the Pound to be marked up aggressively as there was little evidence that lower rates are coming near term. What else you may be missing? Plenty unless you 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

With the WHO finally declaring the coronavirus (NCoV) a public health emergency alongside news that the US travel advisory just raised the alert level to its highest by advising nationals not to travel to China, the market, understandably, remains on shaky grounds. Note, I am firmly convinced, as I exposed in yesterday's Youtube livestream, that the NCoV will remain the number one driver for at least another week or two. As a visual reflection, the chart below depicts the performance of G8 FX ever since the coronavirus (NCoV) news broke out. By now, it’s become visibly obvious what currencies have been affected the most. The Yen, the Swissy and the US Dollar, in this order, are unequivocally the main beneficiaries, while the Aussie and the Kiwi have been hit the hardest as the Chinese growth story is about to face some very bleak times in Q1 and Q2, and as a consequence, the market has been rapid to factor that in via the depreciation of the Oceanic currencies as ‘proxies’ for China. The Canadian Dollar, weighted by the prospects of lower rates in Canada and the recent slide in Oil prices as the NCoV also takes its toll on the projected consumption of the black gold. A currency fueled by its own idiosyncratic driver is the Pound, immune to the NCoV fuss, to instead be marked aggressively higher in the last 24h by a less dovish BoE after a 0.75% rate hold with a 7-2 split. Sandwiched in between, we find the Euro, which had an impressive run on Thursday, with further tentative evidence of a recovery in the Eurozone economic data to blame.

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.

Pound flies after no BOE dovishness: The Pound rallied strongly after the BoE monetary decision left rates unchanged at 0.75%, with the following policy statement more hawkish than expected, especially the forward guidance. As part of the January policy statement, it was revealed that “further ahead, if the economy recovers broadly in line with the MPC's latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target." The key takeaway after the statement and Carney’s presser is the evolution of inflation and the hard UK economic data. Therefore, the GBP will continue to trade more sensitive to fundamentals with Brexit on the background. Importantly, the votes split in the BOE committee will also be monitored closely, even if judging by the 7-2 from Thursday, few are convinced.

EUR’s impressive run carries on: To understand the rise in the EUR, one may find it valuable to go through the material I cover on market symmetries, a precursor to shifts in order flows. With the EUR/USD reaching a 100% measured move, I was on guard for some EUR appreciation, even if it took me by surprise the magnitude of it. Further tentative evidence of a recovery in the Eurozone economic data may be to blame too, after some slightly better than expected readings in the Economic and Industrial Confidence in the January EU Commission surveys, followed by a small dip in the unemployment rate to 7.4% from 7.5% expected. The Eurozone CPI (and Q4 GDP) figures will be closely monitored today after the pick up in German HICP.

Risk-off prevalent, FX sees textbook moves: Even if the falls in the US equities and US bond yields were largely contained notwithstanding the virus woes, the movements in FX obeyed to a more predictable pattern, with the Aussie and Kiwi succumbing to the lingering concerns of the virus outbreak, while the Yen and especially the Franc, fared really well.

US Q4 GDP a tad firmer aided by soft inflation: The US Q4 advance GDP came at +2.1% vs +2.0% expected, even if it was largely shrugged off by the market as the focus remains anchored on the coronavirus. By diving into the details, the main takeaway was the soft inflation numbers were soft, which led to an increase in the GDP headline even if the nominal GDP was far from encouraging. This data point is water under the bridge for the market and hardly will have any influence in the price discovery going forward.

The WHO declares NCoV public health emergency: The World Health Organization declared the coronavirus a public health emergency with the panel almost unanimously in agreement, even if they have continued to praise the work done by China to contain the spreading of the disease. The chief of the WHO went as far as to say that “I’ve never seen this type of mobilization being executed in China in my life.” They outlined that the greatest concern is the potential for the virus to spread to countries with weaker health systems. The constructive rhetoric continued during the press conference as the chief of the WHO said “the measures that China is taking will 'reverse the tide.”

Isolated episodes of coronavirus in the US still popping up: A couple of headlines related to the coronavirus led to further suppression of risk, with the Aussie hit, again, the hardest. Firstly, the CDC announced the first person-to-person spread of the coronavirus in the US, specifically from a Chicago patient that traveled from Wuhan. Secondly, the CDC also warned that it is not possible to detect the coronavirus before symptoms emerge, which makes the prospects of identifying and containing the outbreak a harder task.

The US issues warning not to travel to China: The US travel advisory has warned national not go to China. The warning is a level 4 advisory, which is the highest possible. According to the US State Dept, nationals must not travel to China due to the novel coronavirus first identified in Wuhan, China. Those currently in China should consider departing using commercial means.

Coronavirus takes toll on China's economy: An example of the toll the coronavirus is taking on the Chinese economy, is the fact that a blue chip company such as IKEA, has decided to close all their stores in China, with over 14,000 people employed told to be in paid leaves. It is no wonder that the market is anticipating some very bleak prospects for China’s growth, and the potential spillover into the global economy.
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 keeps defying the bearish technical reads by appreciating beyond the scale of magnitude I thought possible. That said, the risk of a move lower from the relatively elevated levels is still the base case judging by the two fundamental pillars of my analysis, that is, price structure and the accompanying smart money tracker. Besides, the market is now inside the origin of the last and most obvious supply imbalance. It’s still going to take significant upar pressure to shift the stance to anything other than bearish off the daily chart. This bearish case is still supported by the fact that the down-cycle dynamics are still at play until the 100% proj.

