Global Prime: Daily Market Digest

[IvanGlobalPrime]

Find my latest market thoughts

Commodity-Linked Currencies Keep Attracting Demand Flows


The market continues to trade on the basis of the NCoV. News of a follow-through in the treatment of the virus, even if the details raise more questions than answers, led to a re-invigoration of the risk appetite, with the commodity-linked currencies, once again, the main beneficiaries. The moves were tantamount to what we saw earlier on Tuesday. Keep reading to stay in sync with the context at play.

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

Another very strong performance by risk assets, almost analogous to the price action script seen in the prior 24h, with equities flying higher and fixed-income (bonds) dumped. The in-sync reinvigoration in these two asset classes wreaked havoc the Yen or Swissy, even if as I distill in the study of the G8 FX indices, gain further exposure to safe-haven currencies’ short inventory carries a heightened level of risk given the NCoV context we are in. By the same token, it should be troublesome that the market has bought up risk in dubious headlines about a breakthrough in the treatment of the virus, while shrugging off the factual and worsening details of a steady increase in the number of cases and death toll. Whenever the market stops going down in bad news and overplays questionable bullish news, that’s a motive to be worried. A clear winner regardless of the risk dynamics, I must state, is the US Dollar. As the aggregate flows reflect, which I detail in the charts section, it’s finally gunned through a key resistance, which opens the door to fresh bullish dynamics as part of this newly found bullish leg. US data aided the rise. The Euro, despite better EZ services PMIs, has kept the downside pressure, with an intervention by ECB Chief Lagarde failing to stimulate the price action as all she did was to touch on old news that were well telegraphed in the last ECB policy meeting. The Pound remains in a position that lacks technical clarity with swings up and down without a clear bias. It goes without saying that amid this pick up in the risk vibes, the commodity-linked currencies (AUD, NZD, CAD) have fared the best, even if technically speaking, we are far from out of the woods just yet.

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.

Relentless recovery in risk appetite: Once again, stocks and bond yields have ripped higher, leading to a further reduction in what’s known as the fear index (VIX) towards the 15.00 mark from a high of 20.00 last Friday. The bid risk-sensitive instrument caught is nothing short of extraordinary as the driver of the latest jump is found is a questionable piece of information about a drug that may cure the coronavirus. This is clearly a market that keeps defying rationale and is led by emotions and headline trading. But it also reflects a behavior that is starting to suggest the NCoV may be transient even if the new cases and the death toll, as reported by the Chinese government, keeps soaring.

Dubious breakthrough in NCoV acts as the trigger: The catalyst that led to the jump in stocks or the fall in Gold, the Swissy or the Yen, came after Sky News reported that UK scientists made a 'significant breakthrough' in race for coronavirus vaccine, and even if in the details it clearly states that the vaccine “may be close to being tested on animals first, and then humans based on funding available”, which may still take a few months. As part of what’s been interpreted as a breakthrough is the fact that it reduces the part of the normal development time from "two to three years to just 14 days".

China NCoV treatment news aids risk: Almost in synchronicity to the so called breakthrough above, another headline grabbed the attention of the market, this time the main source being growing chatter on social media, and later reported by news outlets such as pharmaceutical technology. China said it has found an effective drug to treat people with new coronavirus, citing the Chinese television, which attributes this other breakthrough to the research team at Zhejiang University has found an effective drug to treat people with the new coronavirus. The two drugs found, Abidol and Darunavir, may help treat patients infected with the new coronavirus, reported Changjiang Daily.

WHO cautious stance gets ignored: Even if the WHO, via a spokesman, stated that “there are no known effective therapeutics against this coronavirus” when asked about reports of possible treatment breakthroughs, the market shrugged off these comments with risk appetite well sustained throughout the day. Later on the day, the Director-General of The World Health Organization - who has been down-playing the pandemic for days - admitted that the last 24 hours saw the biggest surge in coronavirus cases worldwide since the crisis began. Again, the market has ignored the news.

China prepares more easing measures: China continues to show a firm stance in its fight to keep the mainland markets calm as further reports suggest China is preparing to issue more tax and fiscal measures to aid the fight against the coronavirus impact in order to ensure economic stability. As part of these measures, it is planning to support banks to offer lower rates on loans to smaller firms. This news comes after the draconian measures in the money markets via massive injections of liquidity.

Nothing news from Lagarde: ECB’s Lagarde gave a speech, with the transcript found here, where she outlined that short-term uncertainties are mainly related to global risks. Lagarde went on to say that risks include trade, geopolitical and now the coronavirus outbreak. Lagarde then stated that forward guidance on rates and asset purchases act as an effective automatic stabiliser, and that climate change will be a key part of this year’s ongoing strategy review at the helm of the ECB.

CAD boosted by BOC’s Wilkins: BOC Senior Deputy Governor Carolyn Wilkins delivered a speech titled "Our Economic Destiny: Written in R-stars?" at the Economic Club of Canada, in Toronto. The net effect in the CAD after the speech was positive. In it, she sounded more optimistic than expected, especially judging by the latest dovish tilt in the BOC policy statement. The policy maker said that Canada “has avoided secular stagnation and has a strong fundamentals including the central banks policy framework”. Wilkins went on saying that “Canada is well-positioned to avoid a long period of slow growth if the right steps are taken. On rates, she said that “lower neutral rate of interest rates means central banks have less room to stimulate the economy by cutting rates; central banks have 200 basis points less room to stimulate in the traditional way.”

Russia not supporting output cuts: The price of Oil also saw a round in line with the jump in risk assets, even if news broke out later on the day that Russia is not supporting a deeper output OPEC+ cut and instead it prefers and extension of the current pact, according to Reuters sources. It appears as though finding consensus among the cartel amid a slowdown in the consumption of demand via China is, as usual, in shaky grounds, with Saudi Arabia the one, as usual, willing to kickstart cuts.

GBP falls amid MiFID 2 rewrite talk: The Pound had a sharp dip from its high after news emerged that EU policymakers are reportedly taking aim at the City of London financial industry w/ a MIFID 2 rewrite. The MiFID 2 stands for Markets in Financial Instruments Directive, and is a legislative framework instituted by the EU to regulate financial markets in the bloc and improve protections for investors to ensure fairer, safer and more efficient markets and facilitate greater transparency for all participants via the standardization of practices across the EU.

Green shoots in EZ/UZ services PMIs: European services PMI data for January came better in Italy, while in France it disappointed a tad. However, in the engine of growth for Europe, that is Germany, it recorded an impressive 54.2, which was unchanged from the flash estimate but it confirmed the jump from the previous 52.9 in December. The Euro Zone services activity also vindicated its pick up, which plays into the view of a slightly more optimistic ECB when it comes to economic stabilisation. In the UK, the January services activity also increased at 53.9 from 52.9.

Strong data out of the US: We had two strong fundamental readings out of the US. First off, the ADP US January employment data came at +291K vs +158K expected, which to put things into perspective, represents the best print in about half a decade. Secondly, the January ISM non-manufacturing came slightly better at 55.5 vs 55.1 expected, with the comments as part of the report a bit more optimistic. For a full summary of the ISM report, it can be found here.

RBA retail sales disappoint: Australia Retail Sales for December came in at -0.5% m/m vs -0.2%, leading to an initial fall in the Aussie. In a way, this is an adjustment lower after the strong Nov figure, so the market was expecting a poor read, but not to such an extent.

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 risk dynamics keep improving. The S&P 500 is flirting with a new record high at a time when US bond yields (long-duration) keep rising. This move up in locksteps during this week sets up the stage for a perfect bearish storm in the Yen or Gold, the latter subject to USD strength, which is what we are seeing, hence why Gold is also plummeting. The reinvigorated risk profile comes as the Yuan also keeps strengthening or the VIX keeps easing from its elevated levels of 20.00, last close around the 15.00.

The EUR index, despite the latest two days of sell-off from a critical resistance, should see buy-side interest emerging fairly soon, with the downside largely cap to a maximum fall of around 0.2% for today, based on the technical picture. The demand imbalance that I am envisioning is predicated on the basis of segmented cluster of bids to be found between the origin of the supply bar that led to the last breakout and a support line as per the multiple lows that were found prior to the mentioned downside breakout. Note, the bullish momentum off the daily is still valid based on the smart money tracker, despite the structure being range-bound.

The GBP index, on the back of a rejection off its 100% projection target, got sold off in a strong fashion only to see the a horizontal support acts as a line of defence for buyers.Wednesday’s price action was largely inconclusive, in the context of a market that still needs to provide extra clues to gain more clarity on the next directional bias. For now, the fact that equal lows were formed during the flattening of the bollinger band suggests an expanded range formed. The establishment of a bearish cycle will only be validated if we see a breakout of the prior swing low with acceptance below. Until then, there is not enough evidence to overcommit on the GBP.

The USD index has, at last, confirmed a technical resolution above a critical resistance point that had led to a pause in the uptrend. However, the steady demand flows have not abated, and as the aggregate flows in the chart below suggest, the is fresh upside potential 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% from the current levels, so not too shabby. The technical indicators via price structure and bullish momentum point at the bull bias to stay intact.

The CAD index, while rebounding strongly off the lows and printing a bullish engulfing pattern, still finds itself trading in a well established bearish trend. Therefore, the risk of further buying is likely to face substantial oppression as the price structure and the momentum via the smart money tracker are both pointing to more losses ahead. My base case is that the index is set to find further follow through continuation as part of its ongoing bearish cycle in a descend that may be targeting the next 100% projection target at the Dec double bottom.

The JPY index has closed the upside gap from last week. I struggle to envision much follow through in the Yen as technicals stand. We have a still very treacherous environment concerning the NCoV, that combined with the bullish price structure in this market, alongside the bullish slope in the money tracker, it tells me that the market may not be just yet done adding Yen long exposure. The level certainly looks attractive as it’s acted as support/resistance every time there has been an interaction through it.

The AUD index, for those that remain bullish, I’d say that it must be done at your own peril, as the index has certainly reached an inflection point where a shift in order flow back down is a scenario that would be in congruence with the dominant bearish price structure. Make no mistake, this is a market still in correction mode in the context of a bearish trend, which still has the backing of smart money tracker slope pointing lower. I will reiterate that while I did endorse staying away from Aussie shorts from the overly extended levels, that’s now changed, as the currency has finally hit a technical level of significance to sell into if entry setups agree.

The NZD index sees no change in its outlook. The story line that I am reading here is that buying interest emerged off a line of strong support. However, the pick up in buy-side pressure is in contradiction with the daily technicals, which remain outright bearish. Therefore, any longs would be in defiance of the dominant trend as seen on the daily. Keep adding into NZD long exposure at your own risk, and be aware that the price structure and the order flow via the smart money tracker imply the risk of shorts taking back control is a realistic prospect.

The CHF index, even if it has corrected aggressively lower for the past two days, the trade premise to support the long bias as base case has not varied. This stance is predicated on the constructive bullish price structure and the bullish momentum via the smart money tracker. What this means is that looking to gain further exposure to CHF short inventory carries a heightened level of risk given the context laid out in this summary of technicals. These are interest levels to start considering buy-side business in the currency.

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 Fears Reignited, USD Buying Persists


The USD keeps its bullish course of action, aided by another strong US NFP report last Friday. The Yen found fresh buy-side flows after closing the upside gap on its index (aggregated flows). The Canadian Dollar keeps defying the bearish trend as the local jobs data keeps impressing the market. The Oceanic currencies got dumped again. For a detailed coverage, 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

A renewed surge on risk aversion reignited the Yen, while the USD, invigorated by a solid US NFP, and backed up by strong technicals, also rose, in tandem with the appreciation seen in the Canadian Dollar as the domestic employment numbers topped expectations. The Swiss Franc managed to firm up its stance amid this risk-off dynamics, but far from amassing the most demand last Friday. The tightening of financial conditions came as the number of deaths caused by the NCoV now exceed SARS (813 v 774), even if the predictions by several epidemiologists of prestige see a peak in the NCoV in Wuhan by mid-late February. As a consequence of the sell-off in risk assets, the Aussie and Kiwi, as the two favorite shorts acting as a proxy for China, got dumped last Friday. The Euro continues to trade in a confined range at an index level amid the lack of clear catalysts, while the Pound is still attracting committed sellers since the highs printed over a week ago as the UK enters a tricky period of trade negotiations with the EU.

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

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

US NFP aids the king of Forex (USD): The US January NFP topped estimated with a number of +225K vs +165K expected. As part of this last report, it was also learned that the annual revisions cut 514K jobs from the 2018-2019 payrolls. The unemployment rate edged up to 3.6% vs 3.5% expected, but that was driven by a tick up in participation rate to 63.4% vs 63.2% prior. The average hourly earnings rose to +0.2% m/m vs +0.3% exp, while the yearly reading improved to +3.1% y/y vs +3.0% exp. Overall, the report shows another strong reading as hirings continue. The US Dollar found enough underlying demand to end Friday as the top performer, reflective of the solid jobs data.

