Global Prime: Daily Market Digest

[IvanGlobalPrime]

Find my latest market thoughts

Asian Currencies Dumped As COVID-19 Plays Out

The USD continues to have no rival in FX land, while the Canadian Dollar also rides the wave as the market fully turns its attention away from the most exposed Asian economies to the COVID-19 and into the search for yield, with the North American currencies the safest bet given the positive swaps offered. Want to know the rest of key drivers and developments, including a fresh 11-year low in the Aussie? 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

Geographics are playing a greater role in the adjustment of portfolio positioning as the COVID-19 plays out, with concerns over the spread now in Beijing and outside of China. When officials in China are even weighing the possibility of a "Wuhan-Level" lockdown, you know risk is that the market may go on ‘the defensive'.

The acceleration to buying into the USD portrays a market that is starting to diversify more aggressively away from Asian-based currencies (JPY, CNY, AUD, NZD) and into the allure of the world’s reserve currency. This comes as the seeking of yield continues in a world with excess liquidity and too limited places to park this capital.

Gold’s unstoppable rise represents like no other asset this urge for capital-preservation amid the COVID-19 induced growth concerns that may lead the pool of negative yielding bonds global further into negative territory as markets anticipate Central Banks will be forced to ease further down the road.

The Canadian Dollar, the darling of G8 FX in terms of the relatively high-yield it pays, is also drawing plenty of attention, piggy backing the USD as a solid investment destination to find shelter. There is a perception that the North American economies are not as economically exposed to the headwinds by COVID-19, and in the case of the CAD, it also benefits from a flying USD.

When it comes to the European-based currencies, the Swissy, on the back of the loss in safe haven bids by the Yen, appears to be capitalizing on this diversification away from Japanese currency, which keeps playing out despite the selling of equities. The Euro, after a dramatic fall for over 2 weeks in a row at an index level, which accounts for aggregated flows, it’s seen steadier buying. Lastly, the Pound, lacking any catalyst of note, whipsawed around with no particular bias.

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.

Asian currencies on free-fall: Judging by the movements in Forex, it appears as though the exodus of capital away from Asian-based currencies (AUD, NZD, JPY, CNH) is a phenomenon gathering steam amid the rising concerns over the spread of COVID-19 in Beijing and outside of China. Officials are even weighing the possibility of a "Wuhan-Level" lockdown.

CB bazookas 'locked and loaded': Even if the total number of cases/deaths has slowed down, the market appears to be focused on the ramifications the COVID-19 will have on growth within the Asian region and more wildly. The market is acting as if the economic inactivity in China and suppressed sentiment will cause sufficient damage for Central Banks around the globe to be ‘locked and loaded’ having to step up to the plate with more easing to combat the upcoming slowdown in China and the global economy. Gold’s rally tells us this story.

South Korea’s ghost city: South Korea is a good example of the COVID-19 fears spreading into the wider Asian region as city streets were deserted amid surge in Korean COVID-19 cases. "it looks like a zombie apocalypse". As Zero Hedge reports, in Daegu, the country's fourth-largest city, with a population of 2.5 million people - roughly one-tenth of the South's total population, the most crowded streets in the city were abandoned. "It’s like someone dropped a bomb in the middle of the city. It looks like a zombie apocalypse," Kim Geun-woo, a 28-year-old resident told Reuters by telephone.

The Aussie prints 11-year low vs the USD: The fall comes as USD/CNH moved decisively above the 7.0 level to a high of 7.05. The Kiwi got dragged lower piggybacking these movements, while the Yen appears to be going through a transient paradigm shift, losing its status as a safe haven at times of selling pressure in yields and stocks. For an in-depth look at the Yen debacle and the possible culprits behind, check yesterday’s special article. I also recommend this read on “Coronavirus To Hammer Japan And The Yen.”

‘True risk-off’ settles in: US and EU equities were taken to the woodshed with tech shares the worst performers. The US yields kept falling. The S&P index fell just -0.3%, the Nasdaq lost as much as -0.67%, while the Dow fell -0.44%. These combined down movements in equities and yields are the ultimate barometers that communicate ‘risk-off’ is creeping back in.

Apple revenue miss in China 40-50%? Some news outlets I scanned this morning are suggesting headlines from China's Global Times on iPhone sales collapsing as one of the possible catalysts for the bleeding in equities. Global Times tweeted the following during the US morning time. “Due to COVID19 outbreak, Apple's iPhone sales in China may fall by at least 40-50% in February and March compared with the same period last year, and its Q1 sales are likely to be less than half of the same quarter in 2019: industry analyst.” Full story here. This follows the warning by Apple to downgrade guidance earlier this week, which already caused a selling in equities from Asian to the US.

JPY loses safe haven bids: Despite this ‘true risk off’ settling back into the market, the JPY continues to lose safe haven bids, as the technical bearish momentum is still unfavourable following the dramatic fall on Wed. By checking at the CME Daily FX Volume and Open Interest, we can see that the Yen selling carried a major spike in both volumes and open interest, a precursor for follow through, even if it’s fair to say that the currency is now too high to perceive much value to add until a deep correction.

USD the safest bet to house the excessive liquidity: At the risk of sounding like a broken record, the high uncertainty that the COVID-19 is causing on the prospects for suppressed growth this year has led to the reinforcement of a premise. That is, the USD dominance as the safest bet to house capital flows as the country is seen as relatively immune to the spillover effects that the Asian countries will comparatively go through.

US fundamentals support the USD as secondary driver: Despite it’s all about housing international capital as the key catalyst fueling the trend, as the cherry on top of the cake, the USD continues to be well supported via local economic fundamentals, with the latest Philly Fed Survey coming way above expectations. Earlier this week, housing data and inflation did also provide a cushion for the USD, which keeps outperforming G8 FX this year.

Fed rate cuts still priced in: Despite the strength in the USD, the market keeps pricing in around 40bps of Fed cuts by the end of the year. It was therefore good timing to hear what Fed Vice Chair Clarida thinks about these prospects in a CNBC interview. The policymaker said that “market pricing on rate cuts is a little tricky”, while noting that fundamentals of the US economy were strong, while sounding cautious in not making hasty projections about the potential impact of COVID-19 on the economy until more data comes in.

Aussie positive jobs disregarded: The Australian Dollar has reached a record 11 year low against the US Dollar, disregarding what was an overall solid Australian jobs report, despite a bigger than expected rise in the unemployment rate, at 5.3% vs 5.2% expected even if the blow softens up when noticing that the participation rate creeped up to 66.1% vs 66% expected. The rest of the Australian January labour market report was quite positive with the employment change at +13.5K, slightly beating expectations. The break down of full vs part time employment was also encouraging with +46.2K full time and -32.7K part time.

ECB minutes a no-event: The ECB released its account of the January policy meeting, noting that they need more data to see if tentative signs of stabilisation provide firmer ground for optimism. By reading the aggregation of headlines, I sense the ECB is in ‘wait and see’ mode as the COVID-19 impact plays out yet they still want to hold tight to their hopes of a glass half full.

What’s ahead in the calendar? Today’s calendar is heavy on PMI data as many countries (Japan, Germany, UK, Eurozone, and the US) are due to update the market with preliminary Manufacturing and services numbers for February. It’s going to be a good opportunity for the market to be updated on the COVID-19 impact to economies, even if the worst might be still to come as the sluggish Chinese activity is still feeding through and won’t be fully captured until the data releases for the next few months. Besides, Canada publishes retail sales figures for December, alongside existing home sales data in the US for the month of January.