The GBP index exploded higher and all the signs point to further appreciation in the currency. As I’ve pointed out, the currency remains rather isolated from the coronavirus saga, and its main driver continues to be the BOE policy outlook, which has turned out to be quite supportive for the interest of Pound bulls after the 7-2 split vote to keep rates unchanged on Thursday. The price structure, smart money tracker, coupled with price action (bullish outside day) are all screaming that this market should continue to travel north until the projected symmetrical target (100% measured move) is met, roughly 0.8% of topside potential from here.

The USD index continues to struggle at the 100% proj target, a level that has predictably led to a pause in the buy-side flows in the currency. There is also the added caveat of a key resistance overhead, which should act as another technical impediment to see further gains. The risk of a setback towards lower levels is a scenario I am starting to anticipate but be aware, there is still little evidence backing up my case, therefore, be aware that such contrarian view would be against the strongest trend we’ve seen this January, so be nimble. As outlined yesterday, where we stand in the USD is more a heads up for those holding USD long exposure that perhaps is time to start considering being more aggressive in your take-profit considerations.

The CAD index has found the follow through continuation that I had envisioned if we were to respect the technical signals via the price structure and moving averages. This renewed selling pressure comes after a retest of the backside of its broken range last week, which keeps my base case an extension towards a retest of the equal lows seen last week. It’s also hard to be bullish on the CAD with the downward pressure seen in Oil and risk-off dominant. Besides, the BOC is between a rock and a hard place and may potentially lower rates soon, which is a scenario the market has been building a case for since the last meeting.

The JPY index has challenged higher levels above a key resistance but by the end of NY, it failed to close above, hence the failure to accept the gains is worrisome for buyers. The risk-off patch the market is going through is undeniably creating pockets of demand imbalance in favor of the Yen at regular intervals as the coronavirus acts as a huge source of uncertainty for the market. I still find trading the Yen from the long side a very dangerous proposition given the substantial gains it’s printed but technicals are really on the verge of an important breakout. The net balance is that the Yen remains a market in buy-side mode but levels are far from attractive. If we finally see equilibrium above the early Jan high, a new bullish landscape may evolve.

The AUD index is in free-fall and so far has not respected the technical supports on the way down in the form of a horizontal line or a 100% proj target. When that’s the case, it clearly reflects a market in panic mode as amid the coronavirus and the ramifications for China’s GDP. I remain of the view that the Aussie is reaching a climactic selling stage, a juncture where maintaining short-exposure becomes quite risky unless you are scalping for quick profits. Is there further downside potential in the Aussie? You bet, there certainly might be. But ask yourself, how much of a premium are you willing to pay to gain short exposure? At these levels, it’s a very bad deal to be loading up AUD short if my technically-educated opinion counts at all.

The NZD index, as in the case of the AUD index, has reached a level in the chart where a pause of the sell-side pressure is a real possibility as Thursday's sell-off looks awfully overextended and most importantly, the price has landed at a macro support where a cluster of bids is likely to be encountered. Therefore, I no longer hold the same conviction for a rebound in the NZD to be considered an opportunity to sell on strength, at least it’s not so clear cut given where we’re at. That said, the overall risk-off dynamics dominating markets are not aiding the currency.

The CHF index has broken its consolidation phase by accepting level outside its familiar perimeters, hence validating the premise for further buy-side momentum. This newly adopted stance is backed up by the price structure, the smart money tracker and the macro trend. The Swissy has proven to be a very strong currency in January, regardless of the risk conditions, which is a strong statement of intention by market players about the path of least resistance.

Important Footnotes

• Market structure: 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
• 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

Funding Currencies Surge As Risk-Off Rules


At the open of markets on Monday, not much has changed in the FX space since last Friday. However, an important new variable must be thrown into the mix, that is, the open of markets in China, which is set to keep volatility high on speculative flows and position adjustments after the mayhem from last week. For an insight into all the moving parts, 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

There continues to be no respite to the tightening of financial conditions as depicted by the sharp falls in US equities before the end of business on Friday. The coronavirus-induced risk-off is highly likely to be here to stay for weeks if not months with more research papers indicating that the peak of the disease may still be months away. How it all played out in the currency market was a perfect script of text-book movements to be expected in times of suppressed risk conditions as the prospects of bleak Chinese growth in H1 2020 become an outcome factored-in. So, in forex, the swings were characterized by a surge in the three funding currencies (EUR, JPY, CHF), alongside follow-through demand towards the Pound as the bullish BOE play extended. On the other side of the spectrum, the AUD and the NZD saw another massacre in value, this time also joined by the CAD, which tracked the Oceanic currencies lower in locksteps. The USD, which put on a stellar performance in January in line with seasonals, finally succumbed in what some bank research report appear to attribute to month-end flows redistribution.

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

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

The Oceanic currencies remain the most punished: The Australian and New Zealand Dollar continue to suffer the consequences of the NCoV as fears of a much deeper-than-thought contraction in China’s and global growth keep mounting. The market is finally coming to the realization that the official numbers (see tracker) shared by Chinese officials are largely manipulated in order not to mitigate mass panic among the population.

Concerning new research paper on the virus: A new research paper published by the reputable site Lancet found that the Wuhan coronavirus cases were at 75,800 as of Jan 25. As part of the conclusions they reached, it was stated that “if the transmissibility of 2019-nCoV were similar everywhere domestically and over time, we inferred that epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.” It also states that “Large cities overseas with close transport links to China could also become outbreak epicentres, unless substantial public health interventions at both the population and personal levels are implemented.” The full text is available at the following link.

Dean of Medici at HKU on the state of the coronavirus: For an objective and educated assessment of the coronavirus, I urge the reader to watch the following video, where Dr Gabriel Leung, Dean of Medicine at the HK University, shares his dire projection as he discusses RO, containment, timing of peak virus and other major talking points.