The CAD goes for a bullish ride post Canadian jobs: The Canadian net change in employment for January came at 34.5K vs 17.5K estimate, which was a significant jump from what economists had been calling for, resulting on yet another day of follow-through demand in the Canadian Dollar. The full-time employment change was really strong at 35.7 K vs 33.9 K revised, while the part-time employment change was marginally negative at -1.2 K vs -6.5 K revised. The unemployment rate was 5.5% vs 5.7% estimate, while the hourly wage rate for permanent employees stood at YoY 4.4% vs 3.6% estimate. This report should definitely tame down expectations for an immediate BOC rate cut. Additionally, the Canadian January Ivey PMI surged to 57.3 vs 51.9 prior, reinforcing the positive inputs.

Fed fails to offer new insights, warns of the virus risks: The Fed published its semi-annual monetary policy, noting that the downside risks eased in late 2019 as a phase 1 trade deal with China was sealed but the phenomenon of the coronavirus is now a new threat to monitor closely. The Fed saw the US economy growing moderately last year as the labor market strengthened further and inflation continued to run below target. The Central Bank detailed that the probability of a recession in the next year had 'fallen noticeably' in recent months. In terms of the consumer spending and services activities, the Fed remains optimistic as its continues to hold up well. In terms of asset valuations and business debt, remain elevated but the leverage in the financial sector is low by historical norms, the Fed notes.

Where are we at in the NCoV situation? The latest updates on the coronavirus show an additional 89 deaths in mainland China on Saturday, bringing the total death toll around the world to at least 813 (these official figures are thought to be only a fraction of the suspected real ones). The number of confirmed cases has risen to nearly 30,000 in Hubei alone (again, it largely downplays the real ones). According to several sources, the global number of infected nears 40,000, most in mainland China. It’s also made headlines that the the number of people killed by the novel coronavirus globally has now overtaken the total death toll for the SARS outbreak in 2003, which killed 774 people across the world. The World Health Organization announced it will send a team to China to investigate the outbreak of the deadly virus, with the team leader leaving for the country today.

The PBOC to keep stimulating the economic activity: The PBOC (China’s Central Bank) is set to inject more stimulus measures in order to guarantee stability in financial markets following the flooding of liquidity into the system last week. The PBOC is set to issue the first lot of special re-lending funds for combating the coronavirus. The facility will be offered weekly to banks later in Feb. ThePBOC also said financial institutions should quicken the review process for loan applications & release loans within 2 days. These loans from special re-lending funds will be offered at up to 100bp below the one-year Loan Prime Rate (3.15%). All these measures should act as stimulants for the economy.

Outlook for Australia, New Zealand dampened on NCoV woes: We are starting to get the first bank research estimates of the impact from the coronavirus in the economies most exposed due to trade ties. In the case of New Zealand, the GDP forecast has been lowered to 0.8% for H1 from 1.3% by the Economics team at ANZ. As the bank notes, “uncertainty is extreme and we hope the virus is contained soon and the impact temporary.” Meanwhile, in Australia, the hit to Australia’s economy from the viral epidemic spreading from China is likely to be “significant”, Prime Minister Scott Morrison said on Thursday.

Global economic activity to take a hit: As per the impact in the global economy, Goldman Sachs sent a report late last week that the overall impact on global growth could be about a 2% cut in Q1, expecting growth to normalize in the following quarter. Goldman's baseline assumption is that the "aggressive response from the authorities in China and elsewhere will bring the rate of new infections down sharply by the end of Q1." As Goldman reports, “it will be another two weeks or so before we start to receive traditional macro data that could show a direct impact from the coronavirus outbreak and associated containment measures. Until then, market participants will need to continue to rely on sector-specific information such as news reports on factory closures and high frequency trackers of things like passenger travel and utility consumption.”

MAS warns to be prepared: The Singaporean central bank (MAS) advised financial institutions to take additional precautions in light of the coronavirus outbreak. A statement from the Monetary Authority of Singapore over the weekend notes that firms should "continue to maintain effective internal controls across their operations should split team arrangements be implemented." Besides, it was detailed that firms should anticipate and be prepared to manage any increase in demand for certain financial services, such as cash withdrawal or online financial services. The SGD has recently been on a downward spiral as the MAS hinted at monetary easing measures via a widening of the SGD trading band, leading to over 2 weeks of constant SGD selling.

Japanese ‘whale’ in action? According to a report by the Nikkei, Japan's pension 'whale' is suspected of harpooning the yen, in other words, there is growing talk that the coronavirus may have prompted Japan to stabilize the value of its currency using its mammoth-size retirement fund (GPIF), which is dubbed ‘the whale’. The GPIF is the world's biggest pension fund at 160 trillion yen ($1.45 trillion). As the report details, “currency market speculation is circulating that Japanese authorities began selling the yen, using cash from the Government Pension Investment Fund, and that China's central bank is conducting huge open market operations. One market player credited this week's yen-dollar exchange rate moves to a "joint fund supply by Japan and China."

Accumulation of Gold through ETFs continues: Gold has been lagging behind in terms of performance since the NCoV outbreak, however, it has nonetheless amassed marginal gains. However, what’s caught my attention is a report by Saxo Bank that details that “despite the lack of prime movements, investors have continued to accumulate gold through exchange-traded funds backed by bullion. Total holdings have, in the last 3 weeks, risen by 65 tons to 2,585 tons, breaking the previous record from 2012. Since the NCoV scare made it to mainstream on Jan 22, WTI crude oil is the worst performing asset with declines of more than 15%.

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 risk dynamics, as assessed via the risk-weighted index, have deteriorated once again, with the sharp fall in US bond yields primarily, and to a lesser extent equities, weighing. The pick up in risk aversion was also reflected in the rise seen through the USD/CNH exchange rate, which fueled further downside in the Aussie as I will unwrap below. The VIX (fear index), and direct inversion to the S&P 500, is still far from the elevated levels from last week.

The EUR index keeps finding buying interest at a location where I would be expecting bullish behaviour to emerge as that’s an area where shorts are being mitigated. Since the price action has been quite limited, I have no option but to reiterate the view I’ve endorsed for a number of days now, that is, my constructive trade premise is predicated on the recent interactions at areas of liquidity. Since the index has landed at the origin of the supply bar that led to the last breakout lower, this is an area where a mitigation of shorts caught wrong-sided may occur, which tends to result in a reversal back up. The smart money tracker remains bullish too.

The GBP index is on the verge of a key breakout in structure, and the price action seen last Friday, if anything, strengthens the case for a breakout of the price structuve. The failure to maintain the bullish gains on Friday, with the end net result being an upper shadow, is a reflection that pressure keeps building up for an ultimate breakout lower that would validate, upon a daily close below the support, a fresh bearish cycle. The establishment of a new bearish cycle, if/when confirmed, would allow further room lower, to the tune of 0.9%-1%.

The USD index, on the back of the well-telegraphed technical breakout of a resistance last week, has gathered further steam to the upside, with Friday’s price action a strong statement of intent. Be aware, while scalping-type strategies may continue to see the currency as providing long-side opportunities intraday, the USD is at risk of shallow setbacks as the technical movement looks rather overstretched in the near term. The last impulsive move up in the currency comes stimulated by a strong US NFP, allowing the breach of another significant target completion after the extension towards the double top seen through Nov last year. I’ve marked in the chart below the next logical level of resistance where buyers may set the sight next.

The CAD index, notwithstanding the 4 straight days of gains, still retains a bearish profile off the daily chart. Either we look at the price structure or at the smart money tracker, both still point to risks skewed towards the downside. It is my base case that the buying pressure ends up petering out and sellers re-take control of the price action, despite I must acknowledge that the fundamental backing, after the positive surprise in the Canadian jobs, has debilitated. However, if risk-off dynamics pick up further momentum, with Oil exposed to a breakout of $50, it may attract significant downside momentum in the CAD sell-side action, with a very juicy target far below the current price, in the form of the 100% projection target at the Dec double bottom.

The JPY index, after materializing the closure of its up-gap from two weeks ago, found once again strong buy-side aggregated flows from an area where I warned these could return. What’s more, the bullish action falls in line with both the price structure in this market (higher highs), alongside the upward slope in the money tracker, hence why this is a rally with all the technical backing I’d like to see for an eventual retest of the previous highs. I’d be wary to add Yen short exposure at these levels as the daily pattern tends to be a powerful one for at least the recent trend high to be revisited in what I personally expect now to be another successful rotation up. The readership can find out more about this pattern in this video I created.

The AUD index, at this stage, is a market that as a default view off the daily, meets all the prerequisites to be sold on weakness. Before I unwrap the technicals into a deep dive, be aware that as I did warn, the level of resistance overhead acted as the reactionary level where sellers re-engaged in line with the dominant trend as the coronavirus fears fail to fully fade away. I told readers that by following the aggregated flows, which is what these charts reflect, there was a palpable risk of such resistance being an inflection point where a shift in order flow may occur. Venturing into longs in the Aussie does not have the backing of the price structure or the momentum, which I judge based on the smart money tracker. This is a market that is vulnerable to see further downside bias for a retest of the previous low as technicals stand.

The NZD index is revisiting an area of key support. It’s not an ideal location to engage in shorts as it’s anyone’s guess how a retest of a previous swing low may play out. However, by looking at the tapering of tick volume on this second test lower, sellers are still not highly convinced. Therefore, the story line that I am reading here is that buying may continue to emerge off this line of strong support, even if I feel that’s a risky call because the environment has turned quite negative for the interest of commodity-linked currencies. Keep adding into NZD long exposure at your own risk I find would be an appropriate commentary here, especially on the basis that the price structure and the order flow via the smart money tracker imply the risk of more downside.

The CHF index, after a healthy pullback, printed a critica fractal pattern in the daily chart, which akin to what I've seen in the Yen chart, suggest that the market is now poised to see a potential retest of the previous trend high. The index remains in a clear uptrend and if recent history is any indication, the recent areas of previous resistance have reliably turned into support, which is what we are seeing once again as the architecture of the market screams buy on weakness. The bullish stance is aided by the ongoing bullish price structure as well as by the upward momentum via the smart money tracker, which has been guiding the index higher since the start of the year and it has yet to see a turn lower in the slope. Buyer keep ruling this market.

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

USD & JPY Outperform In The NCoV Era


As uncertainty in markets settles in, the USD and the JPY firm up its dominance in the Forex space, while on the other side of the spectrum, the Kiwi and the Aussie continue to outperform. Investors are still trying to figure out the ramifications of the NCoV as reflected by the contrasting directional biases in US equities (new record highs) and global yields (under pressure). What can we make of it? In this report, I provide an update of the latest drivers and aggregated flows in the G8 FX complex.
The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics - fundamentals and technicals - determine daily biases and assist one’s trading decisions.

Let’s get started…

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

Quick Take

The shift in order flow since the outbreak of the NCoV continues to keep the US Dollar and the Japanese Yen in the front-seat, while the Kiwi emerges as the worst performer, starting to divergence from the soothing in sell-side pressure seen in the Aussie. The fact that the Yen continues to rise amid fresh all-time highs in the S&P 500 or that the Swiss Franc keeps finding stubborn buying interest during a stable risk profile phase on Monday (including Yuan buying) and a sharp fall in the Euro, should be another red flag that bullish technicals prevail. Moral of the story? follow the established daily trends. The selling in the Euro, worth touching on, comes at a time when there is renewed German political uncertainty as Chancellor Merkel’s designated successor as part of the CDU party announced that she has decided to step down as the next leader. Meanwhile, the Pound saw a very strong recovery off the lows, in a move that typically gets fuel back up assisted by the tripping of stops by those that went short on the initial breakout. Lastly, the Canadian Dollar, which has put on an impressive 5-day performance, is starting to slow down, in what’s still seen as a market with enough credence to be sold based on technicals (see index). Overall, the market remains caught up in a phase of clear uncertainty, with 2 currencies benefiting the most (USD, JPY), another 2 being the most punished (AUD, NZD), while a basket of 4 (EUR, GBP, CHF, CAD) are trading more subject to fundamental-centric factors. You could argue, however, that the CHF could make it as part of the front-runners while the CAD may join the likes of AUD, NZD as a highly fragile currency to the NCoV woes.

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.

Mixed signals as NCoV plays out: Markets did not paddle in the same direction risk-wise as investors are still trying to figure out the repercussions from the NCoV on both the Chinese economy and the global growth outlook. The divergence seen on the performance by US equities (new all time-highs in the S&P 500) comes in contrast with a rather cautious tone in US and global yields as a barometer of global growth and inflation outlook. Besides, the fall in yields is also a reminder that monetary authorities around the globe won’t hesitate to provide more accommodative stimulus in their policy stances when/if needed. The fall in crude oil also dents the outlook for a quick resolution of the virus crisis in China.

‘Official’ NCoV cases reach 40k world-wide: The number of total confirmed cases of the coronavirus outbreak all over the world is just over 40,000, even if the majority (more than 39,000) are within China. The death toll has so far reached 1,000, with only two cases outside of China. However, by looking at the number of countries where the virus has spread to, it keeps expanding. Singapore is the worst-affected country with 45 confirmed cases. The Singaporean central bank (MAS) advised financial institutions to take additional precautions in light of the coronavirus outbreak. A summary of the latest updates on the NCoV can be found in this post.

A deep dive into China’s rigged NCoV stats: To gain insights into all the tricks China is playing to rig the number of ‘confirmed cases’ of coronavirus, I urge the reader to read this post by ZeroHedge. To cut to the chase, China has quietly changed the definition of what an "infection" means in the latest guideline dated 7/2 by the Chinese National Health Commission. Going forward patients who tested positive for the virus but have no symptoms will no longer be regarded as confirmed. As Alex Lam, a reporter in the Chinese NCoV, "this inevitably will lower the numbers."