Other events to take into account: These will include the line up of Fed officials to speak, with Dallas Fed Governor Kaplan, Governor Brainard, Vice Chairman Clarida and Cleveland Fed Mester. What’s more, the next Democratic Caucus out of Nevada takes place on Saturday, an event that will be closely watched by Mr. Market to readjust the odds for the runner up for Democrats. This time, the Caucus has 48 delegates at stake, including 12 superdelegates.

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

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Insights Into FX Index Charts

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section. The idea of this analysis is to complement one’s daily bias by accounting for this holistic analysis.

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

The EUR index has found two days of strong buying flows to see a return back towards the back-end of its broken support now turned resistance. This represents a major technical stumbling block if you are betting for further EUR gains this Friday. Anything can happen, but trading long EUR inventory into this macro resistance does not tend to be a good idea, unless of course, you are matching off the currency against an even weaker one such as the Aussie. Besides, with the 100% proj target still to be met, there is likely more downside from here. This is a market that remains a sell on strength at regular intervals until the 100% proj target met.

The GBP index went through a recovery after testing the origin of a daily demand imbalance, which led to marginal gains printed for the day. The price structure is still supporting the notion that this market is headed towards the previous swing high, a trade premise that for now continues to be 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, with this scenario invalidated on a break of support.

The USD index has continued to balloon to such an extent that I find it really hard to see further remaining buy-side pressure is in store unless we go through some type of shallow pullback. The daily candle printed on Thursday is the most elongated in 2020, which speaks volumes about the current narrative of the USD becoming the ultimate safe house to attract capital. On top of that, the currency has landed at a critical macro resistance rejected in three instances in Q4 2019. The USD remains the top performing currency in this new decade by a fair margin but the extension looks awfully overbought in the near-term. As I always say, unless you deploy momentum-type strategies to scalp intraday, there is no value in being long at these levels.

The CAD index is a moving train very well suited for those intraday scalpers that aim to jump in momentum plays, that’s a given. However, akin to the stance I hold in the USD, unless we see a pullback that may relax some of the overbought buying measures, being long at these highs is not fitting accounts that aim to engage at daily technical value areas. While the recent breakout of a key swing high last Friday has invigorated buyers and validated a fresh bullish cycle with the sight on last years’ double bottom, apply patience to reinstate longs. This market has ‘buy on dips’ written all over the wall up as I mentioned earlier this week, but you don’t want to get caught at these suboptimal prices to start building CAD long inventory.

The JPY index displays a break of structure to the bearish side which has now reached the 100% proj target, an area that coincides with a key support on the daily. Selling on strength remains the way to go, but be aware that it is at these extremes (projected targets) where a reversal tends to occur, especially if it aligned with an area of horizontal support. I’d be very cautious to keep adding JPY shorts at this level as it faces the imminent risk of buy-side pressure increasing. By far, the best area to re-engage in shorts comes at a retest of the broken line of support.

The AUD index appears to have finally failed at its overhead resistance, a clear line in the sand that I mentioned in previous posts that was a clear risk in disallowing further gains. The decisive selloff seen in the last 24h has now realigned the bearish structure with the smart money tracker, which sets the stage for a revisit of the previous trend low. Going short the Aussie on episodes of strength at key intraday levels of resistance is the way to go. The close at the lows by the end of NY tells us the appetite to buy the currency is null for the time being.

The NZD index has now confirmed a fresh bearish cycle by breaking the previous swing low, hence validating the trade premise of being a seller on strength. The currency was dragged lower by the breakout in 11-year low in the AUD/USD, while at the same time, the suppressed sentiment towards Asian currencies as a whole as COVID-19 spreads is also weighting. The fall also indicates that for now the market is looking past the neutral stance by the RBNZ, not buying into the assumption that conditions will be favorable enough to retain such bias.

The CHF index found strong buying off a key level of support in line with the more macro weekly trend. It is in these areas where building long inventory in a currency offers the most bang for your buck. The impulsiveness of the recovery off this swing low tells me the CHF is once again setting its sight towards the recent highs, even if the currency looks overbought. I won’t rule out further buying by momentum-type accounts and for other variance of reasons, but the play to get the most value is done until a correction occurs. Note, the smart money tracker has once again re-aligned to the upside, which supports the bullish bias.

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

Anxiety Rises On COVID-19 International Spread

The buying of US Dollars or selling of the Oceanic currencies has been dominant through inter-market dealings this Monday, as the market's anxiety keeps rising following a dramatic increase in the cases of COVID-19 internationally, with Italy the last country to take extraordinary measures. Have we reached a 'watershed moment', as South Korea puts it? Find out all the latest in today's report.

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

Let’s get started…

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

Quick Take

The market is playing a ‘defensive’ card to start the week as COVID-19 anxiety continues on the rise as the international cases and deaths keep spreading from North Korea, through Iran, all the way to Italy, where over 130 cases are now detected. This has led to extraordinary containment measures by governments to slow down the spreading of cases, while the G20 group, in its weekend meet-up, pledges to be ready to step up to the plate with coordinated fiscal stimulus, stating that it sees heightened “prospects of further downside risk to global growth persisting as the coronavirus raises uncertainty and disrupts supply chains.”

Some authorities in the space of virology, via Twitter, are concluding that while it has taken a while for the spread to take off, we are finally seeing it come to life now. Note, The international spread of the virus means that monitoring of the COVID-19 stats outside China will serve as a more accurate representation of the true evolution of the virus. This, in m opinion, poses downside risks to further episodes of risk-off as these countries hit by the virus have far more robust processes of transparency to report the real situation as opposed to China, which as we know, has been criticized for downplaying the true magnitude of this tragedy.

In the currency market, the usual suspects (AUD, NZD) gapped down significantly, while there was an important buying frenze towards the USD in inter-market dealings. The Swissy maintains its status as the safe-haven of choice in recent days, especially after the Yen debacle, while the latter appears to now find more buying interest after reaching a huge resistance in USD/JPY above 112.00, a juncture I suspected in my last technical outlook to be a key inflection point.

Meanwhile, the Euro has seen a positive shift in order flow, and unlike the previous recoveries, this one really looks like it carries more substance judging by the market structure break and most importantly, where it has occurred in the weekly chart (all details in the chart insights). The Canadian Dollar, which has been trading super impressively alongside the USD as it attracted capital flows away from a panic-stricken Asian continent, is easing a bit, but still remains one of the favorites destinations to park one’s money. Lastly, the currency most unaffected by the COVID-19 pendulum remains the Pound, firming up in the last 24h.

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

Narratives In Financial Markets

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

COVID-19 anxiety on the rise: The sense of fear about a new phase of the COVID-19 spreading internationally is reigning in the markets, which sold off aggressively on Friday as more cases and deaths are reported. Kai Kupferschmidt, Science journalist and molecular biologist at Science Magazine, and a must-follow in Twitter on all things COVID-19 related, warned that “the last few days have felt like a profound shift in the epidemic as we are clearly entering a new phase.” Kai’s thread is an eye-opener for those that want to understand the high uncertainty that exists as the market fears the global slowdown may be more severe than thought.