More airlines join in suspension of flights in and out of China: It’s interesting to note that more US and global airlines are announcing their decision to either suspend China flights indefinitely or for at least 2 months until the end of April. As I explained in my latest youtube livestream, titled “The impact of the coronavirus in Forex”, this story is here to stay at least for a few more weeks driving sentiment in the marketplace. The evidence that airlines, such as Delta in the US, are shutting down travel routes to China for the foreseeable future, gives more validity to this prognosys of protracted depressed sentiment.

Lively open of markets in China: The Chinese markets opened in a truly chaotic manner by playing catch up and gaping over 9% lower after the extended holiday break.
The Chinese government announced economic measures to instill calmness. As part of the measures, the PBOC will provide 1.2 trillion yuan via reverse repos. The PBOC also decided to cut rates on RRs. Besides, commodity futures in China are also much lower, with Iron ore for instance limit down. Copper has also suffered. If the proverbial hits the fan via panic selling out of control, the central bank will likely step in by lowering rates further and the government will most likely ramp up fiscal and economic stimulus.

China will limit short-selling on the re-open: According to unnamed sources cited at Reuters, China's regulator (China Securities Regulatory Commission (CSRC)) issued a verbal directive to brokerages to not permit clients selling borrowed stocks when markets re-open on Monday. Therefore, the word is out that China will not allow short selling on their stock markets when they reopen for trade. This could clearly limit, to a certain extent, the downward spiral in selling.

The Pound gaps down to start the week: This follows news on Brexit that the UK PM Johnson is said to be prepared to quit trade talks with the EU. This story has been ‘leaked’ as part of the details of a speech Boris Johnson is set to give to businesses on Monday. The headlines gathered indicate that Johnson aims to have a comprehensive trade deal at least as good as Canada's, while will be ready to take a looser arrangement like Australia's if talks fail. Lastly, Johnson is expected to say that if the UK and EU cannot reach a trade deal he two would do business on World Trade Organization terms in most areas.

What’s ahead in the economic calendar? Monday highlights China’s Caixin reading, Japan and EU (Final) Manufacturing PMIs as well as the US Manufacturing ISM. As the week goes by, the RBA policy meeting n Tuesday will be a key focal point, as will Governor Lowe speech and testimony, alongside the Australian retail sales numbers. To end the week, the markets will have to als account for the RBA SoMP, the NZ and US employment figures. Note, the number one driver, by a country mile, will continue to be the developments in the coronavirus, so keep monitoring the news closely.

Domino effect in easing measures by G8 Central Banks? There may soon be a domino effect by which if the dire predictions on global growth due to the coronavirus accelerating its spread, central banks may soon be forced to act. The first one that comes to mind is the RBA meeting tomorrow, which is unlikely to see any material changes as the recent economic data (jobs, inflation) argue for a hold and give them some leeway before they decide to loosen up financial conditions again. Notice though, a cut in the March RBA meeting is a 50/50 show at this stage. Meanwhile, other Central Banks like the BOC has already laid the ground for lower rates in coming months, with the virus acting as the last straw. A cut in March is priced at 27%. Meanwhile, in the US, a cut at the April FOMC meeting is priced at 60%.

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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!
Risk conditions: Before diving into the FX space, it’s important to highlight that the risk dynamics continue to look very bleak, after the S&P 500 saw another sharp decline into new cycle lows. Interestingly, this time it was the US 30-year bond yield as the bellwether of global growth and inflation that tamed a tad the magnitude of the decline in the Risk-Weighted Index, which the AUD/JPY (orange line) keeps tracking extremely tightly as a proxy for risk sentiment.

The EUR index accelerated its upward trajectory in a very strong fashion before the end of the month, a rise that appears to have been aided by month-end flows. The sizeable bullish candle makes the prospects of buying the EUR a very unattractive consideration unless you are a scalper-type trader with the intention to aim for 10-20 pips intraday. I’d be expecting the resistance that lies overhead to be acting as a rotational point back towards a mean measure and hence a chance to sell expensive Euros as this type of large gains, especially in the Euro, have proven to be unsustainable based on the price patterns observed over the past few years.

The GBP index appears to have reached its 100% projection target as anticipated, from where a retracement has ensued as part of a gap down to start the week. Until technicals prove me wrong, what the latest rise does is to reinforce the bullish bias, but remember, you don’t want to engage in long-side business once the 100% measured movement has been hit, that’s a time to let the market go through an offset distribution lower and aim to buy dips. The smart money tracker (2nd window) alongside the price structure support the core buying view.

The USD index, after struggling between the 100% proj target and an overhead resistance, an area that led to a pause in the buy-side flows, it finally saw a setback last Friday. However, note that this pullback is simply correctional in nature in the context of a rising market that has the backing of the smart money tracker slope and the price structure. What this means is that weakness should be perceived from the standpoint of anticipating buyers to step in. Therefore, aiming to be holding USD long exposure in early Feb makes for a solid case for now.

The CAD index found further follow through continuation to vindicate the formation of yet another bearish cycle, one that now faces the prospects of a fall to the tune of 0.5% from the breakout point seen last Friday. While fundamentally the CAD carries bearish sentiment on the basis of a more dovish BOC and risk-off dynamics settled in, it also shows technical confirmation that the path of least resistance continues to be lower. The next 100% proj target is where I’d be expecting the currency index to land next, hence MOMO (momentum strategies) may see immediate interest in piling in to keep riding this trend lower.