WHO shares concerns in latest presser: The head of the World Health Organisation said that a WHO team of experts has arrived in China to lay groundwork for a larger team looking into coronavirus outbreak. Monday’s press conference also noted that “in recent days we have seen some concerning instances of onward [coronavirus] transmission from people with no travel history to China, like the cases reported in France yesterday and the UK today. The detection of this small number of cases could be the spark that becomes a bigger fire. But for now, it’s only a spark.”

UK ups the public alert level on the NCoV: In the UK, the government confirmed four new cases of the new coronavirus, which brings the total number of cases in the UK to eight. The UK has now declared the new coronavirus as a serious, imminent threat to public health, adding that "measures outlined in these regulations are considered as an effective means of delaying or preventing further transmission of the virus". They have designated Wuhan and the Hubei province as an "infected area".

China keeps pumping liquidity into the system: As reported by the Xinhua news agency, China's central bank injected 900 bln yuan (about 129 billion U.S. dollars) into the financial system via reverse repos on Monday. This action is aimed at keeping liquidity in the banking system at sufficient levels, according to a statement on the website of the central bank. A reverse repo is an operation by which the central bank purchases securities from a commercial bank with an agreement to sell it back in the future.

Expectations for fiscal response as China outlook worsens: Morgan Stanley's Equity Strategist Micheal Wilson notes that there is "a growing view that the worse the economy in China gets, the more likely we will get fiscal stimulus from China and perhaps Europe and Japan given how tied they are to China's economy." The strategist highlights that the latest German and French Industrial Production prints for December were "extremely disappointing", but most worrying is the fact that this data still doesn’t capture the outbreak of the coronavirus, yet stock indices are failing to sell-off, in what the economist thinks it "suggests investors may be thinking a fiscal response is now more likely and looking through it."

Renewed German political uncertainty: This is a negative input for the Euro, which may be behind some of the ongoing underperformance in the currency. Annegret Kramp-Karrenbauer (AKK), Chancellor Merkel’s designated successor as part of the CDU party, announced that she has decided to step down as the next leader, hence not running for the German chancellorship at the next federal election. The decision follows the disobedience of a CDU delegate in eastern Germany to follow the party’s guidelines to not cooperate with the far right AfD party.

Canada to pay consequences of NCoV down the line? Canada’s Finance Minister Morneau said that the coronavirus will have a real impact on Canada, especially on tourism and commodities. He pledged Canada will remain fiscally responsible. The latest economic data out of Canada has been on the positive side, with a stellar jobs report last Friday, followed by an improving picture in building permits and housing starts. However, the debacle in the price of Oil, down over 20% in the last month, is definitely a key factor that may weigh on the economy and see the growth outlook for the heavily reliant Oil economy tampered.

Two heavyweights take the stage: ECB’s President Lagarde is due to deliver opening remarks at the presentation of the 2018 ECB Annual Report before the European Parliament, in Strasbourg. Market participants should watch for any headline that may move the needle, even if her pedigree in giving away many clues in policy so far has been null. In the US, Fed’s Chair Powell is also due to testify on the Semiannual Monetary Policy Report before the House Financial Services Committee, in Washington DC; The Monetary Policy Report submitted to the Congress on February 7, 2020, can be found in this link. In it, no surprises were noted.

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 risk dynamics, as detailed in the narratives section above, show a mixed-bag of signals with the equity complex through the S&P 500 continuing to defy gravity by touching new all time highs, while the US 30y bond yield as the ultimate indicator of the ‘real’ outlook for global growth and inflation still sliding, also partially influenced by the fact that if the NCoV-induced growth slowdown in the global economy accelerates, G8 Central Banks won’t hesitate to provide further stimulus. When looking at the USD/CNH, the fall in the pair (strength in the Yuan) should also be interpreted as a positive sign. The net balance, therefore, is mildly positive for risk (upside potential in the AUD, downside in the JPY) as equity rises are accompanied by weakness in the USD/CNH, while the picture taking investors aback is the trend in global yields.

The EUR index managed to gun through bids to see considerable sell-side pressure until stalling at the expected line of support where I’d expect buy side pressure to emerge. Where the index has landed is part of a right-hand shoulder pattern, even if the close seen is far from encouraging, with no buying interest heading into the NY close. In contrast, the selling does not carry significant aggregated tick volume activity, which tends to be suspicious of a move that runs the risk of exhausting, but as I stated, price action offers no clues of that. The smart money tracker has turned bearish, but since the market structure does not agree, I wouldn’t read too much into it. I find being as seller of Euros at these lows a risky proposition as you want to preferably, in the majority of cases, look to buy low and sell high.

The GBP index keeps finding support at a critical line in the sand that is so far preventing the market from validating a bearish structure and is keeping the prospects of higher levels alive. Buying off these lows has proven to be a profitable approach to take upon trigger entries in lower timeframes in a traders’ choice of best currencies to trade the GBP against. The next directional bias is anyone’s guess as the daily offers little clues, with the smart money tracker in a flat phase and the market trapped in a consolidation. When that’s the case, buying and selling of the extremes of the established range becomes an optimal strategy to consider.

The USD index continues its relentless rise following last week’s breakout of a resistance, which has so far been backed up by price action. There is no denial that the path of least resistance continues to be bullish, but unless it’s fitting for your profile as a trader to exploit scalping-type strategies intraday for continuous long-side opportunities, the risk of shallow setbacks is something to strongly consider short-term as the technical movement looks overstretched. The last move up in the currency comes stimulated by a strong US NFP as well as the sense that the US is one of the most immune economies to the NCoV outbreak. The next logical level of resistance where buyers may set the sight next is the next big target for bulls.

The CAD index, after a run of 4 straight days in positive territory, finally saw selling ensue, even if the conviction would be classified as fairly poor judging by the aggregated tick volume and lower shadow reflective of constant buying off the lows in the US session. However, since the market structure is still bearish off the daily chart, alongside a smart money tracker that is yet to turn bullish I’d be wary of betting for further gains. My main case of risks skewed towards the downside is still valid, even if as usual, I will be happy to adapt when/if needed. The index was lifted on Friday by the fundamental backing of a positive surprise in the Canadian jobs.

The JPY index, after materializing the closure of its up-gap from two weeks ago, has printed the type of bullish price action in line with the underlying price structure that makes me be bullish. The upward slope in the money tracker is also supportive to expect buy-side pressure to remain present for an eventual retest of the previous highs. I’d be wary to add Yen short exposure at these levels as the daily pattern tends to be a powerful one for at least the recent trend high. The readership can find out more about this pattern in this video I created.

The AUD index faces the risk of further downside pressure based on technicals. The price action from Monday changes nothing the outlook as all the prerequisites to be a seller on weakness are still in ‘active’ mode, that is, a price structure of lower lows and lower highs, a resistance tested and rejected, alongside the smart money tracker heading lower. Besides, the Aussie is alongside the Kiwi, the most vulnerable FX option to play long if the NCoV-led risk-off kicks in again. Therefore, speculating in longs this currency has little technical backing off the daily chart.

The NZD index has broken its line of key support, with a close beyond. This means the path has been cleared for momentum-type accounts to re-engage in shorts for an ultimate test of the orange box, which is the range where the 100% proj target and the next support line come at. The breakout into new lows also means that the price structure and the smart money tracker agree in selling rallies, with a new active 100% target still to be met, which is what makes this market an ideal short trade premise. Now, it is all about finding the best currencies to exploit the Kiwi weakness against. The Yen, Swissy or US Dollar are strong candidates.

The CHF index printed a critical fractal pattern in the daily chart, which is tantamount in nature to what’s been described in the Yen chart, that is, pressure is set to build up for a retest of the previous trend high. The price action on Monday is concurrent with the bullish stance as further buying on dips emerged even as the Euro sold off and the risk appetite kicked in via equities. The bullish stance is aided by the ongoing bullish price structure as well as by the upward momentum via the smart money tracker, which has been guiding the index higher since the start of the year and it has yet to see a turn lower in the slope.

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 Kiwi Catapulted After Hawkish RBNZ


The value of the Kiwi was adjusted aggressively to the upside as algo activity was lighting-fast to react to a hawkish policy statement by the RBNZ. Will this represent a macro inflection point in the Kiwi, and as a consequence, the onset of a bullish trend? Read the report to find out all the details and what's the latest status in the Forex arena...

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 economic calendar was packed with Central Bank events, including Fed’s Powell, ECB’s Lagarde and BOE’s Carney. The net effect, after all said and done, is a sense that these policymakers did a great job at sounding non-committal and sticking to the familiar mantra. What does this mean? It means there was little meat in the bone, a lack of substance or new surprises in the remarks they had prepared. As a consequence, the movement in currencies this week continues to be rather dull in nature, with the US Dollar a touch softer, even if that has not acted as a catalyst to see buying in the Euro, which remains in free-fall. Watch the EUR index closely as it nears a key level where long inventry building is a real possibility.

The Kiwi, however, is the exception, marked up aggressively by algo activity and the unwinding of shorts on the aftermath of a more hawkish-than-expected RBNZ. The Aussie, meanwhile, saw buy-side flows re-emerge but at a much slower pace as the positive groove in equities feeds through. The lower reported rate of new NCoV infections by China (even if numbers manipulated), or expectations of some factories in China to soon re-open are factors supporting equities. Not to forget, the Fed’s balance sheet expansion via money market operations, alongside the boost in Trump ratings to win this year’s presidential race after the Iowa caucus fiasco is also an aid.

This recovery in equities is causing the Yen and Swissy to see sell-side flows dominate this week, but the setback in the currencies is still under a bullish context when analyzing the aggregated daily flow. The Sterling is one of the clear beneficiaries from the current state of affairs, with its recovery more to do with a technically-inspired re-loading of longs at a critical liquidity area than any particular fundamental catalyst, as the EU-UK trade talks still the key driver with the outlook as tricky as it was during the aggressive sell-off in the Pound earlier this month. Lastly, the Canadian Dollar remains firmer but on the daily the currency remains structurally bearish.

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 Kiwi flies on RBNZ hawkish surprise: The Kiwi appreciated sharply on the back of a rather hawkish RBNZ’s policy announcement. The RBNZ left the cash rate on hold as expected at 1% but once the market scanned through the details of the statement, the reasons to bid to NZD piled up. First of, he forecasts for the OCR show they do not expect to cut this year, with the next move projected a hike in mid-late 2021. The RBNZ assumes the overall impact of coronavirus will be of a short duration, expecting the economic growth to accelerate over the H2 2020. So, with the RBNZ unlikely to cut again as they appear confident to have re-calibrated the policy settings enough for the optimal conditions to see inflation pick up, there may be a significant re-adjustment in NZD short exposure. The market had expected an easing bias to be retained and certainly not the hawkish shift from the guidance. If the NCoV turns out to be near its peak, it’s safe to assume the RBNZ has signaled today the end of its easing bias.

‘Risk on’ back in vogue: Risk appetite continues charging ahead as the price behavior in the Aussie, the Yen, gold, equities or bond yields reflect. There have been a number of key factors discussed in the media to fit the current narrative in the recovery of asset valuations, from the expansion of the Fed’s balance sheet via the operations conducted to stabilize money markets, the exaggerated movements caused by the coronavirus as the rate of new infections reported by China decreases, leading some factories in China to re-open, or the greater odds of Trump claiming victory in this year’s presidential race after the Iowa caucus fiasco.

Fed’s Powell retains the old too familiar mantra: As part of the testimony by Fed Powell on the semiannual Monetary Policy Report to the Congress before the Committee on Financial Services, none of the opening prepared remarks by the policy-makers caused much movement in the market as Powell repeated the familiar lines that is going to take a considerable shock for the Fed to veer off its current neutral course. In the words of Powell, “the policy is likely appropriate barring material reassessment.

Key passage from the prepared statement by Powell: The most important passage that markets scanned as part of Powell’s current view in policy included: “The FOMC believes that the current stance of monetary policy will support continued economic growth, a strong labor market, and inflation returning to the Committee’s symmetric 2 percent objective. As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy will likely remain appropriate. Of course, policy is not on a preset course. If developments emerge that cause a material reassessment of our outlook, we would respond”.

Trump’s criticism towards Powell won't stop: The US President tweeted “when Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15. Germany & other countries get paid to borrow money. We are more prime, but Fed Rate is too high, Dollar tough on exports.”

Lagarde says monetary tools not the only game in town: In the introductory statement by Christine Lagarde, President of the ECB, on the presentation of the ECB Annual Report at the European Parliament, she said that monetary policy can't be only game in town, warning that the side effects of policy become greater with time. In terms of euro area growth, Lagarde noted that “momentum has been slowing since the start of 2018, largely on account of global uncertainties in weaker international trade.” As per inflation, Lagarde finds that the sluggish growth has led to “weaken the pressure on prices and inflation remains some distance below the medium-term aim.”

ECB set to rush review of inflation goal: According to an article by Bloomberg, the currently underway ECB comprehensive strategic review could be rushed to set an inflation goal by July. As part of the review, there are eight areas of focus to potentially revise, including inflation goal, measures of inflation, policy instruments, macro modeling, (de)globalization, digitalization, communication, climate change. An unnamed source noted that the governing council members will start addressing the specific issues immediately before the policy meetings in March and April. The strategic review represents a chance to heal the fragmented views by policymakers that built up under Draghi.