International cases up: News over the weekend has depressed sentiment further with important gaps in the currencies most sensitive to risk such as the Aussie, Kiwi, Yen, USD. The number of cases has ballooned to over 600 in South Korea and more than 100 in Italy, resulting in officials taking extraordinary containment measures to slow down the spreading of cases. The accepted truth is that the international monitoring of the COVID-19 stats will serve as a more accurate representation of the true evolution of the virus as these are countries where there are more robust processes of transparency to report the real situation as opposed to China.

WHO's daily update on the COVID-19 situation: Cases outside China rose to 1769 (+367), which in words of Helen Branswell, Senior Writer in infectious diseases for @statnews, and another must follow in Twitter to get fed with objectivity, “is a sharp increase in recent days as there are now 17 (+6) deaths outside China.” Helen notes that only 1 month ago, there were 11 known cases outside China, hence throwing the following conclusion, “it takes a while for the spread to take off and we are seeing it now.”

US 30-year bond yield at all-time low: One of the most accurate indicators followed by the smart money to gauge the real concerns towards growth globally is the US 30 year bond yield as it acts as the preferred barometer to analyze these prospects. On Friday, it printed the lowest level on record by marginally breaking sub 1.9%. This is a clear declaration of intention by bond vigilantes that the COVID-19 induced suppressed global growth prospects this year is going to wreak havoc inflation expectations and lead to easier policies.

Equities dumped as complacency over: US equities, which have been highly complacent to the COVID-19 related impact on the valuation of stocks amid the bleak background, were also dumped. The S&P500 was down by over 1% and the Nasdaq index fell sharper by 1.8%. In Europe, the Stoxx Europe 600 Index fell 0.5%, with the exception being China as the Shanghai composite gained 4%+ for the week. The performance in yields and equities continues to be music to the ears of gold bulls.

Short US equities, long gold trade of the century? Crescat, one of the top hedge funds by performance in 2019, made a presentation last week, noting that equities in the US is the greatest speculative mania seen and thus shorting stocks could be one of the trades of the century. Watch the video presentation here. These are the same guys, with Tavi Costa, global macro analyst at Crescat Capital, one of the big voices, that were promoting the bullish trade idea on precious metals last year, explaining in detail in this video why it was finally time for gold to start outperforming. That view was spot on.

G20 ready to step up to the plate: In response to the pick up in the COVID-19 activity outside and inside the Chinese borders, over the weekend, officials from numerous countries from the G20 group were cited suggesting that governments may have to step up to the plate through coordinated fiscal stimulus. The official statement raises the prospects of further downside risk to global growth persisting as the coronavirus raises uncertainty and disrupts supply chains. It is these headwinds that led them to state “agreed to be ready to intervene with the necessary policies related to risks.” For a summary of the key headlines you can check the portal Forexlive.

Sander wins Nevada Caucus: Bernie Sanders won the Nevada caucus on Saturday with 46% of the vote vs 19.6% for Biden. The victories in these early Democratic primaries put him in a great position to end up being the Democrat nominee in the race to the Presidential elections against Trump later this year. All the attention now will shift to Super Tuesday on March 3rd with many states going to the polls.

US PMI disappoints: The IHS Markit Flash U.S. Composite PMI disappointed the market on Friday. The output contracted for the first time since October 2013. As part of the key findings, the flash U.S. Composite Output Index was 49.6 (53.3 in January), representing a 76-month low, while the Flash U.S. Services Business Activity Index was 49.4 (53.4 in January), again, a 76-month low. “The overall contraction was driven by a notable worsening of service sector performance, where output fell for the first time in four years”, the official report stated.

NZ retail sales slows a bit: New Zealand retail sales in Q4 exc inflation came a tad softer at 0.7% vs 0.8% estimate. In the prior quarter, the reading came in at 1.6%. For a full breakdown of the report, one can access the official report through the NZ Bureau of statistics, where it was noted that “electronics including appliances, mobile phones, and computers had the largest sales volume increase, while Supermarket and grocery stores had the second-largest fall.

Canadian retail sales showed no growth in December: Canada’s retail sales for December came at 0.0% vs 0.1% estimate. The data had little bearing in the price action of the Canadian Dollar to end the week. According to the official report, “higher sales at building material and garden equipment and supplies dealers, as well as food and beverage stores were more than offset by lower sales at motor vehicle and parts dealers and gasoline stations. Sales were up in 7 of 11 subsectors, representing 49% of retail trade.”

Japan faces a technical recession in Q1: Japan’s manufacturing PMI for February succumbed to its lowest level since 2014 after coming at 47.6 vs 48.8 previously while the service PMI sank into contraction too from 51 to 46.7. The official report cited Joe Hayes, Economist at IHS Markit, noting that the report “dashes any hopes of a first quarter recovery and raises the prospects of a technical recession.” In the wake of this report, BOJ governor Kuroda said that he “doesn't think another comprehensive review of monetary policy is needed”, even if “aware of IMF's view that BOJ should conduct one, even after having done so in 2016.” It’s become borderline ‘ridiculous’ to think that Japan will meet its 2% inflation target amid the fiscal, monetary, demographic and social mentality elements at play influencing the setting of prices in the country.

German PMI recovers but still early days: The only encouraging data came via the European PMIs, with better than expected readings out of Germany, at 47.8 vs 44.8 expected, or the Eurozone as a whole. However, by reading the comments by Phil Smith, Principal Economist at IHS Markit, it looks like this data still doesn’t fully represent what’s to come: “February’s ‘flash’ PMI results show that the German economy managed to eke out another marginal increase in business activity, despite a fresh setback to exports in the wake of the outbreak of the coronavirus. Reports from surveyed businesses indicate that, so far, disruption to manufacturing production from supply issues has been fairly limited, but these are still early days in what could potentially be a lengthy saga.”

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

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Insights Into FX Majors

Regular educational videos and technical analysis on how to interpret these charts can be found in the Global Prime's YouTube section. The idea of this analysis is to complement one’s daily bias by accounting for the trade premise I observe based on market structure and momentum.

EUR/USD, as observed in my latest technical outlook video from Friday, reached a 100% symmetrical target, an area susceptible to a shift in order flow. One can read the footnotes in this report for further clarity on this topic. As one drills down into lower timeframes, we can observe that the pattern of compression into these lows (distribution - shorts closed) has finally led to a breakout of structure in favor of the buyers. I wouldn’ add much weight to this upside breakout given the steady sell-side flows, but considering it occured at such a macro level in the chart (100% proj target off the weekly chart), there is substance for the onset of a buying cycle.

GBP/USD, one of the risks that faced on Friday was that the false breakout of the prior lows did evolve into the establishment of a daily range. That’s exactly what’s transpired by looking at how much the price has retraced. This means that the directional bearish bias off the daily gets invalidated until a clean breakout of the recent lows. On the H4, the structure remains bearish, but with the loss of momentum confirmed via the smart money tracker, this market is not as clear cut to be sold as it was during the late stages of last week. I’ve marked in white areas the key fighting grounds between buyers and sellers going forward. Until buyers don’t find acceptance above the immediate resistance, the upper hand is still for sellers structurally wise, even if as I said, you also want to see the momentum reversing to bearish.