The JPY index has breached a critical level of horizontal resistance and by doing so, it has validated a transition into a bullish market on the daily chart. The risk-off patch the market is going through should keep the Yen bought up at regular intervals, with the added conviction that now, finally, the price structure is in alignment with the smart money tracker. I keep reiterating that the Yen from the long side remains a dangerous proposition given the substantial gains it’s printed but with the price breakout via an outside bullish candle formation, it depicts undeniable strength with follow through buying the base case, either off the gates or on shallow dips as the currency index retests the broken resistance point now thought to turn support.

The AUD index remains in free-fall, which is forcing me to be more aggressive in the projected area where I’d expect the currency to pause its downward value suppression for the time being. Since the micro 100% measures have not resulted effective in predicting the end of this ongoing bloodbath, I am now looking at the macro 100% projection based off the broad range broken on January 27th. If this turns out to be correct, the Aussie may see an additional 0.4%-0.5% of falls until market makers and profit-taking facilitates a meaningful adjustment of the rate higher. It goes without saying that the outlook is bearish but the levels the Aussie trades at are ridiculously overextended, so again, unless for scalping purposes, stay away from AUD shorts until there is a considerable rebound towards areas of technical significance.

The NZD index, even if it reached a level in the chart last Friday where a pause of the sell-side pressure could have been expected based on the technicals (support line), the reality is that sentiment continues to trump any technical factor at the moment. It doesn’t matter is Thursday's sell-off looked awfully overextended, the unwinding of longs, the risk-off follow through, and the overall tightening of financial conditions was yet again a recipe for disaster to be long the currency, which as in the case of the Aussie, acts as a proxy to trade China, even if more on the basis of just simply piggy backing the performance of the latter. There appears to still be substantial downside potential in coming weeks for the NZD.

The CHF index, after breaking its 2-week consolidation phase and finally accepting level outside these range parameters last Friday, it went on to see aggressive buy-side business. The rise has now extended towards the 100% measured movement, which means, I’d be expecting a short-term setback in the price of the CHF. Even if the momentum continues, this is not a market fitting most accounts outside those looking for intraday scalping. You’d be better off waiting for a correction into levels of technical significance outside overbought readings.

Important Footnotes

• Market structure: 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
• 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

RBA & Brexit Keeps Vol High In Aussie, Pound

The Aussie and the Pound have been the main movers as markets factor in a less dovish-than-expected RBA and heightened risks of a collapse in the EU/UK trade negotiations. This is all happening under the umbrella of the coronavirus, which continues to dominate proceedings in order to set the tone in financial markets. Find out where we stand by 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 market has gone through a short-term relief rally in risk-sensitive instruments. The modest easing of financial conditions as depicted by the rise in US equities or the pause in the bloodbath of global bond yields, has led to a minor recovery in the likes of the Aussie or Kiwi. Interestingly, the bid in the Yen or the US Dollar puts into question this recovery as one that still communicates further trouble ahead, as does the fact that Oil or industrial metals keep losing ground. The Swiss Franc is also holding up its trend quite well as the index reflects. The resilience of the Euro is also quite impressive as buyers piled into Monday’s dip. The Canadian Dollar saw follow through supply with no particular fundamental catalyst, so my read on the fall is predicated on the fact that the CAD technicals remain very fragile. However, the main loser was the Sterling, with sellers in control of price from the open in Asia until the final hours of US. What appears to be behind the latest sell-off in the currency is the anticipation that the negotiations between the EU and the UK on a trade deal may collapse unless either side stops playing ball and starts to provide a substantial number of concessions, which looks unlikely.

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

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

Risk-off eases a tad: The bid tone in risk instruments saw a tentative recovery with US equities having a solid day even if this still occurs in the context of a short-term bearish cycle and VIX finding a base at a worryingly elevated level of 18%, not a good sign. Meanwhile, the rebound off lows from US bond yields is nothing out of the ordinary as part of a market that has been sold off hard and needs some redistribution of orders. In both markets, the risk of further selling remains a not so distant prospect. The S&P 500 rose by 0.77%, shrugging off the hard sell-off seen at the open of markets in China, where several commodity assets such as iron ore were limit-down. The more benign note in Monday’s risk profile allowed a mild upward adjustment in the valuation of the Aussie, although it should be a red flag that the Yen remains firmly bid, industrial metals such as iron ore or copper remain sold off or that Oil was down more than 2%.

The RBA announces no change in rates: The full text of the Statement by Philip Lowe, Governor of the RBA, on Monetary Policy, can be found here. Judging by the reaction in the AUD, the first interpretation of the statement was not as dovish as feared. Some of the key headlines included that the RBA will keep easing policy if needed to support sustainable growth, noting that rates are set to remain low for extended period, with the developments in labour markets to be monitored very closely. The RBA stated that low rates are boosting asset prices which should lead to increased spending. The central scenario is for underlying inflation to be close to 2% in 2020 and 2021. On housing, the RBA sees signs of a turnaround in the housing market, especially in Sydney and Melbourne. On the bushfires and coronavirus, the RBA said will temporarily weigh on growth.

US ISM PMI returns above 50: The US ISM manufacturing survey came at 50.9 vs 48.5 expected. It is the first positive above-50 reading since July 2019. The details were quite strong too, with a substantial increase in new orders and export orders, although the coronavirus should tame the improved prospects. The remarks in the ISM manufacturing survey were more positive too. As an example, it was stated that "Business has picked up considerably” in the Computer & Electronic Products. This rebound was likely aided by the confirmation of the phase-one US-China trade deal.