BOE Carney reassures stance on rates to remain low: As part of a testimony in front of the Economics Affair Committee in the UK, BOE Governor Carney said that “some stimulus may be required to get back to trend growth.” He also added that “interest is set to remain relatively low for the foreseeable future, with any upward adjustments expected to be modest.” Carney went on saying that “low interest rate environment adds to govt fiscal capacity.” Also, akin to the ECB, Carney said that “the BOE in the process of reviewing its monetary policy framework: It is possible, not saying there will, that there will be structural changes to how inflation targets are set, the bar being quite high.”

NCoV still at a critical phase: China Global Times quoted a Chinese senior medical advisor Zhong Nanshan as saying that the Coronavirus outbreak is still at very difficult moment. It read: “Wuhan epicenter of coronavirus outbreak is still at a very difficult moment, although a lower death rate compared to SARS and MERs, the city has not completely solve the problem with people to people transmission.”
UK growth in Q4 null, will it pick up in Q1 2020? The UK Q4 preliminary QoQ GDP came unchanged at 0.0% vs 0.0% expected, confirming that the UK economy got stuck in a phase of no growth during Q4 last year. Services and construction contributed positively to growth in the output approach to GDP in Quarter 4 2019, while production output contributed negatively to growth. What the market cares about though, is whether or not the economy can sustain to breathe a breeze of fresher air via a prolonged positive post-election sentiment. Such prospect must be reconciled with a very challenging road ahead to negotiate trade conditions between the UK and Europe.

Mixed-bag US data, Jolts a red flag: In terms of US data, we saw a solid NFIB small Business Optimism Survey, which came at 104.3 from 102.7, with strong market gains the main contributor. On the flip side, a major slump was seen in job-openings (JOLTS 6,423k in December from a downward revised 6,787 in November). It’s worth noting that based on Fed chair Janet Yellen’s favourite measure of labour market condition, this was her favourite data to monitor. What this suggests, according to the Research team at NAB, “is significantly slower monthly payroll gains down the not too distant track.”
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 risk dynamics keep re-anchoring to a more benign stance, led by the new highs printed in US equities, while the US 30-year bond yields also sees a mild tick up. This price action in the two ultimate instruments to understand the risk mood has resulted in a better tone in the likes of the Aussie, while the Yen gets sold. When looking at the USD/CNH, the fall in the pair (strength in the Yuan) for a second straight day can be interpreted as another positive sign. While the market structure of the risk-weighted index is not yet bullish off the daily, we are nearing a potential breakout through the previous high, in which case, it will further solidify the sense that risk appetite may see a more prolonged recovery in weeks ahead.

The EUR index keeps selling off and is fast approaching a key level of support. The question now is, will the index validate a fresh bearish cycle or could we see a rebound off the lows? If the latter ends up playing out, the currency is nearing some very attractive levels to play longs, even if one must be aware that it would be against the dominant bearish tide, hence some type of intraday confirmation on one’s entry will be a must-needed approach. If the index evolves into a new bearish cycle by finding acceptance below the previous low, sell on rallies is the way to go. For now, based on the lack of aggregated tick volume activity on the way down, I have serious reservations that we are headed into a new bearish cycle on the daily, which means a potential bottom may be looming near, even if as I said, you can’t just buy blindly.

The GBP index keeps finding support at a critical line of support that has so far disallowed a bearish breakout which would have damaged the outlook considerably. Instead, the index keeps recovering and is keeping the prospects of higher levels alive with dip buyers emerging. Technically, there is still value to buy the GBP under the context of a market that does not look overly pricey and has the structure not negating further upside. The smart money tracker has also turned back to bullish. I remain cautiously optimistic on the GBP outlook.

The USD index trades at rather lofty levels to perceive much value in being a buyer unless engaging in intraday scalping opportunities aimed at quick profits. I’d be very wary of entering longs as this is not a location where big institutions are looking to get the best pricing. In fact, we are at an area, judging by the aggregated flows, that the risk of profit taking at these liquidity area(double top from Nov breached) increases significantly, leading to pullbacks. The tapering of aggregated tick volume on the way up also suggests that this last part of the rally does not carry the substance necessary (for now) to make its prospects be long-lasting. This early warning does not negate the fact that the bullish trend is very well established, therefore I wouldn’t be surprised in the slightest if the USD keeps seeing buying pressure on shallow dips.

The CAD index faces the risk of selling off from these pristine levels in line with the daily bearish structure and this is a view so far backed up by the tick volume taper seen. On the flip side, the prolonged retracement has led to a softening of the bearish momentum as indicated by the smart money tracker turning bullish now, which debilitates the case for the selling to be in congruence with my favorite measure of momentum in a market, which is when the slope still points lower. Nonetheless, my main case of risks skewed towards the downside is still valid as the smart money tracker may still re-anchor bearish if selling ensues from these levels. The case to be a CAD seller, from a fundamental standpoint, has debilitated a tad following the positive surprise in the Canadian jobs, which reduced the odds of a BOC rate cut.

The JPY index, on the back of closing the up-gap from two weeks ago, continues to suggests that further bullish price action in line with the underlying price structure is a real possibility. The upward slope in the money tracker is also endorsing longs at this stage, hence why I wouldn’t be surprised in the slightest if buy-side pressure increases for an eventual retest of the previous highs, even if the risk conditions at this stage are not supportive with US equity indexes at all time highs. I remain firm in my core case that adding Yen short exposure at these levels is frankly quite risky as the daily pattern at play remains a powerful one for at least the recent trend high. The readership can find out more about this pattern in this video I created.

The AUD index is putting up a fight to challenge the sell-side pressure off a key resistance. However, based on the aggregated tick volume, the retest into this resistance for a second time is far from compelling as the buy-side volume activity is reducing. The price action from Tuesday still changes nothing the outlook as all the prerequisites to be a seller on weakness are still in place, that is, a price structure of lower lows and lower highs, a resistance tested and rejected, alongside the smart money tracker heading lower. Longs the AUD remains a risky bet, a view that would be negated on a break and hold above the mentioned resistance.

The NZD index is breaking to the upside at the time of writing as the RBNZ surprised the market with a hawkish policy statement, essentially preparing the market for an end of its easing bias, barring a major deterioration in the NCoV situation. This markup has the momentum behind to see further gains short-term, but be aware that is always much safer, in order not to be caught at suboptimal price entries, to wait for a retracement before engaging in longs. This is a move, stimulated by a Central Bank decision, that sets the stage for an inflection point that may see the onset of a long-lasting trend in the Kiwi even if it’s still early days.

The CHF index, the more candle that get printed this week, the more that it reaffirms my bullish stance that an eventual retest of the previous high is within reach. The build up of buy-side pressure from the current levels is predicated on the bullsh market structure, the price action formations, with back to back long long shadows in this week’s candles, alongside a bullish smart money tracker. Therefore, dip buying is still the main 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

Currencies Behave Pricing In Coronavirus Peak


What does a fall in-sync in the EUR, CHF, JPY tell us about the mood in the forex market? What's going on with the Kiwi, why such a vertical movement in price? Are you aware that the EUR is printing fresh multi-year lows when aggregating the flows in the G8 FX space? Don't miss any of the key developments and keep reading today's report...
The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & 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 more days that go by, the more traders are getting a sense that the worst in the NCoV scare may be behind us. This is not a hunch or something I write out of my gut feeling, but as usual, I let price action and the aggregated flows in G8 FX tell the story. We are witnessing, without exception, the three funding currencies (EUR, GBP, CHF) be dumped this week. Whenever speculators show a greater interest to borrow a low-interest rate currency to use it as a funding currency to profit, it suggests the carry trade is ‘back on’, and this would not be happening if the market was still engulfed by elevated levels of uncertainty. As one shifts the focus to equities, the same picture arises, with the S&P 500 making fresh record highs. Chinese equities? The same story, with 7 days of straight gains in the CSI 300 index. The Aussie has clearly benefited from this recovery in risk, at a time when the RBA Governor Lowe is starting to sound more upbeat on the economy judging by the speech given this Thursday. However, the Aussie performance was eclipsed by the aggressive mark-up in the New Zealand Dollar after the RBNZ hints at the end of its easing bias. Shifting gears to the world's reserve currency, the USD maintains a bullish outlook with a notable dip buying participation noted as Fed's Powell testimony failed to act as a catalyst to alter the northbound tendency. Its neighboring peer, the Canadian Dollar, had a stellar performance as Oil keeps recovering in line with risk, while the Pound saw very tepid aggregated flows.

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.

Another day, another record high for equities: Equities in the US keep charging higher, coupled with bond yields on the mend, gives off the sense that the risk dynamics continue on the mend at a steady pace. This was also reflected in the stabilization of the Yuan or the 7 days of straight gains by Chinese equities as the CSI 300 index managed to fill the gap lower from the reopen last Monday. The underperformance by the Yen, the Franc and the Euro, the three favorite funding currencies, portrays a market jumping back into carry trades in order to borrow at low rates to speculate in higher-yielding currency bets.

Jump in new NCoV cases but there is a catch... At the open of markets in Asia this Thursday, China's Hubei province reported 14,840 new coronavirus cases, leading to an immediate yet brief sell-off in the AUD. Digging deeper, the authorities in Hubei revised their diagnostic standard for coronavirus cases, hence it’s important to make the distinction that out of 14,840 new cases, 13,332 were "clinical diagnosis". Nonetheless, this explains the spike in new cases and the panic selling in the Aussie. The Health Commission for Hubei Province said that “in order to be consistent with the classification of case diagnosis issued by other provinces across the country, starting today, Hubei Province will include the number of clinically diagnosed cases into the number of confirmed cases.”

RBA Governor Lowe sounds more upbeat on the economy: Speaking on a panel this Thursday in Asian hours, Lowe said that the outlook for the Australian economy is improving, noting that the coronavirus is having an uncertain impact, but absent the virus Oz outlook improving. The areas most affected by the virus scare, the RBA boss noted, included education and tourism. Lowe said that the Chinese policy stimulus will be a positive for Australia and that low interest rates are working but will take time.

The Euro/US Dollar hits its lowest level since May 2017: a technical picture which is equally bleak when looking at the performance of the EUR index, finding a fresh multi year low. There has not been any particular catalyst to attribute for the steady selling in the currency, even if one could argue that the recent data, including Wednesday’s EZ industrial production, is not helping the case for the ECB to stay that constructive in the economic recovery. There is speculation that a dovish shift in rhetoric at the March ECB meeting could be in store. A piece by MNI, quoting an unnamed official, who said “a few weeks ago, before the virus outbreak, I would have said that the policy outlook remained unchanged….but now the picture has changed. We just need to properly weigh up to what degree”. Remember, Germany is facing a tough environment during a Chinese slowdown due to the exposure in goods exports it has.

Powell keeps it uninteresting: The second day of testimony by Fed’s Chairman Powell in front of the Senate banking panel offered very little to grab on in terms of headlines. It was a reiteration of the old mantra we are too familiar with. Among all the prepared remarks, one that stood out was when Powell said that “the Fed is likely to need to QE and make the case for lower rates in its forward guidance in a downturn”, adding that “we will see the impact of the NCoV in data fairly soon.” You can click the following link for a list of most highlights. Overall, the comments were unsurprisingly tame and there was clearly no interest in shifting the narrative away from the Fed is in neutral ground.

RBNZ Governor Orr defends neutral bias: Following the strong appreciation in the NZD amid a hawkish surprise by the RBNZ on Wednesday, where the forecasts for the OCR show they do not expect more cuts this year and economic growth to accelerate over H2, the Governor of the RBNZ may have had the subtle intent to water down a tad this rhetoric, noting that low rates remain necessary. Orr added that the coronavirus is the downside risk to the outlook and that real wages are starting to pick up, reaffirming, in his words, that “we are seeing monetary policy work.” Besides, he stated that the fact that the government is spending more fiscally, “give us confidence” Orr said. RBNZ Assistant Governor Christian Hawkesby, in an interview via Bloomberg, also insisted that the RBNZ has a genuine neutral bias on interest rates at this point. Hawkesby sees household consumption gains boosting growth in H2 while expecting the labour market to soften, hence why low rates are necessary to support the possible downturn.

Mnuchin attempts to talk up phase 2 of US-China trade deal: US Treasury Secretary Mnuchin said that the entire chapters of phase 2 China deal have already been dealt with despite the coronavirus issues in China. This is, in the eyes of the market, a positive input that may fuel further the momentum in stocks. On the flip side, Mnuchin said that the implementation of China phase 1 deal has slowed down - to a certain extent - due to the coronavirus crisis. Mnuchin went on to say that 3 to 4 more weeks of data will be needed to assess the overall impact of the coronavirus in China.

WHO says NCoV cases stabilizing: The World Health Organization Chief, Mr Tedros, updated the general public, at a press conference, that the number of NCoV cases in China have stabilized over the past week, but that must be interpreted with extreme caution, as the outbreak could still go in any direction. He also said that the behavior of the coronavirus outside Hubei province doesn't appear to be as aggressive or accelerating, which he described as “a good sign.” One of Tedros’ highlights included that “slower spread in other Chinese provinces still gives us an opportunity for containment potential interruption of the virus, but is not guaranteed.”