USD/JPY, as also pointed out in the latest technical outlook video, stopped in its tracks at the confluential level of the 100% projection, which blended perfectly with a macro horizontal level of resistance as shown in the daly chart below. This interaction with such strong resistance, coupled with the velocity of the rally, raises the prospects of an important top found, with a slow grind lower towards the next key level of support a potential scenario to be accounted for.

AUD/USD, as in the case of the EUR/USD, did also come into contact with the 100% projection target, which means the downside potential could be rather limited. It certainly doesn’t offer any value whatsoever, technically speaking, to be a seller if swing trading it. Further risk-off may see the bleed lower continue but this move would be mainly exploitable by scalper and momentum traders with strategies designed to be in and out within hours. One of the worst areas to keep adding positions short is when a bearish cycle is mature, as the AUD/USD daily shows. Apply patience, sideline yourself until the market comes back to key areas, and be ready then.

NZD/USD, unlike the AUD/USD, is yet to find a meaningful bottom judging by the current magnitude of its decline, as the market is yet to test the 100% proj target off the daily. What this means is that any rebound towards key technical areas represent an opportunity to short this market on the assumption that the bearish cycle is incomplete. The Kiwi is a currency with a clear risk of selling off as the COVID-19 pandemic keeps playing out.

USD/CAD is a market that offers a rather murky picture, with the daily confined in a broad range. Considering that the topside of this consolidation has recently been tested, the pattern has been to see a rejection back down towards the opposite side. If that continues to play out, there is still significant downside up for grabs for the interest of sellers. By lowering our attention to the H4 chart, we can see that a breakout of structure to bearish has already occured, laying into this daily view of the range bottom-side to be the next macro move. However, the fact that every decline in the pair has failed to find acceptable into lower prices is a bad omen as it suggests low conviction by shorts and/or building of longs.

USD/CHF shows the type of price action one could have expected judging by the location it had reached in the chart. With the Swissy attracting most of the safe-haven bids in FX since the Yen debacle, alongside the juncture reached in the chart (weekly horizontal resistance), shorting it off these highs was a scenario to be on the watch for. The H4 chart starts to show clear cracks in the uptrend, with the structure of higher lows now violated, which increases the risks that this is a market that may start to shift its attention towards selling on rallies.

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

Proximity Of COVID-19 To The West Spooks Markets


The market is clearly developing a growing correlation between the proximity of the virus to the Western world and fear in market participants as well as government. Equities are 'catching down' to this reality, re-connecting with the dreadful fundamentals that exists if the worst case of a global recession plays out. In the Forex market, we are observing some interesting dynamics too, with the US Dollar softer relative to the likes of the Euro of the Japanese Yen. Keep reading not to miss any details...

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

It is fair to say that the market has definitely hit the panic bottom as equities suffer drops to the tune of nearly 4%, while bond yields continue the dramatic falls, all indicative of a market that is pricing in, at this pace, a global recession this year. The culprit? The spreading of COVID-19 to the West.

It is precisely this proximity of the virus to the West that the market is finally picking up, no longer complacent, as we clearly observe a developing and growing correlation between the proximity of the virus to the Western world and fear in market participants as well as government.

Besides, the more the virus spreads outside China, the more the tail risk for the markets as the international monitoring of the COVID-19 stats will be much a more accurate representation of the evolution of this disease after allegations of the rigged methods by China.

In FX, most of the selling towards the Oceanic currencies (AUD, NZD) was done during inter-market dealings, with surprising resilience afterwards. This comes to show why through these daily reports where market symmetries are observed, it helps to anticipate order flow shifts. Since that was a scenario to expect in the EUR/USD, as a result, softer buy-side commitment in the US Dollar across the board transpired, even if the currency remains ‘hands down’ the king of Forex this year.

The fact that the market sees 3 quarter rate cuts by the Fed this year may help explain the under-performance of the USD on Monday too. The Canadian Dollar, amid a collapse in the industrial commodity complex, with Oil the most punished, could no longer ignore these dynamics and imploded. New COVID-19 cases in Canada also weighted.

Interestingly, it didn’t take long for the Yen to re-discover its safe-haven appeal, reinforcing the belief that last week’s debacle may have been a major readjustment by Japan’s GPIF (pension fund). Unlikely we’ll ever really know what exactly happened that day. Lastly, the Pound traded on the soft side without specific catalysts of note.

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, Twitter, Institutional Bank Research reports.
If you found this fundamental summary helpful, just click here to share it!

Collapse in risk as COVID-19 fears go sky-high: As fears of the coronavirus spreading internationally mount, with South Korea, Europe and other countries the latest hit by the disease, we’ve seen a major collapse in the value of both equities and bond yields around the globe. Main indices in Europe and the US were down nearly 4% as panic selling settles in, the US 30-year bond yield prints yet another record low, Gold balloons past the $1,670 mark, the Japanese Yen re-discovered its safe-haven bids by surging vs its main peers, while in the industrial commodity complex, Oil is the most punished down over 4%.

WHO refuses to call it a pandemic yet: The WHO's Chief Mr. Tedros said that the rise in cases in Italy, Iran and South Korea are 'deeply concerning, while re-affirming that even if “the coronavirus has pandemic potential”, the WHO does not yet consider it a pandemic, despite noting “increases in cases outside China are concerning. Tedros notes that “at the moment we are not witnessing the uncontained global spread of this virus and we are not witnessing large-scale deaths, hence we must focus on containment while preparing for a potential pandemic.” The number of confirmed cases of COVID-19 has expanded to over 30 countries, with the worldwide death toll over 2,600. A summary of the latest COVID-19 developments can be found here.

COVID-19 direction moving away from China: These latest developments, according to Quincy Krosby, chief market strategist at Prudential Financial Inc., “show the path of the virus -- you have the duration, how long this is going to last and you have the direction -- and the direction is moving away from China and moving onto areas that we haven’t seen before,” she said. “If this were to hit the U.S. in ways -- and remember the U.S. is large -- in ways where in New York City, and LA and Chicago started to see the number of cases starting to build and folks actually in hospitals and dying, you’re going to see people much more nervous.” Readers should be reminded that yesterday I cited Kai Kupferschmidt, Science journalist and molecular biologist at Science Magazine, as part of a series of Tweets he had posted, where he warned that “the last few days have felt like a profound shift in the epidemic as we are clearly entering a new phase.”

What is new for the markets? Alec Young, managing director of global markets research at FTSE Russell, describes it perfectly, when noting that “what’s new is that we’re getting significant outbreaks in Italy, for example. It happens to be close to Milan, which obviously is the financial center of Italy and it’s also close to southern Germany and Switzerland, which together that region is really the manufacturing hub of Europe. That’s new,” he said. About the mechanics of the COVID-19, which are so hard to grasp in a time-efficient manner by markets, Young said “this issue is very unusual in markets where information normally comes pretty quickly, and it can be discounted. This issue by definition comes in dribs and drabs over a period of many weeks and months. It’s very dangerous. A lot of people were too dismissive of this too early.”

Proximity of the virus to the West: The market is clearly developing a growing correlation between the proximity of the virus to the Western world and fear in market participants as well as government. If we throw into the mix that an outbreak of the virus outside China means truth finally coming to the surface on the real ramifications of the COVID-19, then it significantly increases the tail risk in the markets. The reasoning, as I stated in yesterday’s note, is that the international monitoring of the COVID-19 stats will serve as a more accurate representation of the true evolution of the virus as these are countries where robust processes of transparency will be implemented to report the real situation as opposed to China.