GBP up the stairs, down the elevator: The Sterling saw a one-way traffic to the downside, with the fall it suffered going way beyond the currency’s average true range as the European Commission unveiled its draft mandate for upcoming negotiations with the UK. In the document, it was stated that "the future relationship with the UK will have to be based on a balance of rights and obligations and ensure a level playing field. The envisaged partnership is a single package that comprises general, economic and security arrangements." These rules to market access and regulatory alignment is where the UK government has drawn a line in the sand and where the risk of a breakdown in talks emanates from. The sell-off in the Pound suggests the market perceives a heightened risk of negotiations collapsing unless either side surrenders and starts to provide a substantial number of concessions. The stance by UK PM remains undeterred, noting “we will not engage in cutthroat race to the bottom on trade.”

US-China to hit an impasse on trade deal? Another source of attention by the market is the news that China is said to be seeking US flexibility on Phase 1 trade pledges, citing people familiar. This should not be underestimated as it carries the clear risk of Trump putting pressure on China to meet its end of the deal at a very sensitive time where the Chinese economy is set to slow down. Once the agreement takes effect by mid-February, there is a clause attached to it where "in the event that a natural disaster or other unforeseeable event" delays either side from complying, the US and China will consult to find a mutual understanding. According to Politico, observers note that "If the bilateral trade deficit is not falling, Trump won't care about the Chinese and their excuses," the report says. The demands for the US to show a more lax approach to the trade conditions follow reports that Chinese officials are evaluating a decrease in the targeted economic growth this year to “around 6%” from 6-6.5% in 2019, which to me, still looks hugely ambitious given that the slowdown in economic activity due to the coronavirus seems to still have a lot more to play out.

Where we stand in the Coronavirus situation? It’s worth reminding the reader that a new research paper on the coronavirus, published by the reputable site Lancet, found that the Wuhan coronavirus cases were at 75,800 as of Jan 25, concluding that “epidemics are already growing exponentially in multiple major cities of China with a lag time behind the Wuhan outbreak of about 1–2 weeks.” It also states that “Large cities overseas with close transport links to China could also become outbreak epicentres.” I also urged the readership yesterday to watch this video by Dr Gabriel Leung, Dean of Medicine at the HK University, who discusses the prospects for containment, timing of the peak and other key points. It’s the most objective and educated assessment I’ve seen. It should be a major warning when you see many airlines suspend flights in and out of China, with bans set to stay in place until the end of March at least. This story cements the risk of prolonged risk aversion. Lastly, on a more positive note, a study by The New England Journal of Medicine (NEJM) on Jan 30 claiming that the new coronavirus can be transmitted by people without symptoms, which was a very troublesome situation as it would make it much harder to contain the spread, is being refuted as flawed, according to the Science Magazine.

Warning by Rabobank on the ramifications of the Coronavirus: The Rabobank Research Team notes that the type of market sell-off we’ve seen “Imparts a natural tendency on the part of our not-so-natural markets for aggressive dip-buying. However, as opposed to the headline of “World War Three!” which triggered a bout of risk-off action at the start of the year, this sell-off appears far more justified. The same op-ed writers who did not understand the real-politick of the Soleimani assassination and were wrongly screaming “Sell!” after that event are today trying the argument that “More people die from slipping in the shower, etc., than this Coronavirus.” This overlooks the fact that this virus has the potential to go exponential and become a global pandemic. It’s a small risk, yes - but it’s a FAAAAAAAT tail risk, that tens of millions of people simultaneously slipping in the shower really isn’t. Indeed, it’s the kind of huge risk that doesn’t just put you out of your portfolio position, or out of business, but out of the game, full-stop. Markets are quite right to react in a strongly negative, preventative fashion to this risk until we see evidence that it is being brought under control and the threat has truly passed. And we are not there yet, very regrettably. When we are, we see the real bounce. In short, “panic measures” are not always a sign of panic – they can be rational.”

Iowa Democrat Caucus eyed: In US politics, the focus is clearly on the Iowa Democrat caucus which takes place through the Asian session and where Bernie Sanders remains the favourite to take Iowa and stats suggests that he’s become the front runner to take the Democrat Nominee. While Iowa is a relatively small state that allocates just 1% of the delegates candidates earn on their way to the nomination, as Business Insider notes, “it holds disproportionate significance in the process as it’s the first state to cast its ballots for the presidential nomination.” Of statistical relevance is the fact that “the eventual Democratic nominee won the Iowa caucuses in six out of the past eight competitive Democratic presidential primaries” BI added.
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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!
In the grand scheme of things, the risk dynamics have improved ever so slightly at a key intersection point (support) in the hybrid risk-weighted index that accounts for the S&P 500 and US30y bond yields applying a formula to harmonize the volatility. The red vertical line depicts the moment that the coronavirus headlines picked up on Jan 22. The bear trend that has occured as a consequence of this news igniting uncertainty is clearly visible, with the orange line tracking the performance of the AUD/JPY spot as another true barometer of risk conditions. The chart aims to reinforce the notion that we are far from being out of the woods in this coronavirus saga, as both the smart money tracker and the price structure has turned bearish near term. For the brave souls out there, it must be acknowledged that the area where the risk-weighted index price has landed at is a very attractive location to potentially attract buy-side pressure though.

The EUR index found strong buying interest on the early weakness seen, to the point that the index finds itself now at the brink of a breakout of structure, an event that would represent a reaffirmation of the bullish stance. While I wouldn’t be surprised in the slightest that the resistance overhead acts as a rotational point back towards a mean measure, the sizeable lower shadow print on Monday cements the notion of buy-side pressure still in dominance. Besides, this is backed up by the turn higher in the smart money tracker, but as I said, it needs to be accompanied by a breakout of a price structure, which may be just 24h away.