Crude oil inventories jumped this week: The weekly reading stood at 7.459M vs 3.200M estimate, while the private data came in stronger at 6.0M. Nonetheless, Oil has regained further after tentative evidence, even if massaged by the Central government in China, is achieving the goal of creating the perception that the coronavirus outbreak may be nearing its peak. For an in-depth analysis of the latest report on oil inventories and the breakdowns, read this link. Relevant for Oil traders as well, OPEC cut the Q1 oil demand growth estimate by 440k bpd due to the NCoV outbreak.

The Riksbank left rates intact on unanimous decision: The Swedish Central Bank decided to leave its rate unchanged in a decision that was reached by unanimous consensus, a rare development considering the recent fragmented views on the board. The Sweedish Central Bank, nonetheless, downgraded its 2020 inflation forecast, while keeping the forecast repo rate trajectory unchanged. The SEK found pockets of demand as a result.
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 selling off unperturbed and the momentum it has gathered suggests that this is a market that remains, now with a higher degree of conviction, on sell-side mode. The validation of a new bearish cycle by finding acceptance below the previous low means this is an inflection point to see further interest to be a seller on rallies as retracements occur. The next 100% projected target still allows for significant room to the downside.

The GBP index has barely changed its valuation as it consolidates above a key level of support where a potential bottom may have been formed. From a market structure standpoint, the Pound is still holding a relatively benign outlook with the smart money tracker back to bullish. I remain cautiously optimistic on the GBP outlook until the price action proves me wrong.

The USD index continues to see buy on dips activity in line with the market structure and smart money tracker. The USD has proven rather immune to the risk profile at play. While the valuation in the USD remains high, notice that during 2020, the currency is yet to make a significant correction to the downside beyond the extension seen in the last 2 days. If you are betting on more USD weakness, you are essentially betting on this pattern to be broken.

The CAD index is on the verge of breaking into bullish territory by breaching the previous swing high. Once that occurs, with the smart money tracker already pointing bullish, it would enhance the outlook for the currency. That said, it’s not all done yet as the index has stalled at the resistance level one would have anticipated, with the tick volume suggesting little commitment. Remember, the case to be a CAD seller, from a fundamental standpoint, has debilitated following a string of positive inputs, including the Canadian jobs, which reduced the odds of a BOC cut.

The JPY index was swamped by a wave of selling pressure right from the European open, placing the index in a compromising position for the interest of buyers. Technically, if the previous low is cleared, it would validate the resumption of the downtrend based on market structures. Beside,s this final bearish push to confirm a downcycle would coincide with the smart money tracker slope turning bearish, hence reinforcing the sell-side prospects going forward.

The AUD index continues to put up a fight as pressure into a resistance line builds up. However, based on the aggregated tick volume, nothing has changed, and the retest into this resistance for a second time is far from compelling as the buy-side volume activity is reducing. While the price structure of lower lows and lower highs has not changed, what has indeed seen a variation is the slope of the smart money tracker, now headed up. Longs the AUD remain a risky bet, but one that soon may have the technical backing of the daily if the prior swing high gives way.

The NZD index has broken to the upside on the back of the RBNZ hawkish policy statement, as the Central Bank is preparing the market for an end of its easing bias, barring a major deterioration in the NCoV situation. This markup has the momentum behind to see further gains short-term, but allow a retracement to engage at suboptimal price entries. As mentioned yesterday, this is a move, stimulated by a Central Bank decision that may be about to set a new direction in policy, hence why it’s important to be aware of its significance as an inflection point that may see the onset of a prolonged trend in the Kiwi even if it’s still early days.

The CHF index, for the first time since the beginning of 2020, has seen its bullish price structure violated, which speaks volumes about the more lax approach to the NCoV uncertainties, even if equities have been communicating the same message for over a week now. The bearish breakout via the breach of the prior swing low carries some red flags though, as neither the smart money tracker nor tick volume agrees with an outright bearish stance yet. Ideally, you want to see a price structure bearish with the slop of the moving averages also lower, and if on top of that, one sees a pick up in volume, then it translates in more capital committed.

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 Pound Spikes As Looser Fiscal Policy Eyed


The British Pound was the star performer after the resignation of the British Finance Minister Sajid Javid. Do you want to understand what's the logic behind this move? What about the rise seen in the JPY as US equities keep printing new all-time highs? What factors are influencing this rebound? Keep reading to stay updated on the latest drivers and outlook based on aggregated FX flows.

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 British Pound had no rivalry in the Forex land, with the currency finding strong demand after the British Finance Minister Sajid Javid resigned in what was seen as a surprise move. Immediately, the market started to connect the dots, assuming that the successor (Rishi Sunak) will support looser fiscal policy to satisfy UK PM Johnson wishes, and as a result, this may lead to a reduction in the odds for the BOE to cut rates this year. The Yen was the other currency that gained ground with the bulk of the gains seen in Asia as the number of reported coronavirus cases spiked, leading to algo-selling to dominate early doors. The catch, however, is that this spike in numbers won’t be sustained as it was due to change in the standards to measure the disease by the Health Commission for Hubei Province. Nonetheless, it was enough to see the spectacular 7-day bull run in the Chinese market to come to an end and weakness to ensue in the Aussie and the New Zealand Dollar, even if the losses were marginal. The Canadian Dollar was also affected by the selling in carry trades, but the losses were minimal. The USD continues to put up a fight to prevent further downside and as I pointed out when analyzing aggregated flows in the charts section, while the USD valuation is high, the current pullback is the most pronounced seen in 2020, hence counting for further USD weakness is betting on this 2020 pattern to be broken; quite a bold call if you ask me. A currency which just keeps on delivering for the satisfaction of sellers is the Euro, unable to find sufficient buyers to stop the bleeding. Speculation that a dovish shift in rhetoric at the March ECB meeting could be in store amid the slowdown in China’s economic activity is one of the narratives doing the rounds.

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.

Virus concerns won’t budge equity bulls: The equity market in the US disregarded the latest news that China's Hubei province reported 14,840 new coronavirus cases. The era of easy money by the Fed is such a unshakable force keeping the record long rally in equities going. Granted, there is a catch in the spike of reported virus cases, which is, the authorities in Hubei revised their diagnostic standard for coronavirus cases. Out of 14,840 new cases, 13,332 were "clinical diagnosis". It is unlikely that this spike in numbers will be sustained after this change in measure by the Health Commission for Hubei Province. The behavior in the Chinese market was different, with the market more spooked by the jump in numbers. For an update on the total count based on ‘official’ numbers, see this link and this one.

Pound traders price looser fiscal policy: The Pound is the stellar performer in the last 24h, as British Finance Minister Sajid Javid resigned in what was seen as a surprise move. The successor (Rishi Sunak) alongside a new team of advisors from No. 10 is seen supporting looser fiscal policy as UK PM Johnson attempts to further cement his grip on power. The higher the expectations for fiscal spending, the less compelling would be the case for the BOE to cut rates this year. Javid was due to present Britain’s budget in March. As CNBC reports, “media reports suggest that Javid was offered the chance to remain finance minister on the condition that he fires all of his advisors. He reportedly said no and opted to resign himself.”

China’s output levels far from normal: After the Chinese government encouraged businesses to re-open for a gradual pick up in economic activity following the 3-week long hiatus due to the Coronavirus, Morgan Stanley published real time measurements of Chinese pollution levels to reveal the true extent of the return to ‘business as usual’. As Zero Hedge notes, “what it found was that among some of the top Chinese cities including Guangzhou, Shanghai and Chengdu, a clear pattern was evident – air pollution was only 20-50% of the historical average.” Morgan Stanley concludes that “this could imply that human activities such as traffic and industrial production within/close to those cities are running 50-80% below their potential capacity."

US January CPI came a tad firmer: The US CPI came at +2.5% vs +2.4% y/y expected, while the reading when excluding food and energy was +2.3% vs +2.5% expected. The print is not going to shift the rhetoric away from a neutral Fed as inflation remains anchored at the low end. It’s also important to note that the drop in energy prices alongside the effects of a Chinese slow will most likely drag this print down in coming months. Nothing to see, move on.

The weakness in the Euro won’t abate: EUR/USD trades at the lowest level since May 2017 as it approaches 1.08. As reiterated yesterday, there has been no ‘new news’ acting as a catalyst to attribute for the steady selling. The overarching narrative for this one-way traffic seen seems to be the speculation that a dovish shift in rhetoric at the March ECB meeting could be in store. A piece by MNI, quoting an unnamed official, said “a few weeks ago, before the virus outbreak, I would have said that the policy outlook remained unchanged….but now the picture has changed. We just need to properly weigh up to what degree”.

ECB’s Lane considers low rates as temporary phase: ECB's chief economist Lane, in an interview with Reuters, said that the Euro area low interest rate phase is temporary, adding that the Euro area fiscal policymakers can do more. Lane went on to say that monetary stimulus is still effective and that the current Brexit uncertainty is holding back European economy despite recognizing that the UK is not big enough to be the driving force holding back the euro zone future in economic growth.

Mexican Central Bank lowers rates: Mexico cut rates by 0.25% to 7.0%, in a move that was widely expected. As the Research Team at NAB notes, “it is the 4h Emerging Market country to either cut rates or otherwise ease monetary policy (Singapore) since the COVID-19 outbreak.”

RBA Governor Lowe sounds more upbeat: Speaking on a panel, Lowe said that the outlook for the Australian economy is improving, noting that the coronavirus is having an uncertain impact, but absent the virus Oz outlook improving. The areas most affected by the virus scare, the RBA boss noted, included education and tourism. Lowe said that the Chinese policy stimulus will be a positive for Australia and that low interest rates are working but will take time.
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 is en-route to target its next 100% measured movement as the sell off phase continues unperturbed with no signs of the momentum abating. With the exception of one doji candle last week, the Euro has seen 8 straight day of losses, and what should still be very concerning for the brave bulls out there, the last 4 closes by NY ended near the day lows. This translates in a market with no overall appetite to build EUR long inventory just yet. The validation of a new bearish cycle by finding acceptance below the previous low was an inflection point as it cements the grip by sellers, likely to re-engage on retracements at regular intervals.

The GBP index has finally broken away from its consolidation, with those buyers engaging at the key level of support outlined in previous reports seeing the fruits of their bets. From a momentum standpoint, the Pound looks like it wants to target the previous swing high, currently with the backing of the smart money tracker and a break of structure. The close near the high of the day by the close of business in NY also tells me this market has further upside to go.

The USD index remains a solid bet to buy on dips, with the aggregated flows in the last 24h net positive, even if only marginally. The market structure and smart money tracker are still guiding us higher in this market. Remember, the USD has proven rather immune to the risk profile at play, which is a huge declaration of intention to support the currency until technicals deny the case, which we are far from it. I made the point yesterday that while the valuation in the USD is high, the current pullback seen is the most pronounced seen in 2020, hence if one is counting for further USD weakness, you are essentially betting on this pattern to be broken.

The CAD index made an attempt to break into bullish territory by breaching the previous swing high but it failed to sustain the momentum. Only when I see that the aggregated flows are able to piece through the previous swing high I will turn overall bullish this market. I must say the smart money tracker is already pointing bullish, but without the backing of the daily structure, we are missing one important piece of the puzzle to cement the bullish case. As I wrote yesterday, it’s not all done yet as the index has stalled at the resistance level one would have anticipated, with the tick volume suggesting little commitment by buyers so far.

The JPY index keeps finding buy-side pressure every time the level of horizontal support is tested. The current profile that best defined this market for now is range-bound until there is a resolution below the equal low or above the previous swing high. Only then, the next declaration of intentions by either side will be made and a calibration of the bias will be possible. Until that’s the case, the technicals are not as clear cut as they were in previous weeks. This mixed picture is also reflected on the smart money tracker flattening out but still marginally bullish.

The AUD index keeps finding selling pressure off a resistance line. What has me worried so far is that based on the aggregated tick volume, the second retest into this resistance was far from compelling as the buy-side volume activity was reducing. The price structure of lower lows and lower highs continues to be in place, so even if the slope of the smart money tracker has turned bullish, it does not yet vindicate the bullish bias until there is acceptance above the previous swing high. Longs the AUD remain a risky bet for now as technicals stand.

The NZD index saw a major spike on the back of the RBNZ hawkish surprise, and as one would be expecting, it has retraced from overbought conditions ever since. This markup still carries the momentum behind to see further gains short-term as it was stimulated by a Central Bank decision that is looking to steer its policy away from an easing bias. If we continue to see the gradual fading of the coronavirus concerns, coupled with the new neutral stance by the RBNZ, this could be the onset of a prolonged trend in the Kiwi. We shall let technicals determine that.

The CHF index has finally seen a watershed moment, technically speaking, as it’s the first time that the price structure and the smart money tracker align to the downside. However, with the index yet to clear an important area of unfilled orders as per the origin of the Jan 30 demand, one must definitely account for this potential stumbling block for sellers. Only when we see the price clearing this demand and a breakout of the prior line of support the bearish case can really gain more credence. Until then, we could really go either way.