Market sees three quarter rate cuts by the Fed this year: The US money markets are now pricing 0.75% worth of rate cuts by the Federal Reserve. One quarter-point rate cut is fully priced by June, while the rest of cuts are almost fully priced by November, time when the Presidential election takes place. Meanwhile, the US 10-year Treasury yields dropped another 10bps to a low of 1.375%, not too far from its record low of 1.318% . The economic impact of the viral outbreak, in view of bond traders, will trigger a monetary as well as fiscal response by some countries, including the US. This relaxation in US monetary policies may help explain the underperformance of the USD on Monday.

How will the ECB react to COVID-19? The increase in Covid-19 cases in Italy over the weekend, in view of Morgan Stanley Economics Team, implies increased risks to euro area growth. The team wrote the following thoughts as the situation unfolds. “Extra domestic disruption would be expected if the outbreak were to expand materially across the region, pushing us towards a more bearish economic scenario, with increased pressure on the ECB and governments to provide further support the economy. We see pressure for an extra cut and possibly extra QE.” In terms of fiscal policy support, the bank’s Economists note that “could play a bigger role in this scenario, with Europe’s finance ministers showing greater openness to coordinate policies.”

What’s the drop in yields telling us? Jim Paulsen, chief investment strategist at Leuthold Group, shared his thoughts on what it means having the US 30-year yield and the 10-year yield at record or near record lows. “I think that is a bigger culprit behind the sell-off than most appreciate. I think the bigger thing in the room is the bond market and the bond market seems to be suggesting some near-term calamity while stocks seem to be ignoring it and it’s creating a lot of fear.” There is already talk emerging of a global recession, predicated on the basis that international businesses will struggle to continue to function in a world where borders start to get shut. Amid this pessimistic backdrop, it also means coordinated easing by Central Banks.

G20 is ready to step up: As a reminder, the G20 has pledged that it is ready to step up its efforts with a decisive response in the wake of the COVID-19 outbreak outside China through coordinated fiscal stimulus as it raises uncertainty and disrupts supply chains. The official communique read “agreed to be ready to intervene with the necessary policies related to risks.” China’s Xi said that “the outbreak of novel coronavirus pneumonia will inevitably have a relatively big impact on the economy and society.” A summary via Reuters can be found here.
German IFO on an unjustifiably increasing path? Germany’s February IFO business climate index came at 96.1 vs 95.3 expected, the expectations printed 93.4 vs 92.1 expected, while the current assessment was 98.9 vs 98.6 expected. Traders should not let this temporary improvement in business morale through February override the current concerns surrounding the coronavirus outbreak. Even if the IFO institute notes that the domestic economy does not seem to be affected by the virus situation, chances are the data still has to catch up to the worsening of conditions. Last Friday, Phil Smith, Principal Economist at IHS Markit, as part of the German Feb flash PMI, said that it looks like the Feb datasets still don’t fully represent what’s to come: “February’s ‘flash’ PMI results show that the German economy managed to eke out another marginal increase in business activity, despite a fresh setback to exports in the wake of the outbreak of the coronavirus.”

SNB is back on intervention mode: The SNB is stepping up its commitment to defend the strong Franc after it broke the 1.06 handle against the Euro, in a move that may have triggered intervention. As Bloomberg notes, “the amount of cash commercial banks hold at the central bank, known as sight deposits, rose by 2.1 billion francs ($2.1 billion) last week, the largest increase since early January, data on Monday showed.” SNB’s modus operandi is not to disclose intervention activity, hence, as Bloomberg adds, “analysts are closely scrutinizing the sight deposit data for clues.” “It looks like the SNB intervened,” said Credit Suisse economist Maxime Botteron cited by Bloomberg, adding that “we’ve got to prepare for more interventions,” Botteron also said.
Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in what in my opinion is the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes, and it doesn’t have a sharp-looking appearance that will be diverting your attention from the price action. It’s spot on!
Insights Into FX Majors

Regular educational videos and technical analysis on how to interpret these charts can be found in the Global Prime's YouTube section. The idea of this analysis is to complement one’s daily bias by accounting for the trade premise I observe based on market structure and momentum.

EUR/USD, on the back of testing a weekly 100% symmetrical target, has confirmed its most significant shift in order flow since Jan 29th. The lower timeframe, specifically the H4, showcases a market dominated by buyers short-term as portrayed by the successful rotations to the upside seen, which has the backing of the upward slope by the smart money tracker, meaning this is a market that is attuned with it structure and momentum. Note, for the education of the reader, that this evolving bullish pattern comes on the heels of a compression into the lows, a typical behaviour that implies distribution, in other words, a pick up in shorts closure activity. Considering the bullish bias occured at such a macro level in the chart (100% proj target), this may be a meaningful bottom even if an overhead resistance tough to crack is nearby.

GBP/USD has validated the establishment of a daily range after the failure to break & accept into lower lows. This is an important concept to grasp. Not only the breakout is necessary which actually did occur, but price must accept below in whatever timeframe we are monitoring, to validate that the trade premise, in this case a bearish bias, remains true. This failure has raised the prospects of choppier price action in lower timeframes. In the H4 chart, the structure remains bearish, and even the momentum has been re-confirmed via the smart money tracker, but I remain skeptical for now as the price has failed at the daily support again, with a sizeable tail, which implies buyers have drawn a line in the sand for now. I’ve marked in white areas the key fighting grounds on the upside between buyers and sellers going forward. Until buyers don’t find acceptance above the immediate resistance, the upper hand is still for sellers structurally wise, even if as I said, the risk is increasing that these get caught wrongsided. An acceptance below the line of daily support removes this danger for sellers near-term.

USD/JPY stopped in its tracks at the confluent level of the 100% projection, and to be honest, I didn’t think it would turn back down in such a rapid fashion. The interaction with such strong resistance at 112.15, coupled with the velocity of the rally, was a clear risk. But fast forward to Tuesday, and after the fall seen, it makes further downside progress much harder to come by, with the reason being that the market is fast approaching the origin of a the strong demand from last week. More often than not, this leads to unfilled buy orders to overpower the line-up of offers temporarily, hence why you want to be on high alert for your personal favorite price action triggers to appear in this type of areas if looking for longs. Just be aware that while structurally wise this is a market with bullish signs written all over the wall, the momentum must readjust back up, as the aggressive selling has turned the smart money slope in the H4 bearish now. Front-running entries before this indicator returns to bullish territory offers the benefits of better entry placements but carries more risk of price going further against you.

AUD/USD paused its downward momentum at the 100% projection target, which hopefully reinforces the notion among the readership that these symmetrical patterns are instrumental to your ability to read market structures. The market has now transitioned into a range as a result of this temporary exhaustion in sell-side interest, which as a reminder, makes logical sense structurally wise, as the 100% proj measure is the area that offers the least value to keep engaging, in this case in sales, technically speaking. Even if follow through occurs from here by the range breaking out, this resumption of the dominant trend is best suited to be exploitable by scalper and momentum traders with strategies designed to be in and out within hours unless the market can start testing higher levels as we remain very overstretched.

NZD/USD has entered a ranging phase in the broader context of a market that is yet to come into contact with its 100% proj target off the daily. What this means is that any rebound towards key technical areas represent an opportunity to short this market on the assumption that the bearish cycle is incomplete. Look to lean against areas of technical value, either at the top of its existing range or higher up where a key level of resistance off the daily comes at.