The GBP index, after it reached its 100% projection target, has seen a major setback that puts the bullish arguments in question. While it still cannot be confirmed that a full-fledged transition to a bearish market has ensued, the close of Monday’s sizable candle shows very limited interest to be a buyer. What needs to happen to gain conviction in the establishment of a bearish cycle is the breakout of the prior swing low alongside the slope in the money tracker turning south. Only then, this would become a market where I am inclined to sell strength. Until then, the prospects, especially after such an oversized movement, are not as clear cut.

The USD index is revisiting an inflection point in the form of a resistance area, which uses as reference the swing lo from Nov 19 last year. A break of this high would be incredibly bullish for the currency and would open the doors for a possible extension towards the double top seen through Nv last year. However, note that this resistance can also act as a location for price to pullback from in what I’d still perceive as simply a correctional move in nature in the context of a bullish market that with the backing of the smart money tracker slope and the price structure.

The CAD index keeps respecting the bearish script endorsed as part of my daily analysis. After the index found further follow through continuation to vindicate the formation of yet another bearish cycle, the risk is now clearly skewed towards a fall to the tune of 0.5% from the breakout point seen last Friday until the next 100% projection target is met. The bearish sentiment on the basis of a more dovish BOC and overall risk-off dynamics sees the blending of technical confirmation to keep suggesting the path of least resistance continues to be lower.

The JPY index has cemented its bullish outlook from a price structure point of view by finding further buying interest above a critical level of horizontal resistance. It remains my base case that the coronavirus will keep the Yen bought up at regular intervals with the more conviction now that the price structure is in alignment with the smart money tracker. The breakout and acceptance above the previous swing high from early 2020 hints at buy on dips as default view.

The AUD index managed to see some tepid rebound off the lows even if the outlook remains well anchored towards further downside until a macro 100% projected area where I’d expect the currency to pause its downward value suppression. This macro 100% projection is based off the broad range broken on January 27th. This means that my base case continues to be an Aussie that remains under pressure for an additional 0.4%-0.5%. As I mentioned on Monday, the Aussie trades very overextended, so for scalping purposes it’s a market to still capitalize on the short-side, but if you are looking for value trading, stay away from AUD shorts until there is a considerable rebound towards areas of technical significance.

The NZD index has extended its sell-off until finding another line of strong support. The market sentiment continues to depress the interest to hold NZD long exposure and with good reason but this location is definitely an interesting spot to see the bleed lower pause. The technicals are outright bearish but whenever confronted with such a support, caution is warranted. If the level gives, more downside is in store for the Kiwi, while if risk appetite returns, this is a phenomenal spot to start building NZD longs, even if at this point the risk such idea carries remains high.

The CHF index, after breaking its 2-week consolidation phase and finally accepting level outside these range parameters last Friday, extended towards its 100% measured movement, hence in the short-term, a setback of sorts in the price of the CHF may be expected. As in the case of any overextended market, even if the bullish momentum continues, this is not a market fitting most accounts outside intraday long scalping. You’d be better off waiting patiently for a correction in price into levels of technical significance outside overbought readings.

Important Footnotes

• Market structure: 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
• 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

'True Risk On' As Virus, US Politics Rule


Wonder what's led to the appreciation of the Oceanic currencies for a second straight day? Weren't we in a 'risk off' profile that would suppress the value of these currencies? How come the Yen has sold off so aggressively off the highs? Why is the Swiss Franc or the Euro reversing at these particular levels? Today's reports tries to shed a light on all these questions and many more...

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 pick up in risk appetite, in what I call ‘true risk on’, as both equities and bond yields in the US rose strongly in tandem, led to a further reprieve in the Oceanic currencies (AUD, NZD). The currencies were catapulted into higher ground for a second straight day, also aided by an RBA policy meeting and subsequent speech by Lowe today, with both events failing to make a strong case with regards to the RBA ready to ease policy any further in the short-run. The Kiwi found its wings again as the NZ employment report saw a significant reduction in the jobless rate, even if the details were troublesome as the change in employment and participation were down. On the other side of the G8 FX spectrum, the Yen was smashed lower as the ‘risk on’ flows in equities were maintained at a steady pace throughout the three sessions (Asia, Europe, US). The easing measures, aka bazooka, by the Chinese government, of which I provide details in today’s report, have proven to be an effective tool to combat the panic selling on the back of the coronavirus, a crisis that still remains well and alive even if the Chinese government is doing all it can to massage the number of cases and the death toll to avoid the chaos that may emerge. The Swiss Franc also found solid sellers in line with the improved risk profile, even if the currency remains in a steady bullish trade premise since the start of the year. The Pound, after being hammered following the European Commission unveiling of its draft mandate for upcoming negotiations with the UK, which was interpreted as bearish for the future prospects of reaching some mid-ground on trade negotiations, saw strong buying off the lows. Encapsulated in between we find the USD, EUR and CAD, which saw limited flows on Tuesday.

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 day of ‘true risk on’: The risk tone was greatly reinvigorated in the last 24h, in what appears to be a combination of the market giving its blessing to the recently introduced measures by China’s government to support its economy through massive liquidity injections into the system, alongside a reduction in the number of alarmist headlines related to the Coronavirus impact on the global economy. In the charts section, I go more in-depth in the rise of equities/yields/commodities/yuan, as well as the large gains printed by currencies most sensitive to the current drivers such as the Aussie. The Nasdaq index rose by more than 2% as it kissed new record highs.