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

Yen & USD Capitalize On The COVID-19 Crisis

As the Euro keeps selling off amid concerns of the spillover effects of a Chinese slowdown for the German economy, two currencies have proven to navigate these murky waters with the most resilience. I am referring to the appeal of the US Dollar and the Japanese Yen, the latter hanging in there despite all-time highs in US equities. The Pound is another currency defying the odds, even if it's being driven by ts own set of idiosyncratic matters. For a full scan of 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

Last Friday was one of those uninspiring days with minimal flows in the G8 FX complex. Buy on dip strategies continue to thrive in the British Pound and US Dollar markets, while the Japanese Yen has firmed up its stance in recent days too, despite fresh record highs in US equities. These currencies are by a large margin the strongest since the unraveling of the coronavirus crisis in China, even if the Pound trades based on factors largely non-related to the drama China is undergoing as Brexit/politics-led stories play the bigger role. Therefore, it is safe to say that the USD and the JPY are by far the fiats drawing the most demand by such an uncertain landscape.

The coronavirus has led, on the contrary, to the Aussie and Kiwi, now joined by the outperformance of the Euro, as the other group of three currencies most punished by this new dynamics in the market. As weeks have rolled by and the market keeps working out the ramifications of the coronavirus, this fall in the Euro to multi-year lows appears to carry a clear message about the impending risks of a more dovish ECB heading into the March meeting. The story here is that when ‘China sneezes, Germany catches a cold (no pun intended)’, so the market is betting on this Chinese drama to re-instill economic sluggishness in Europe, something that the ECB may have to act upon through easier tools.

On the flip side, the Kiwi is emerging as a contender to exploit significant upside room judging by the depressed levels it trades at, even if this os based on the assumption, made by the RBNZ itself, that the virus will ‘peak’ relatively soon. The balance of risk offers an attractive long bet in the NZD if one believes that the worst of the coronavirus is behind us, which judging by the behavior in the equity market, it certainly hints as it is. However, equities have become a rather obsolete tool to act as the true barometer. As traders, you’d be better off gaining insights if the recovery also emerges through key breakouts in the Yuan or long-dated bond yields.

Another currency that keeps challenging higher ground is the Canadian Dollar, finally achieving a technically bullish breakout in the daily when analyzing the index. Lastly, in what portrays the progressive demise of the strongest trend for most of 2020, the Swissy keeps debilitating and judging by the reading of aggregated flows, it is no longer in a daily bullish cycle.

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

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

US retail sales fall short but consumer sentiment offsets: The US Jan advance retail sales came at +0.3% vs +0.3% expected, even if the control group came quite disappointing at 0.0% vs +0.3% expected, alongside a sizable downward revision to December. The overall flows into the USD were positive for the day nonetheless, as bullish technicals and the February prelim U Michigan consumer sentiment, at 100.9 vs 99.5 expected (highest since March 2018), partially offset the negative input via the retail sales.

Soft Germany/EU growth figures to end 2019: Germany’s Q4 preliminary GDP came soft at 0.0% vs +0.1% q/q expected, while the GDP non-seasonally adjusted stood at +0.3% vs +0.2% y/y expected. Notwithstanding the figure were poor as it shows an economy stuck in first gear, this negative input has already been priced into the low valuation of the Euro. Similarly, the Eurozone Q4 GDP second reading came unchanged at +0.1% vs +0.1% q/q preliminary.

NZ services PMI fits upbeat RBNZ storyline: New Zealand services PMI for January came at 57.1 vs 52.1 prior, the highest since January 2019. According to BNZ Senior Economist Doug Steel: January's glowing PSI report fits with the rather upbeat view of the economy expressed by the RBNZ last week. In the least, it helps offset a still soft looking PMI. Regardless, the near term outlook heavily depends on how much - and for how long - disruption occurs as a result of local weather conditions and COVID-19."

UK defying stance on tax, workers’ rights: On Brexit, the latest we’ve learnt is that the UK is set to refuse to abide by EU rules on tax and workers' rights after Brrexit, The Telegraph reports. “UK negotiators are expected to insist that the UK should be given a deal akin to the EU's agreements with countries such as Canada, Korea and Japan, which they say involve less stringent requirements than those set out in the draft mandate.” This defying tone is yet another good representation of the friction that exists and the challenges ahead for the UK to get away with the deal it wants with the EU.

The latest coronavirus numbers ‘too perfect to mean much’: The latest coronavirus official numbers show, as for Feb 15, 68,500 total cases and 1,665 dead. Hubei province (the capital city and epicentre of the outbreak) has enacted tougher vehicle movement restrictions and has instructed firms not to reopen without government approval. However, as Barron's notes, China's coronavirus numbers are "too perfect to mean much." The note from Barron’s, via ZeroHedge, reads: “A statistical analysis of China’s coronavirus casualty data shows a near-perfect prediction model that data analysts say isn’t likely to naturally occur, casting doubt over the reliability of the numbers being reported to the World Health Organization.”

Singapore tells markets brace for possible recession: Singapore reported 9 new coronavirus cases last Friday, bringing the total cases to 67. The country is currently at risk of classifying the virus as a pandemic situation. Singaporean prime minister, Lee Hsien Loong, said via the Straits Times, that a recession is possible due to the economic impact of the coronavirus, adding that the coronavirus impact on the economy already exceeds that of SARS back in 2003.

Looser fiscal policy in China, HK, Singapore eyed: Governments in the countries most affected by the coronavirus, including the US, China and HK, are being cornered to provide extra fiscal stimulus to ease the economic slowdown. As Bloomberg reports, “China said Sunday it will enact more-efficient stimulus measures despite a widening fiscal gap, including lower corporate taxes. Hong Kong’s top finance official said the city is facing “tsunami-like” shocks that may lead to a record budget deficit. Singapore is headed for its biggest budget gap in almost two decades, according to analysts.”

Talk has it OPEC+ may cancel emergency meeting: Amid the recovery in the price of Oil (first weekly gains since the first week of January), there are reports suggesting that OPEC+ is close to dropping the idea of an emergency meeting and will instead stick with March meeting dates, according to delegates cited by Bloomberg.

Market bets for a dovish Fed as the year progresses: The amount of hedges in case the virus contagion is a disaster for the global economy kept increasing last week. As Bloomberg reports, some of these bets are now clearly biased towards the Federal Reserve forced to to reduce interest rates, as the increase in eurodollar options activity reflects. In this new change of positioning observed, traders would profit “if the central bank delivers more than the one-to-two quarter-point cuts already priced in for 2020” Blomberg notes. “The impact of the virus on the global economy is going to be significantly more than what people are expecting, and when the global economy goes south, the Fed steps in,” said Tony Farren, managing director at broker-dealer Mischler Financial in Stamford, Connecticut.

U.S. raises tariffs on European aircraft: The U.S. government on Friday, via a statement released by the USTR, said it is set to increase tariffs on aircraft imported from the EU to 15% from 10%, increasing pressure on Brussels in the ongoing dispute over aircraft subsidies. The higher aircraft tariff will take effect March 18. The USTR also announced that it would make minor modifications to 25% tariffs imposed on cheese, wine and other non-aircraft products from the EU, including dropping prune juice from the list. Full details in this Reuters article.

Several rockets hit a U.S. coalition base in Baghdad: Hopefully, despite the attack, there were no casualties, Reuters reports, citing a coalition spokesman, in what constitutes a series of ongoing attacks to target U.S. facilities in Iraq. As Reuters notes, “Washington has blamed Iran-backed paramilitary groups for increasingly regular rocketing and shelling of bases hosting U.S. forces in Iraq and of the area around the U.S. Embassy in Baghdad.”

US markets closed: It’s going to be a quiet US trading session, barring any unexpected news, in observance of US Presidents Day holiday with both stock and bond markets closed.
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 continues en-route to target its next 100% measured movement after the vindication that a fresh bearish cycle is in play following the breakout of a key pivot low. With the exception of one doji candle last week, the Euro has now fallen for 9 straight days, with price action still communicating that interest to sell on strength is well and alive. There is no evidence whatsoever of a market with the slightest appetite to build EUR long inventory just yet as sellers have cemented the grip. My core view, thus remains that this is a market exploitable through sell-side action on retracements at regular intervals in line with technicals.

The GBP index is a whisker away from targeting its previous swing high, currently with the backing of the smart money tracker and a break of structure. Opposite to what we are seeing in the Euro, this is a market that has seen the order flow shift to support buy on dips, as depicted by the price action displayed last Friday. This market has further yet minimal upside to go before the next decision point, which may see the balance tilt towards a breakout into fresh trend highs or alternatively, carving out what would represent the making of a new broader range.

The USD index remains a solid bet to buy on dips, and based on the price action when combining the flow in the G8 FX complex seen in the last 3 days, this remains a valid prognosys to capitalize on. This view is supported by the market structure and the smart money tracker, as the USD remains the top performing currency in this new decade. Not only is the trend in favor of buying, but from an intermarket perspective, the USD has proven immune to the risk profile at play, with buying unabated regardless of risk on or risk off in the markets. There is further room to exploit to the upside until the next key level of resistance is met.

The CAD index has, at last, broken into daily bullish territory by breaching the previous swing high, even if the volume this break carries is suspiciously low. Nonetheless, for now it represents a sign of further strength when analyzing the aggregated flows into the Canadian Dollar, and I am officially no longer a bear in this market as we now have the break of structure to bullish backed up by the smart money tracker also pointing bullish. In the current phase of carry trades being promoted again as equities rise and bond yields stabilize, the CAD is one of the prefered bets to get paid relatively high yields, another positive factor to account for in favor of longs.

The JPY index has found an increase in the demand flows at a critical level of support, raising the prospects that a double bottom may be seen. Nothing has changed in the last 24h of price activity. The market profile that best defines this market for now is range-bound until there is a resolution below the equal low or above the previous swing high. Until that’s the case, the technicals are not as clear cut as they were in previous weeks, even if the overall macro bias remains rather positive as the market consolidates above the previous broken swing high with the smart money tracker still pointing mildly to the upside for now.

The AUD index remains capped by a sticky resistance line overhead, disallowing further gains for now, as the coronavirus keeps playing a critical role to determine the daily ebbs and flows. I must say that the aggregated tick volume on the second retest into this resistance has been far from compelling as the buy-side volume activity plunged, which is not a positive gauge when measuring the commitment for buyers to break this tough technical level. The price structure of lower lows and lower highs continues to be in place, so even if the slope of the smart money tracker has turned bullish, it does not yet vindicate the bullish bias until acceptance above.

The NZD index, led by the RBNZ hawkish surprise, broke its previous swing high in a show of strength that I believe has credence to find further legs up. The currency has already retraced from overbought conditions, which makes the prospects of buy on dips an attractive proposition. While the smart money tracker is yet to turn bullish, the structure of this market has been altered, and the next question that lies ahead is. Will the index evolve into an uptrend, or will the recent high prove to be the precursor to a broad range about to settle in? If we continue to see the gradual fading of the coronavirus woes, coupled with the new neutral stance by the RBNZ, this could be the recipe to one of the best trends to jump on in coming weeks/months.

The CHF index, technically speaking, had its first breakout of structure at a time when the smart money tracker had already re-aligned to the downside. The CHF is now headed towards a key level of support near-by, hence the downside is quite limited before we encounter potential buy-side pressure. But the reality is that buyers no longer have the upper-hand to remain the dominant force in this market as technical readings no longer back them up. The Swissy could go either way short-term, but the market is giving us indications that the tide has turned.

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

GBP & CAD Movers, COVID-19 'Peak' Near?

With several days of accumulation in most currencies, a ramp up in volatility is badly needed for traders to spot fresh opportunities in the Forex market. The yen and bond yields continue to telegraph the market is far from being out of the woods in the corona virus-related growth concerns, while equities trade at the beat of its own drum, disconnected from fundamentals.

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 Forex traders, volatility is the oxygen we need, and judging by the last 48h, the market has certainly strangled us by missing this critical component. On Monday, with the exceptions of the British Pound and the Canadian Dollar, the rest of the G8 FX complex traded in a rather ‘comatose’ state, even if that should not surprise nobody, as the US equity and bond markets were closed in observance of President’s day. In the first hours of trading in Asia this Tuesday, looks like vol is starting to return though.

The GBP was the weakest currency on Monday, as the UK’s Brexit negotiator David Frost reminded the market once again of the big stumbling blocks that lie ahead in the negotiations for future trading relationships with the EU. Britain said it will not sign up to follow EU standards because it would defeat the point of Brexit, while the EU maintains a hardline stance in ‘the level playing field’ that the UK must respect in accordance with EU laws. A rather bold yet representative statement of where they both stand came from the French foreign minister who warned of the tough EU-UK negotiations ahead by noting “EU-UK will rip each other apart” in trade talks.

The Canadian Dollar, amid the lack of one single attributable catalyst, keeps being fueled by technical bullish momentum, and is about to surpass the Swissy in performance terms since Jan 21, the defining data when the coronavirus outbreak made it to the mainstream media. It’s this type of price dynamics, alongside surging equities in China or the US, that suggests the market is no longer pricing in a prolonged COVID-19 crisis. However, there are still contrasting signals that we must reconcile with. Why is it that the Yen remains the best performing currency in the COVID-19 era, or the Aussie, Kiwi and the Euro still so weak comparatively?