USD/CAD remains trapped in a broad range with the daily not offering much clues. However, asone drills down into the H4 chart, a fresh storyline has been revealed through price action. Here we can see a new bullish cycle has been validated after the take out of the previous swing high, which means that this is a market with buy on dips strategies likely to thrive on Tuesday. Besides, the sequence of bottom-side failures pre-bullish breakout is another testament that this has been a market potentially building long positions with sellers now caught wrong-sided. This behavioral pattern reinforced the notion of buying dips on the retest of the previous resistance.

USD/CHF, to a certain extent, has shown the predictive price action one could have expected judging by the location price has landed at in the chart, that is, a weekly horizontal resistance. The H4 chart, with the structure of higher lows violated last Friday, has continued to evolve in a manner conducive to see further downside after the printing of another successful rotation. This price action still places the odds for a market susceptible to be on sell-side mode until the next logical level of confluent support is met at the 100% proj + horizontal line.

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

Market Keeps Pricing In A 'COVID-19 Pandemic'

The best word that comes to my mind to describe what we are seeing in the equity market is 'realization'. Realization that things in the COVID-19 saga have deteriorated too rapidly to ignore. The fallout in equities is telling us investors are finally waking up to realize the world may fall into a recessionary spiral this year, hence over-riding for now any circuit breaker of excessive liquidity in the system. Amid this sour mood, funding currencies are excelling, most notably the Yen. For a full round up of the latest developments, make sure you 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

Risk-off is certainly back with a vengeance with no mercy for equities, which appear to finally be ‘catching down’ to the reality of a world that faces the prospects of a recession. News that more cases are popping up in European countries (Spain, Italy, Germany...) alongside the state of readiness by some states in the US for a virus outbreak keeps spooking the market. It feels as though the market has finally caved in and now prices convincingly an upcoming announcement by the World’s Health Organization that we are facing a ‘pandemic situation’.

The behavior in the Aussie and the Kiwi keeps playing into this view as the currencies suffer the most its proximity to China and are set to experience the greatest economic pain if the global economy stagnates. The US Dollar, although to a lesser degree, also joined the fragility in the Oceanic currencies, in what still looks like a technical correction in a very well-established uptrend this year. The weakness in the Canadian Dollar is a nascent development to also keep an eye on as the unwinding of the ‘carry trade’ back to old fashion ‘risk-off’ dynamics with Oil flirting with the $50.00 handle is far from the backdrop that would make the currency thrive.

In this treacherous environment, the appeal towards funding currencies the likes of the Yen, the Euro and the Swissy has been re-discovered, even if a special mention must be placed to the Japanese currencies, once again reasserting its safe haven characteristics and finding no rivals for a second day in a row. In line with this outperformance by the Yen, another currency excelling on Tuesday was the Pound as it kept finding further buy-side flows just as the EU published its mandate for the upcoming post-Brexit trade talks, while on Thursday it will be time for the UK to publish theirs.

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, Twitter, Institutional Bank Research reports.

The stock market rout isn’t over: It was another day of bloodbath in the equity market as new COVID-19 cases were reported in Spain and Germany, the CDC warned Americans to prepare for an outbreak at home, San Francisco Mayor declares state of emergency, while the CDC finally makes the admission that a pandemic is no longer a question of ‘if’, but ‘when’. For a full round up of the latest developments when it comes to the COVID-19, ZeroHedge as usual does a tremendous job.

Strong wording by the CDC depresses sentiment further: Nancy Messonnier, director of the CDC’s National Centre for Immunization and Respiratory Diseases in the US, said that “We expect we will see community spread in this country,” adding that “It is not a matter of if, but a question of when, this will exactly happen.” This bold statement by the CDC director added fuel to the fire and fed into the risk off sentiment seen in equities.

COVID-19 vaccine will take more than a year to be ready: The talk by the scientific community is that it will take at least 12-18 months to develop a coronavirus vaccine, which is a timeframe that far exceeds what the market can take, hence building up the rhetoric that when a pandemic is confirmed, preventive measures and a change in seasonal to warmer temperatures will be the main weapons to fight the viral infections. Trials of a vaccine are thought to still take 3-4 months and then the second round another six months. Once these phases are done, pharmaceuticals will move into production and distribution. .

Bond yields keep imploding: The US 10y and 30y bond yields registered fresh record lows, a watershed moment which tells us a couple of powerful stories to keep monitoring. Firstly, there is a decisive repricing of Fed rate cut expectations (three-quarter cuts fully priced this year, first cut priced in April). Secondly, the fixed-income market has become the go-to place to diversify into as an alternative to the rout in stocks as concerns mount that the global economy will go into recession this year.

Fed’s Clarida doesn’t take the plunge: So far, there are no new clues given by Central Bankers. In an appearance by Fed Vice Chair Clarida and right-hand man from the big boss Powell, he aimed at soothing fears by noting that “the economy and Fed policy are in a good place”, while recognizing that “the Fed is closely monitoring the virus outbreak as disruption could spill over to the rest of global economy.”

What circuit breakers exist to see a turnaround? While it feels as though we are getting deeper into the eye of the COVID-19 storm, do not underestimate certain circuit breakers that exist, which may lead to temporary relief rallies by those assets punished the most (commodity currencies, industrial commodities, equities…). I am referring to coordinated monetary/fiscal responses by developed countries (US, Europe, Japan…) as recently hinted during the G20 meeting celebrated in Saudi Arabia over the weekend.

COVID-19 international trend worsens: Other circuit breakers that may act as oxygen for the market, even if it looks premature to be counting on them to act as the onset to repair the damage, may include a gradual decrease in virus statistics, even if the trend that is clearly developing is a spread into the West with cases on the increase in a growing number of countries. The virus thrives in cold conditions, hence a transition into warmer temperatures in the West may correlate with a plateau in the number of cases. If that ends up playing out, we are not there yet.

COVID-19 over-rides economic data: The US February consumer confidence came at 130.7 vs 132.1 expected. The headline was on the soft side even if by digging into the details, we could see how expectations were slightly better by coming in line with estimates. Note, we are in one of those rare phases in the market where the COVID-19 is the overarching topic overriding everything else, so it’s hard to make an assessment that is going to be of any practical use for Central Bankers as the prospects are that is going to get significantly worse before it gets better.

The EU ready to start negotiations with the UK: The EU published its mandate for the upcoming post-Brexit trade talks, while on Thursday it will be time for the UK to publish theirs. According to the official statement by the EU, “the Council today adopted a decision authorising the opening of negotiations for a new partnership with the UK, and formally nominating the Commission as EU negotiator. The Council has adopted a clear and strong mandate for our negotiator, Michel Barnier. This confirms our readiness to offer an ambitious, wide-ranging and balanced partnership to the UK for the benefit of both sides.” The deadline is 10 months away.

Olympics at risk? According to the WSJ, citing IOC member Dick Pound, the Tokyo Olympics this summer could be a victim of the Coronavirus. The article reads, citing Mr. Pound that “as outbreaks of the coronavirus spread, it raises the possibility of cancellation or postponement of the Games.” This would be a massive blow for the expected boost to Japan’s economy, with Tokyo targeting to spend more than $20 billion on hosting this summer’s Olympic Games.
If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in what in my opinion is the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes, and it doesn’t have a sharp-looking appearance that will be diverting your attention from the price action. It’s spot on!
Insights Into FX Majors

Regular educational videos and technical analysis on how to interpret these charts can be found in the Global Prime's YouTube section. The idea of this analysis is to complement one’s daily bias by accounting for the trade premise I observe based on market structure and momentum.