Chinese equities boosted after the government measures: The equity market in China rose by over 2.5% (China’s CSI 300 index stood at 2.64%), setting the ball rolling for a positive lead in the equity space in European and US markets. Even if the news-dipping as it relates to the coronavirus continues to suggest the diseases keeps spreading at a rapid pace, the market cares about the evolution of it, and in this front, it appears as though, at least based on official numbers (largely rigged but that’s what’s used as reference), there has been a deceleration with the number of reported cases 20,500 and 425 deaths in mainland China. These massaged numbers serve as a circuit-breaker of sorts as it suggests that the Chinese government measures to contain the virus outbreak may be working.

WHO downplays the coronavirus: The Director-General of the World Health Organization Mr. Tedros, in his latest official statement, helped to feed the risk rally by downplaying the coronavirus. Tedros sounded critica about the rest of the world imposing travel bans or trade restrictions on China, advicing to lift such dramatic measures as they can cause "fear and stigma" towards the country. So far, 42 nations have officially reported trade or travel related measures of length to coronavirus, which according to Tedros, “should be short in duration, proportionate and considered regularly.”

Recap of the Chinese measures so far: Nomura’s Chinese Economic Team shared a handy recap of the actions taken by the Chinese government so far, including “The PBoC did cut the OMO rate by 10bps. At the same time, on Monday, the PBoC injected RBM 2.1T of short-term interbank liquidity, which against currently maturing loans, saw total liquidity in the banking system ~ RBM 900B higher vs 2019. The next day, the PBoC injected a further RMB 400 billion in reverse repo liquidity, marking the largest single-day addition since January 2019. The CSRC suspended securities lending from Monday until further notice, with some funds receiving so-called “window guidance” from regulators to avoid actively selling stocks. The CSRC told brokerages that their prop traders “aren’t allowed to be net sellers of equities this week” (Bloomberg). The CSRC also said it would halt night sessions for futures trading and allow some share pledge contracts to be extended by as long as six months. The MoF announced an interest subsidy scheme for new loans ear-marked for medical supply companies fighting coronavirus. The MoF announced policies to extend loans to entrepreneurs and SMEs which have been hit-hard from the coronavirus, as well as potentially delay mortgage repayments or adjust credit policies to repay the loans for those individuals or entities who may have temporarily lost sources of income.”

Fiasco in the Iowa caucus: Former South Bend Mayor Pete Buttigieg won Monday's Iowa caucus after amassing 26.9% in the state delegates count, followed by Sens. Bernie Sanders in second (25.1%), even if Sanders won the popular vote with 27,088 vs. Buttigieg's 23,666. Elizabeth Warren came third (18.3%) according to Iowa Democratic Party (IDP) Chair Troy Price. The bad news was that former Vice President Joe Biden, the so-called Democratic 'frontrunner', came in fourth at a very disappointing 15.6%. The event has been dubbed a fiasco, not only due to the defeat by Biden, but because the app meant to be used to submit the results stopped working and the Iowa caucus ended with delays on reporting the official results until the next day. These events have led to a boost in the chances of a Trump re-election according to betting sites, which is yet another reason why we’ve seen such a boost in stocks. Even Michael Bloomberg is now going to get a chance as he has surpassed Biden to be the Democratic ‘nominee’. While Iowa is a relatively small state that allocates just 1% of the delegates candidates earn to the nomination, it holds disproportionate significance in the process as it’s the first state to cast its ballots for the presidential nomination. The eventual Democratic nominee won the Iowa caucuses in six out of the past eight competitive Democratic presidential primaries” BI added.

RBA’s Lowe sustains AUD momentum: RBA Governor Lowe delivered a speech titled “the year ahead” at the National Press Club, noting that he “can see the case for further easing but there are risks”, detailing that the “benefits right now do not outweigh risks” even if acknowledging that “this could change”. Lowe said “if unemployment moves in the wrong direction, balance would change, no timeframe. Lowe added that “the RBA board will continue to discuss further monetary stimulus”, and that he “would be surprised to see negative GDP this quarter”, barring the coronavirus not contained.

SGP sold as MAS hints at room for easing: Singapore's central bank (MAS) said there is room to ease given coronavirus concerns. The Central Bank stated that there's sufficient room within the policy band to accommodate easing of the Singapore dollar in line with the weakening economy due to the virus. Singapore dollar nominal effective exchange rate has been fluctuating near upper bound of policy band in recent months. The SGD was marked down on the news as the market factors in the negative input.

GBP recovers from oversold levels: The Pound saw a rebound off oversold territory, with partial attribution to the bounce courtesy of a recovery in the UK January construction PMI to 48.4 vs 47.1 expected. The entity commissioned to report the numbers (Markit) detailed that “the construction sector downturn lost intensity in January amid slower reductions in house building, commercial work and civil engineering activity. Measured overall, the latest dip in construction output was much shallower than in December, with survey respondents often commenting on improved willingness to spend among clients since the general election. Despite concerns about prospects for work on infrastructure projects, latest data revealed a strong rebound in business optimism across the construction sector as a whole in January. The degree of positivity reached its highest level since April 2018, driven by hopes that improving confidence among clients will continue to translate into new contract awards over the course of 2020."

Aussie gains post the RBA policy: The best performer on Tuesday, by a large margin, was the Aussie, emboldened not only by the pick up in risk appetite, but most of the mark up occurred on the back of the RBA policy release, announcing no change in rates, and judging by the statement from Philip Lowe, Governor of the RBA, the read by the market was not as dovish as one would have feared given the pressing issues to deal with such as the bushfires or the outbreak of the coronavirus in China, even if there was a recognition that it will temporarily weigh on growth. Some of the key headlines included that the RBA will keep easing policy if needed to support sustainable growth, noting that rates are set to remain low for extended period, with the developments in labour markets to be monitored very closely. The RBA stated that low rates are boosting asset prices which should lead to increased spending. The central scenario is for underlying inflation to be close to 2% in 2020 and 2021. On housing, the RBA sees signs of a turnaround in the housing market, especially in Sydney and Melbourne.