We simply can’t assume the market has looked past the COVID-19 as one of the most critical driver to set the market tone, and as a result, currency valuations. If that really was true, there are some huge opportunities to start building long inventory vs the Yen. However, by analyzing the aggregated flows into the Yen, it pains a different story. The fact that we are not seeing a bearish structure in the JP currency tells me that there is still genuine fear of what lies ahead in terms of the true impact in Chinese and global growth.

So, why the rise in equities then? There are different dynamics ruling equities (corporate buybacks, record-long bullish market, era of easing measures, Fed’s balance sheet expansion, alternative to a world with huge pool of negative yielding bonds, big bazooka stimulus by China…). All in all, while equities tells us a starkly contrasting story, currencies are still not buying into a COVID-19 ‘peak’ just yet. Nonetheless, be nimble and watch for clues as if/when the market gains more conviction that China has it well contained and is on the mend, the gap in performance between the Yen and the Oceanic currencies, even the Euro, may continue to gradually narrow.

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

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

US on holidays translates in quiet FX flows: Markets traded very quietly as the US was out for the President’s Day Public Holiday. With the US equity and bond markets closed, the main market movements occurred during the Asian session after yet more easing measures by the Chinese government. This time via a 10bps cut to the MLF, which alongside the reducing ‘official’ rate on COVID-19 cases helped sentiment.

Virus ‘peak’ near? No so fast... Even if the trend on the number of cases and deaths due to COVID-19 is still on the rise, the equity market keeps behaving as if we are nearing the ‘peak’. The daily change in the number of cases plays into this view as the market assumes that the containment measures in China are being effective. The impressive recovery in Chinese equities, with the CSI 300 paring its 8% fall since the re-open of markets post the Lunar-New Year portrays this optimism like no other. However, judging by the performance in bond yields or the Japanese Yen, hedges into these instruments makes for a different story-line with concerns still well and alive.

The WHO holds a cautious stance: The WHO updated the public noting that “it's too early to tell if the numbers of coronavirus cases are truly declining”, and for now “it wants to treat lower case counts cautiously.” The real issue, according to the WHO, “is whether we are seeing efficient community transmission outside of China and at the present, we are not observing that.” The market sees the glass half full though.

The latest news on COVID-19 in one place: Reuters has gathered, via a Factbox, the latest developments on coronavirus spreading in China and beyond. The death toll in mainland China reached 1,770 as of Sunday-end, up by 105 from the previous day, while there were 2,048 new cases, bringing the total count to 70,548.

RBA minutes a non-event: The RBA minutes did not add new insights to its existing stance, especially after the recent appearances by Governor Lowe and the SoMP release. The RBA continues to note that an extended period of low rates is required. Unemployment data will continue to be key to the RBA’s decision to balance out further easing vs financial stability concerns. On COVID-19, it said “coronavirus is a new source of uncertainty for the global economy, too early to judge impact.”

Japan’s Q4 GDP surprises to the downside: The Japanese Q4 GDP saw a major miss at -1.6% q/q vs -1.0% expected. The main dragger came courtesy of October’s consumption tax increase and Typhoon Hagibis. Even worse, the Q3 growth was downgraded to +0.1% q/q vs 0.5%. The fear is that COVID-19 edges the economy towards a technical recession in Q1 growth. BOJ Governor Kuroda said the virus is the biggest uncertainty for the economy and that he will not hesitate to take action if needed. The Yen was little changed after the data as the currency tends to ignore local data releases.

Tough EU-UK negotiations ahead: In a rather bold statement, French foreign minister Jean-Yves Le Drian, said Britain and the EU 'will rip each other apart' in trade talks as UK PM Johnson continues to seek out a comprehensive trade deal with the EU by the end of the year. For full insights, visit the Guardian. It’s well known the upcoming challenges that the UK will face in trade negotiations.

The UK draws its own red line: The UK’s Brexit negotiator David Frost said Britain will not sign up to follow EU standards because it would defeat the point of Brexit, saying that’s where they draw a red line in negotiations for future trading relationships. Kingdom FX has the full story. “We must have the ability to set laws that suit us. It isn’t a simple negotiating position which might move under pressure — it is the point of the whole project”, the UK's chief negotiator said.

Apple downgrades guidance: In a sign of the difficulties to keep up growth amid the COVID-19 phenomenon, Apple said it does “not expect to meet the revenue guidance provided for the March quarter” due to coronavirus related issues, with constrained iPhone supply and suppressed demand in China. CNBC carries the news.

German, UK data eyed: The German ZEW and UK employment figures will be the main events today. In the case of the German data, the market is paying close attention on whether COVID-19 is impacting investor sentiment. The consensus looks for a significant fall in expectations. Meanwhile, the UK labour market is expected to print solid figures.
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 presents no meaningful changes in the last 24h given the US holidays. The index remains en-route to target its next 100% measured movement in line with its bearish cycle. There is no technical evidence of appetite to hold EUR long inventory just yet as sellers have cemented their grip in anticipation of a more dovish ECB as China’s COVID takes its toll on German and global growth. My core view, thus remains that this is a market exploitable through sell-side action on retracements at regular intervals in line with technicals.

The GBP index was the weakest currency on Monday, even if price structure still supports the notion of an eventual targeting of the previous swing high, backed up by the smart money tracker and a break of structure. Opposite to what we are seeing in the Euro, this is a market that has seen the order flow shift to support buy on dips. The upside, I must say, is rather limited until confronted with the next resistance level or decision point.

The USD index remains a market best suited to buy on dips, a trade premise that is in alignment with both the price structure and the momentum via the smart money tracker. The USD remains the top performing currency in this new decade. At the risk of sounding like a broken record, I will reiterate that this is a market where, from an intermarket perspective, has proven immune to the risk profile at play, with buying unabated regardless of risk on or risk off in the markets. Technically, there is further room to exploit to the upside until the next key level of resistance.

The CAD index keeps building on top of its recent gains by finding further follow through above a key swing high that got breached last Friday. Even if the volume this break carries is suspiciously low, the preponderance of evidence through the market structure and the momentum as gauged by the smart money tracker, do support the bullish bias. Therefore, the analysis of these aggregated flows into the Canadian Dollar make me think that until proven wrong through technicals, this market has ‘buy on dips’ written all over the wall. Remember, the CAD is one of the prefered bets to get paid relatively high yields (carries a positive swap).

The JPY index has seen complete inaction in the last 24h of trading. As it’s well known in the forex market, the currency does not tend to be jolted by local data, hence despite the bad miss in Japan’s GDP for Q4, the currency has remained in a boring tight range. The market profile that best defines this market for now is range-bound until there is a resolution. The overall macro bias remains rather positive as the market consolidates above the previous broken swing high with the smart money tracker still pointing mildly to the upside for now.

The AUD index is another market in which we will have to wait for further action if we want to distill new insights of technical information. For now, everything that I wrote in yesterday’s analysis remains true given the dullness of price fluctuations. The sticky resistance line overhead disallows further gains for now, and as a red flag, the aggregated tick volume on the second retest into this resistance has carried very low volumes, which translates in a rather negative read as a gauge to measure the commitment from buyers to break this tough technical level. The price structure of lower lows and lower highs continues to be in place, so even if the slope of the smart money tracker has turned bullish, it does not yet vindicate the bullish bias.

The NZD index, after breaking its previous swing high, is starting to find greater interest to buy on dips as the currency no longer trades in overbought conditions. The structure of this market has been altered, and if we keep seeing a gradual fading of the coronavirus concerns, knowing that the RBNZ aims to retain a neutral bias from now on, this is one of the most promising markets to be long in the coming months. The upside potential is quite high in my opinion.

The CHF index had its first breakout of structure at a time when the smart money tracker had already re-aligned to the downside. The drop, as one would anticipate, has now made it to the next logical technical area of support, where a demand imbalance has manifested, proving me right when I mentioned in yesterday’s not that “the downside is quite limited before we encounter potential buy-side pressure on a line of support.” That said, it is my observation that the buyers no longer have the upper-hand as technical readings no longer back them up. A breakout of the support underneath would open the doors to sharper falls in the index.

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

Apple Triggers Return Of Risk-Off Markets

As Apple sparks renewed concerns over the spillover effects of the COVID-19 to the global economy, the market is back on the defensive, with the usual suspects (AUD, NZD, EUR) selling off, while the Yen and the US Dollar cement its grip as the top performing currencies this year. The demand in Gold also tells us a lot about the current period of uncertainty. Plenty to be updated with today, so 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 behavior in currencies has re-aligned with the COVID-19 induced risk-off profile, this time kick started after no other than Apple downgraded its revenue guidance, attributing the setback to constrained iPhone supply and suppressed demand in China. This led to a cascade of selling pressure in those currencies most fragile to the Chinese growth story, that is, the Aussie and the Kiwi, while the Euro’s free-fall won’t stop either after a much worse-than-expected German ZEW readings, which reflects the the feared negative effects by German enterprises of the Coronavirus epidemic in China on world trade. However, the story of the day was the strong gains in Gold, surpassing the $1,600.00 mark. The USD continues to be the king of Forex, proven to be extremely resilient since the outbreak of the virus. The Yen has shown more two-way volatility through this same period, but it’s starting to catch a bid tone once again, recently rejected off a key test of support in the JPY index. The Pound, bolstered by healthy employment figures in the UK - the employment rate rose to a record high of 76.5% - has also been a beneficiary of the latest market drivers. Remember, the Pound has been very much immune to the unfolding COVID-19 drama so far, instead, it trades as a function of local economic fundamentals and Brexit/politics. Another currency that keeps displaying a great performance is the Canadian Dollar, so far unfazed by the pick up in risk-off, even if it’s hard to see the BOC retaining a neutral stance if global growth suffers and the price of Oil continues to fall as a result. Lastly, the Swissy is a currency that has been gradually debilitating, yet it finally found pockets of demand as the risk aversion kicked in.

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.

Apple sets risk-off tone: Markets traded more cautiously, with the rise in the Yen or Gold (story of the day), a reality check for investors about the severe impact that COVID-19 is having on growth prospects. What triggered the wave of risk aversion was the news that Apple downgraded its forward guidance. Apple said it does “not expect to meet the revenue guidance provided for the March quarter” due to coronavirus related issues, with constrained iPhone supply and suppressed demand in China the culprits. The official statement can be found here.

Apple's official statement: As part of Apple’s announcement, it outlined two critical factors as the source of the lower projected earnings (a) “while all of [our] facilities have reopened, they are ramping up more slowly than we had anticipated” (e.g. workers are stranded in quarantine zones); and (b) “All of our stores in China and many of our partner stores have been closed. Additionally, stores that are open have been operating at reduced hours and with very low customer traffic.”

Insights into Apple’s story: "The suppliers are doing their best to produce and ship the iPhone within four weeks. ...The delay can't be too long, otherwise, it will affect the sales strategy of Apple's new products in the second half of this year," a source with direct knowledge told Nikkei.

True risk-off profile: This new round of risk aversion led to steady selling in equities from Asian all the way to America, global bond yields, a major spike in the price of Gold above the $1,6000 level, or buying pressure in the Yen as well. Investors seem more interest in reshuffling their portfolios away from risk-seeking strategies and into safe-havens once again. The USD remains the king in FX, even ahead of the JPY, while the Euro keeps suffering.

EUR selling goes on: The sell-off in the Euro came courtesy of a disastrous data release out of Germany, this time in the form of Germany’s February ZEW survey, which saw major declines across the board. The current situation came at -15.7 vs -10.0 expected, the expectations came at 8.7 vs 21.5 expected, while Eurozone expectations stood at 10.4 vs 25.6 prior. The setback is a direct reflection of the dampened sentiment on COVID-19 woes. “The feared negative effects of the Coronavirus epidemic in China on world trade have been causing a considerable decline of the ZEW Indicator of Economic Sentiment for Germany”, the ZEW report notes.

NCOVID19 a protracted headache for the global economy? According to the Research Team at NAB, “the debate on whether NCOVID-19 is a transient economic shock or worryingly a more longer lasting global economic headwind appears to be shifting in favour of the latter following Apple’s admission that it does not expect to meet revenue guidance given just two-weeks ago.”

Moody's lowers China’s growth outlook: Moody’s lowered China 2020 growth forecast to 5.2% from 5.8%, with the official statement outlining that the revision reflects a severe but short-lived economic impact. Moody’s expects weaker demand and disruptions in the supply chains to lower Asian growth too. Moody’s said that the coronavirus creates new risks to the prospects of incipient stabilization of global growth this year resulting from truce in the US-China trade war.

Conflicting reports about 'business as usual' in China: When it comes to the situation on the ground in China, China’s Global Times reported that “more than 80% of the 20,000 manufacturing firms supervised by State-owned Asset Supervision and Administration Commission of State Council have resumed production”, with the news outlet highlighting that the operating rate of petroleum, communications and transportation has reached level between 95% and 100%. However, key metrics such as pollution levels and traffic congestion are not matching these inflated levels that the government is promoting.

Green shoots in the UK employment data: The UK December average weekly earnings came a tad softer at +2.9% vs +3.0% 3m/y expected, while the average weekly earnings (ex bonus) was +3.2% vs +3.3% 3m/y expected. The ILO unemployment rate stood at 3.8% vs 3.8% expected, with the employment change coming strong at 180k vs 148k expected. The January jobless claims change was 5.5k. The unemployment rate remains very tight in the UK, and encouragingly, the employment rate rose to a record high of 76.5% after the +180k change in employment. The Pound had a solid performance finding strong demand through the European hours.