EUR/USD has met the expectations for a temporary shift in order flow away from its 100% symmetrical target off the daily/weekly, and into the stickiness of its immediate resistance. The approach of price on three drives, each failing to gain much upside ground beyond the take-out of the preceding peak is of concern for bulls. Typically, the pattern that tends to play out when the conviction to penetrate into new highs is half-hearted, creating this type of compression movements, is a transition into more two-way order flow with an eventual reversal, which in this case would align perfectly with the dominant trend in the higher time frames. But that’s front-running events, what’s in front of us in the 4-hour chart is a market dominated by buyers short-term as nascent successful rotations were nonetheless achieved. The upward slope by the smart money tracker is also backing up the intraday bullish bias. Just be reminded that this daily resistance area acts as a pocket of contention that could see sellers aiming to retake control.

GBP/USD navigates through a daily range, which makes the prospects of any upside potential contained by its upper edge around 1.3070 or thereabouts. The failure to break & accept into lower lows last week triggered a shift into GBP buy-side dynamics, favored by the buying that ensued in the EUR/USD market off the 100% weekly proj target. In the 4-hour chart, however, the picture has cleared up in favor of the bulls after a decisive breakout of market structure, with the momentum via the smart money tracker also giving us the green signal. I’ve marked in a white area the key battle ground to the upside, which gives bulls significant room to exploit a further extension of the buying cycle. Note, a target of roughly 1.3070 makes logical sense symmetrically speaking as it’d align with the 100% measured movement, while even more importantly, it constitutes a double top, an ideal area for buyers aiming to find liquidity to close the building of the current long inventory campaign. A case to buy on dips is definitely present.

USD/JPY retraced very abruptly from its confluential level in the form of a 100% projection + horizontal resistance above the 112.00 area, landing back sub-110.00 handle now. This is buyers’ dominated territory, so I am expecting the re-emergence of bids at regular sequences down to 109.60, below which big pockets of liquidity are thought to be layered. To put it bluntly, the easy gains on the way down are likely done and it’s going to take a lot more ammunition by sell-side accounts to overpower what I expect to be an area clustered with strong bids. Be on high alert for entry triggers to appear in this type of areas if the long case compels you. Ideally, we want to first see a shift back to a bullish market structure with momentum via the smart money slope also picking up in the 4-hour chart. Front-running entries before these conditions are true makes it riskier but at the same time one can get better entry placements. As usual, a personal call based on one’s personal make-up as a trader.

AUD/USD shows very little new price action that may prompt a re-assessment of the current market conditions. Its downward momentum stalled at the 100% projection target, from where the market has now transitioned into a range. A resolution is needed to declutter the messiness of the shorter time frame chart well represented through the 4-hour price data sets, clearly portraying the re-balancing of flows, which leads to reduced clarity to engage in trades. I’ve marked in white a few areas where a further release of the sell-side pressure may take us to. These are liquidity pockets where sell-side accounts would aim to re-dominate proceedings by re-engaging in what’s arguably the most well defined trend in G8 FX this year.

NZD/USD is trading in lockstep with the AUD/USD as the COVID-19 saga makes both Oceanic currencies be taken to the wood sheds at a similar rate of depreciation. The path of least resistance continues to be to the downside, even if in the short timeframes such as the 4-hour chart, the market offers more two-way price action as a range was validated. The approach here, by assessing the daily chart, is to let the market play its hand once again, and if the outcome happens to be a breakout to the downside, look to re-engage short, while any rebound must be looked also as an opportunity to sell at the critical levels outlined in the 4-hour chart.

USD/CAD displays bullish tendencies off the 4-hour chart after re-taking a key sellers’ stronghold, which is now acting as an area to lean against to be a buyer on weakness. This play has yielded a predictive series of bounces so far, with the base case being that an eventual retests of the previous swing high is in store. As stated yesterday, remember that the compression pre-bullish breakout plays into the view of building long positions as sellers are now caught wrong-sided and would want to mitigate the risks. This behavioral pattern reinforced the notion of buying dips on the retest of the previous resistance. Note, an overshot of this latest trend high is a tall order to eye for as a huge sticky resistance lies immediately ahead - the upper end of the multi-month range in the daily -. This resistance has been rejected for over 6 months now, a clear testament that sizeable offers are protecting this level tooth and nail.

USD/CHF has extended its downward correction in the 4-hour chart to such a degree that is now a whisker away from meetings its 100% measured movement target, layered on top of a horizontal support where a termination of the downcycle may ensue. By assessing the daily chart, it should be clear how relevant this area has been as a reactionary level where shifts in order flow have emanated from. Going back to the 4-hour chart, so far, the current dynamics remain short-term bearish as yet another bearish successful rotation was accomplished, no doubt assisted by the buying pressure seen in the EUR/USD 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

COVID-19 Int'l Spread Only Game In Town

It's all about the COVID-19 and the spillover effects for the global economy as an increasing number of countries announce new cases. This backdrop continues to weight very heavily on the Aussie, the Kiwi, equities, bond yields or Oil to name a few. The COVID-19 narrative has overpowered everything with the market still digesting the true dimensions of this crisis. Find out the latest in today's report...

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

Let’s get started…

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

Quick Take

The behavior in financial markets continue to portray how deeply concerning the COVID-19 situation has gotten as numerous agencies around the globe set the stage for an upcoming ‘pandemic’, even if that’s a term that the highest health authority (WHO) is yet to adopt. After two days of a meltdown in the equity market, a temporary pause ensued, even if that's far from helping to turn around the 'risk-off' sentiment. The broader aggressive selling recently seen elsewhere from bond yields, Oil, Aussie/Kiwi, or the spike in the VIX, remember, encapsulates the huge ramifications of a COVID-19 pandemic as more countries impose airline/event cancellations, travel curbs and quarantines, with the social, economic and health-related costs associated with it. The increased exposure into funding currencies (EUR, CHF, JPY) and selling in the commodity-linked complex such as the Aussie, Kiwi and Canadian Dollar keeps on going. Of note is the acceleration in CAD weakness. The Euro and Swissy have shown the most demand interest, even if in the last 24h, the US Dollar starts to challenge that status as its likely transient spell of weakness is finally showing signs of reversing back up. The Pound, meanwhile, was engulfed by sell-side action since the early stages of Europe, as the market readies to hear the UK mandate for the upcoming post-Brexit trade talks.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

Authorities keep warning of a COVID-19 spread: German and US health authorities are warning that the COVID-19 infection is set to spread and strain health systems. The US CDC recently stated that it is when and not if that COVID-19 will hit the States. Meanwhile, the WHO, still refusing to call it a pandemic, said that the globe is “simply not ready” to tackle the widespread of the virus. German Health Minister Spah warned about “the beginning of a coronavirus epidemic”, while FDA officials warn the COVID-19 virus is on the "cusp" of being a pandemic.