NZD finds its wings after mixed jobs report: The NZ Q4 2019 employment report came better-than-expected on the surface, but when scanning through the details, it wasn’t as rosy the picture that it portrays. The Unemployment rate stood at 4.0% vs. 4.2% expected, however, with the employment change at 0.0% q/q Vs 0.3% expected and the participation rate dropping to 70.1% vs 70.4% expected, it invalidates the good omen attached to the reduction in the jobless rate. In terms of salary inflation, private wages excluding overtime rose to 0.6% q/q vs 0.5% expected, while the average hourly earnings stood at 0.1% q/q vs 0.5% expected.

Oil still unloved as OPEC ponders output cuts: The price of Oil, however, continues to slide as the expectations of a major sump in demand coming from China, alongside no measures yet taken by OPEC, depresses the price. OPEC+ will decide on whether an earlier meeting is needed after technical panel recommendations. There are talks that the cartel is considering a cut in output of up to 1 mbpd but the baseline forecast is that the impact of the coronavirus on Oil will only cut 200kbpd of demand in a 'worst-case'.

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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 risk dynamics have improved across the board, and by looking at the performance of the two bellwethers (S&P 500 and US 30-year bond yields), we can see what I dub as ‘true risk on’, which is an event that occurs when these two assets rise in tandem. The bolstering of the risk mood is also backed up by the strengthening of the Yuan vs the US Dollar (lower USD/CNH), the dampening of the VIX to 16.00 from the hefty 20.00 mark, while commodities have also seen an overall recovery as the widely followed Reuters CRB index reflects (at key support).

The EUR index has failed at a level of critical resistance, a juncture in the chart that was likely to see sell-side pressure pick up, as it was revisiting a key pivot level that had pre-luded a successful rotation into new lows. As said, I am not surprised in the slightest that the resistance has acted as a rotational point back towards a mean measure. At this point the daily shows not sufficient evidence of a directional bias as the order flow support further buying as per the smart money tracker, but this trade premise is not backed up by the price structure.

The GBP index, after it reached its 100% projection target, it was smashed hard to the downside until the price finally met another batch of strong buying at a reactionary level in the form of horizontal support, which has the added weight on being a pivot that acted as the precursor of a breakout in structure. A revisit of this pivot formation under this context offers technical discount as the price structure is still valid at a very cheap price. The establishment of a bearish cycle will only be validated if we see a breakout of this prior swing low with acceptance below. Until then, the prospects to see a recovery off this support are also a valid case.

The USD index is setting up a potential breakout of the overhead resistance as the consolidation of a tiny candle right along this technical level of significance is never a good sign for the interest of sellers. This area remains a huge flection point (low Nov 19 last year), with a break of this high setting the stage for a possible extension towards the double top seen through Nov last year, which translates in the prospects of additional gains to the tune of 0.8%. However, by the same token, this resistance can still act as a location for price to pullback lower, but as I said, Tuesday’s price action is far from encouraging for sellers. Even if a setback were to occur, I’d still see this rotation lower as simply a correctional move in the context of a bullish market.

The CAD index shows no changes in the bearish outlook. If anything, the rejection of the prior swing low that acted as support and now turned resistance reinforces the notion of sell on strength as the main case to stick with in this market. The index is set to find further follow through continuation as part of its ongoing bearish cycle, with the risk clearly skewed towards a descend into fresh 2020 lows until the next 100% projection target is met. The bearish sentiment on the basis of a more dovish BOC, lower Oil prices, keeps weighing on the currency, alongside the confirmation of the technical overlay.

The JPY index, while dumped aggressively in the last 24h, still displays a bullish outlook based on the two most important factors to consider, that is, the daily price structure (higher highs) and the order flow dynamics (smart money tracker still signals momentum bullish). It remains my base case that the coronavirus will keep the Yen bought on dips . The breakout and acceptance above the previous swing high from early 2020 transitioned this market into a bullish trend, with the setback so far not clouding the bullish default view based on technicals.

The AUD index keeps finding further buy-side interest off its overextended levels, with the latest leg found courtesy of the less dovish RBA and an invigoration of the risk profile. That said, this is a market that still shows a correction in the context of a bearish trend as the price structure and the smart money tracker slope communicate. I still believe there is more downside until the macro 100% projected area is reached in coming weeks, a scenario that would get invalidated the moment this market shifts its bearish structure (not expected this week). I did endorse staying away from Aussie shorts this week as there was no technical value trading, however, that’s starting to change as the currency enters now levels of technical significance to sell into.

The NZD index found buying interest at a line of strong support, from where the bleed lower has come to a temporary pause. While the technicals are outright bearish, the NZD has definitely offered a good opportunity to play from the long side off this support. The levels it trades at, I must say, are far less attractive to keep adding into NZD long exposure as the price structure and the order flow via the smart money tracker imply the risk of shorts taking back control.

The CHF index, after breaking its 2-week consolidation phase and accepting levels outside its last bracketed area, extended towards its 100% measured movement, where a setback has finally ensued, taking the currency back down even if the bullish trend premise is retained. The move lower should be seen as correctional as the market structure is still displaying a nice upward stepping formation with the backing of the bullish momentum via the smart money tracker. These are attractive levels to start considering long-side business in the currency in line with waht’s arguably been the neatest bullish trend this year.

Important Footnotes

• Market structure: 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
• 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