RBA minutes still sees case for further rate cuts: The RBA minutes did not add new insights to its existing stance, especially after the recent appearances by Governor Lowe and the SoMP release. On the case for further cuts, the RBA noted that it could “speed progress towards the Bank’s goals and make it more assured in the face of the current uncertainties.” The RBA continues to note that an extended period of low rates is required. Unemployment data will continue to be key to the RBA’s decision. On COVID-19, it said “coronavirus is a new source of uncertainty for the global economy, too early to judge impact.”
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 extending lower with the bearish engulfing continuation bar printed on Tuesday a clear precursor of the intentions of this market to keep selling until the next 100% measured movement, which is closing in as days go by. The technicals continue to scream that this is a market headed lower in the near term, hence one should hold the horses and stay away from aggressively looking to build long EUR inventory just yet as sellers show no signs of slowing down its grip in anticipation of a more dovish ECB as China’s COVID takes its toll. This is a market that remains a sell on strength at regular intervals until the 100% proj target.

The GBP index keeps finding buying interest with the price structure supporting the idea that this market is headed towards the previous swing high, a trade premise that is still backed up by the smart money tracker as a gauge of the short-term momentum. The aggregated flows in GBP tells me that buying on dips is still the way to go up until the next resistance. Once/if that level is reached, it will be real ‘show time’ with a tag of war between buyers and sellers for control.

The USD index has firmed up its dominance by breaking into new trend highs for the year, reinforcing the notion that seeking out buy on dip opportunities is the way to go. This bias is in complete agreement with both the price structure and the momentum via the smart money tracker. Just as in the case of the EUR the technicals show 0 indication of a turnaround, the opposite applies to the USD, the technicals show all the reasons to be a buyer. The USD remains the top performing currency in this new decade by a fair margin.

The CAD index just keeps on going building on top of its gains. The recent breakout of a key swing high last Friday has invigorated buyers, which see the ongoing momentum now supported by both the market structure and the momentum as gauged by the smart money tracker. This market has ‘buy on dips’ written all over the wall up until the next line in the sand, where I am expecting sellers to step in and longs to take profits in mass. Note, tt’s hard to see the CAD gaining much more ground if risk aversion is going to kick back in again.

The JPY index is still trading within a relatively confined range, even if buyers look to have set the sight towards the overhead resistance as the risk profile worsens. The overall macro bias remains rather positive as the market consolidates above the previous broken swing high with the smart money tracker still pointing mildly to the upside. Should the Yen see a breakout of the immediate resistance, there is a clear pre-defined target buyers will aim for as illustrated below.

The AUD index is starting to see sellers cement their grip again amid the struggle to breakout the overhead resistance, a clear line in the sand disallowing further gains. Even if this area were to be broken, there is further strong resistance lying just above, which could easily set the stage for potential bullish traps if the Aussie were to recover further. The commitment from buyers to break this tough technical level has been very poor so far. The price structure of lower lows and lower highs continues to be in place even if the smart money tracker is still bullish.

The NZD index has been unable to sustain the gains after the RBNZ hawkish surprise, with the market unconvinced that building NZD longs is the right move amid risk aversion kicking in. I must say, the areas where the Kiwi has landed it’s a pristine one to consider NZD longs as we are retesting the origin of the RBNZ-led demand imbalance after a successful rotation higher. As I said, if we were to see a gradual fading of the coronavirus concerns, which is a risky bet, knowing that the RBNZ aims to retain a neutral bias, alongside the fact that the Kiwi has been one of the worst performing currency since the COVID-19 outbreak, it offers strong upside potential, but only on the basis of the COVID-19 drama not being a long-lasting drag.

The CHF index has been rejected off a broken swing low, which now acts as critical resistance on the way up. This breach of the swing low was the first breakout of structure at a time when the smart money tracker had already re-aligned to the downside. The index trades now confined between this resistance overhead and a horizontal support line. That said, it is my observation that the buyers no longer have the upper-hand as technical readings stand.

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

Yen Special: What's Behind The Debacle?

The Yen is unquestionably the story of the week as the market tries to come to grips about what's caused such an implosion in the valuation of the Japanese currency. In this article, I look at the possible culprits that may have played a role in the astounding movement seen in the last 24h. Keep reading to find out..

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

• Quick Take
• Possible Culprits Behind Yen Weakness
• Dive Into Yen Charts
• Educational Material

Quick Take

Few will argue that the hot topic of conversation online is the debacle of the Japanese currency. Some traders at banks are speculating that the correlation breakout of Gold and the Yen represents a paradigm shift in the logic to trade the Japanese currency. I personally disagree and suspect that when a move is so aggressive without apparent justification, there is hot money 'in the know' preparing for a potential ramp up of further easing by the BoJ. It might well be, as an alternative, that Japan’s Government Pension Investment Fund has opted to reshuffle its strategy seeking out higher yielding opportunities via USD-denominated instruments. What's clear is that no one can really pin point at this stage what's caused such a dramatic fall in the Yen value, but through history and economics, out of the list provided below, some could help you contextualize it.

Possible Culprits Behind Yen Weakness

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

BoJ as hidden catalyst? Whenever the Yen moves in the fashion it did without a single catalyst to justify such dramatic fall, the next likely origin is possibly an upcoming announcement that would represent a shift to easier policies by BOJ Chief Kuroda. Bank of Japan Governor Haruhiko Kuroda said this week that the central bank would consider additional “RAPID” easing if the coronavirus outbreak significantly threatened Japan’s economy and price trends, in news initially reported by the Sankei newspaper. “We would need to consider monetary policy steps if (the virus outbreak) significantly affects Japan’s economy,” Kuroda said.

So, is it affecting the Japanese economy? Japan missed its Q4 GDP in big style with a shocking -6.3% annualized contraction (largest since Q2 2014), which was a far cry from the expected -3.8% as the sales tax hike feeds through the economy. However, the market was unfazed by this number. The WSJ wrote a piece titled ‘Japan’s Third Sales-Tax Blunder Must Be Its Final Mistake’ arguing that the decision keeps suppressing household consumption. Adding to the bleak outlook, machine orders numbers fell 12.5% m/m in December this week, again, worse than the -8.9% reading expected. It looks as though this sluggish growth will extend into the first quarter as now Japan must deal with the impending risk of the COVID-19, most likely to affect the economic activity/sentiment, hence is looking increasingly likely that Japan will fall into a temporary recession. Amid this background, guess who’s ready to step in? The BOJ!

Why to expect slower growth in Japan? Japan has reported 74 cases, the third highest behind China and Singapore. The more cases it identifies, the greater the hit to activity. As the research team at NAB reported this morning, “weekly LNG imports into Japan are running cumulatively 21% lower than this time last year”, which is a poor sign indeed.

Japan’s focus no longer on elusive inflation but growth: This is precisely the reason why if the growth roadmap envisioned by the Central Bank shakes in a way previously unimaginable as the combo of the sales tax hike and COVID-19 hit the economy, the BOJ may genuinely be starting to strongly consider what else it can do to stimulate the economy. Remember that the economic fallout and soft consumption anticipated has forced the BOJ to message more strongly that it is no longer inclined to chase its elusive 2% inflation target. The BOJ seems to have conceded defeat on the CPI target but won’t allow the same sense of being beaten in economic growth. While the inflation target remains very important, the focus of the BOJ’s policy has shifted toward keeping the economy on a sustainable recovery path. Not achieving it is not an option.

Don't forget what Kuroda said in Sept 2019: Bank of Japan Governor Haruhiko Kuroda said in September last year that they were “more keen to ease than before since overseas risks are heightening”, and that was even before the third sales tax hike later that month or the headwinds in the economy caused by the COVID19! In terms of the options on the table, Kuroda said that if the central bank were to ease monetary policy further, “it would aim at pushing down short- and medium-term interest rates without flattening the yield curve too much.”

Too much money chasing too few assets: The Yen printed the worst daily losses in over 2 years. What’s astounding, which has left traders scratching their heads seeking out answers, is the fact that this is not a free-fall out of an across-the-board recovery in risk appetite. Far from it. One has to simply look at the price of Gold to realize that this long-held correlation is now shot to pieces. Gold denominated in JPY is now near its record highs from 1979. While it is very rare to see USDJPY and gold ballooning in-sync, the world is awash in a flood of money with few places to park excess liquidity. The rise in Gold or the continuous weakness in Oceanic currencies and the Yuan tells us another story, one characterized by an overarching sense of fear that the COVID-19 will take its toll in a magnitude greater than imagined, which will hamper the growth outlook for China and the world, hence easier policies will follow (more flooding of money).

Conflicting signals to buy into the narrative of COVID-19 ‘peak’ near: The Apple-led selling has been all but forgotten in the equity space. However, the implosion of the Yen, trust me, doesn’t mean the market is in a state of relief. The opposite might actually be true and it may start to be looking at the negative consequences its impact will have on easier policies this year. How does one explain the constant rise in gold then? If it keeps rising even of USD strength, this can’t be a good sign, as it indicates the flooding of more cheap money will make its way through. Bond yields continue to pay the same picture, still trading near trend lows. Bottom line, the COVID-19 has snowballed into the catalyst that will lead to further stimulus by Central Banks this year, and the BOJ, while not making headlines yet, may be next.

A sea change in the Yen dynamics: One of my old-held theories, which I’ve endorsed with ever greater conviction, as I’ve been able to exchange the views with top-notch institutional traders about it, is that the Yen declines, 99% of the times, occurs as a function of a reshuffling in portfolios by the mammoth-size Japan’s Government Pension Investment Fund (GPIF). Did you know it oversees the equivalent of $1.46 trillion? Why is it that the Yen tends to move in parallel to risk-on/risk-of movements then? The GPIF, as part of its constant adjustment of Yen-centered portfolio exposure, tends to sell Yens to buy US assets when conditions in equities are rosy. Karen Reichgott Fishman, an economist at Goldman Sachs in New York, said the yen’s “stubborn weakness” had been because of Japan’s Government Pension Investment Fund buying foreign assets, which has led to downward pressure on the currency. As the market has become more efficient and intertwined with algos ruling and constantly on the lookout for exploitable opportunities, this relationship was long-picked up and perfected. What’s important is that the Yen movement seen on Wednesday does not obey the normal dynamics.

US the safer bet to house your money: So, if the Yen move was not caused by the familiar correlation with risk appetite flows that leads to portfolio adjustments by the GPIF, what is it? The move is suspiciously resemblant of what we saw back in 2018 when the Yen went through an episode of sustained weakness on a mass exodus away from an economy with bad prospects and headed into America on the belief that the US is far more likely to weather the upcoming COVID19-led storm on global growth than any other country. Why? America's stimulative fiscal stance and higher-yielding currency. What’s more, the betting sites keep increasing the odds of another 4 years of Trump as US President after the fiasco by Democrats in Iowa. The New York Times carries a story titled ‘How the Iowa Caucuses Became an Epic Fiasco for Democrats.’

JPY finally losing its safe haven status? I will paraphrase Brent Donnelly, Spot FX Trader at HSBC, who in his overnight note to clients, noted the following: “The primary driver of JPY as a safe haven is supposed to be repatriation and the unwind of carry trades. If nobody is using JPY as a funder anymore, maybe there is no reason for the JPY to trade as a safe haven? Price action in the past year or two (JPY not working as a safe haven on North Korea, trade war, Iran fears) has raised the question. The price action overnight adds some urgency to the idea that we have crossed over into a new JPY regime.” I tend to simplify it to BOJ easing coming up.

Protect your downside if JPY long: At times, the market will have an uncanny ability to move towards the direction that is set to inflict the most pain. One will be hard-pressed not to agree that once the COVID-19 started to make it to mainstream media, the first thing that crossed investors' mind is to seek out the safety of the Yen. Through option products, widened stop losses triggered, the Yen may have been a crowded long not working out, which catches a large portion of the market off guard. Remember what economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”
If you found this fundamental summary helpful, just click here to share it!

Insights Into Yen Charts

By analyzing the chart of charts when it comes to understand the aggregated Yen flows, that is, my prop equally-weighted index, we can see a resolution lower. This fallout in the Yen has validated a breakout of structure, hence the notion of sell on strength ensues. There is further downside until the index meets its 100% measured movement, which acts as the default downside target that sellers are likely to target as part of this ongoing sell-side campaign.

Another chart that has gone vertical with no end in sight as momentum rules is Gold priced in JPY. This is a market that portrays like few others what I mentioned earlier about the world being washed with excessive liquidity yet very few options to park this money. Investing in Gold acts as a capital-preservation strategy against the constant devaluation of fiat currencies. The purchasing power of the US dollar since 1913, time when the Federal Reserve took over the US banking system has lost over 96%. Today’s dollar would be worth less than 4 cents back in 1913. Same story for Japan. How much has gold lost in purchasing power? Nill.

The next market, not to be forgotten, is the USD/JPY, which appears to be decisively en-route to target the next upside target circa the 112.00 level. As the chart below illustrates, the breakout above the previous swing high gives us permission now to draw the next 100% projection, which coincidentally, aligns to perfection with the next major weekly resistance area. All technical signs seem to point out at more pain ahead for USD/JPY shorts.

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