The world isn’t ready for such crisis: Michael Every, Head of Market Research at Rabobank, wrote a note to clients in which he agrees that the world isn’t ready, noting the following. “Imagine the strain on health services even in developed countries if COVID019 were to sweep in, especially with up to 20% of the population aged over 65 and hence most vulnerable based on the observed mortality pattern so far. We simply don’t have enough hospitals or ICU units anywhere.”

Trump no longer denies possible spread of COVID-19 in the US: The US President Donald Trump said in a speech that the coronavirus will probably spread in the US, which has prompted him to consider possible travel restrictions from Italy, South Korea even if he added that now is not yet the right time. The USD and equities sold off on Globex.

Leaked docs show China downplaying stats: More reports are coming to light that China is getting back to work with traffic congestion and pollution continue trending higher even if they remain below 2019 levels. However, the assumption that the novel coronavirus outbreak in China is much worse than the authorities want the public to believe gained further traction after leaked docs obtained by the Epoch Times revealed the outbreak in the Shandong province is much worse than the officially reported.

Will the containment measures work? While the World Health Organisation (WHO) said that the rate of new infections seems to be slowing in China, this is in contradiction with the early pattern seen in the rest of the world. But as the Research Team at the National Australian Bank notes, “the WHO found that the epidemic peaked and plateaued between the 23rd of January and the 2nd of February and provides some hope that containment measures could help stem the spread of the virus.”

The COVID-19 spread into the West keeps its course: Financial markets are still not buying into this ongoing weakness as investors remain cautious of the COVID-19 spread into the West with more international cases identified every day (Brazil, Greece Norway, Italy, Iran and South Korea…). While there has not been a whole lot of data to provide new drivers for the markets (latest developments here), the markets are largely trading based on the existing depressing mood from the negative headlines.

No respite for equities or bond yields: This glass half-empty approach in trading financial markets was well reflected in the behavior of equities in the US, initially opening with relatively strong gains of nearly 2% but succumbing back down as the day went by, with the S&P500 ending -0.1% at 3,124. Yields also continued to trend lower globally.

Oil losses $50.00 as stockpiles build up eyed: A market that remains tail-spinning below the $50.00/barrel is WTI, printing its lowest sub $49.00, not seen since late 2018. The main culprits include airline cancellations, travel curbs and quarantines, all leading to expectations of a major build-up in crude stockpiles.

EU-UK trade talks in focus: The Pound saw an intraday spike in the broader context of selling pressure after the top European Brexit negotiator Barnier said the EU is ready to offer UK super preferential access to EU markets. However, this ‘apparent’ positive headlines doesn’t change the equation a bit. The Sterling quickly gave back the gains, as Barnier reminded the market that “the EU-UK trade talks are set to be complicated with not much time to strike a deal…”

RBA rate cut further priced in for April: The coordinated intervention by Central banks to lower interest rates is a scenario that markets are decisively pricing in. Not only the market sees the Fed easing its policy by as many as 3 quarter cuts this year, but the bond traders are telling us, via the Australian fixed-income, that the RBA is also looking like a contender to lower rates, with an April move close to 50% chance.

Australian Q4 capex disappoints: The data came well below estimates at -2.8% q/q. This reading was a major miss, even if it referred to Q4 2019. The estimate 5 for '19-20 is seen at AUD 120bn (from 117 for the previous estimate, 4), while the 2020/21 estimate is for 100bn AUD. This news will be another drag on the Australian Q4 GDP, due Wednesday 4 March.

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

Source: Forexfactory

If interested in what in my opinion is the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes, and it doesn’t have a sharp-looking appearance that will be diverting your attention from the price action. It’s spot on!
Insights Into FX Majors

Regular educational videos and technical analysis on how to interpret these charts can be found in the Global Prime's YouTube section. The idea of this analysis is to complement one’s daily bias by accounting for the trade premise I observe based on market structure and momentum.

EUR/USD has come into contact with an area of prior strong supply imbalance. It therefore becomes a possible turning point for the market, especially judging by the compressive nature of the ascent we are seeing. In other words, every time highs are taken out, the market fails to extend much further up, which is suggestive of a short-building campaign going on. The approach of price on now four drives, with each leg smaller in magnitude than the previous, is also a sign of exhaustion. Note, this is just the prelude and half the equation as to confirm as turnaround, a breakout of structure is what’s needed next to gain more conviction.

GBP/USD keeps navigating through a daily range, which makes it difficult to assess the next directional bias until a resolution outside of it occurs. In the 4-hour chart, bulls have failed to capitalize on the prior day breakout of the swing high and instead, selling has ensued, taking the price all the way down to retest the pocket of demand and opposite swing. This is an area where buying opportunities may still arise, but be aware that the way the price went up before the decisive sell-off means this market is susceptible to face further selling at the area marked, which is where I expect most long-side risk exposure to be mitigated. This is best visible if the trader goes into lower timeframes such as the 1-hour chart.

USD/JPY is finding strong bids at a buyers’ stronghold, which is why I have been expecting the re-emergence of bids, precisely what we saw on Wednesday, even if it’s still premature to be jumping the gun to validate a new up-cycle off the H4 chart. If further setbacks, I am still expecting bids at regular sequences down to 109.60, below which big pockets of liquidity are thought to be layered, and possibly acting as an area for shorts to close exposure. This is a market where the long case compels me, but first a shift back to a bullish market structure with momentum via the smart money slope also picking up in the 4-hour chart is necessary.

AUD/USD continues to be dragged lower, which has led to yet another technical milestone intraday at the 4-hour chart resolves its range by extending way beyond its support level. There is absolutely zero evidence via price action that the market is done selling the pair even if we’ve now reached the 100% projection target, from where the market may temporarily stall. A retest of the backside of the old range up to the prior midpoint offers pristine intraday areas to re-engage in sell-side action with the most well defined trend in G8 FX this year.

NZD/USD validated a breakout of its range structure by accepting into lower levels, therefore opening the doors to further downside until the next 100% proj target gets met. The approach here, by assessing the daily chart, and by now getting the green light via the 4-hour chart, is to sell this market as the core view if one’s entry trigger shows up. I personally have nill conviction that the Kiwi is going to revert from here as the triggers are not there. Follow price action.

USD/CAD is a textbook example of the outcome one can aspire to get by spotting what side is suffering the most pain (trapped), and from that read, add your exposure. The compression at the lows last week ahead of the bullish breakout was clearly the building of long positions, with the retake of a strong resistance (break of structure) the ultimate signal that this market was poised for higher levels this week. Every touch of the resistance-turned-support has yielded a predictive series of bounces eventually taking prices into new daily trend highs. This behavioral pattern led me to promote buying dips this week, a directional bias that has paid off.

USD/CHF has extended its downward correction in the 4-hour chart but is starting to show more two-way price action as I would have expected given the sticky daily support encountered. I personally find this market to now be in a period of transient distribution until the next wave of buying or selling reveals what type of market structure keeps playing out. It looks like the market may be transitioning into a range for the time being, as the two bounces off this daily support have met strong selling for a revisit back down. It would be a hasty decision to call for a particular directional bias in this market until more data inputs around this vicinity come in.

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

Vigorous Unwind Of Forex Carry Trades


What a gap in performance has opened up between 'the funding currencies' and 'the higher yielding' complex. The aggressive unwinding of carry positions currently underway came as the VIX, also known as the 'fear index' reached its highest level in over two years at a time when the rout in equities accelerated vigorously. For a full round-up, 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
• Insights Into Forex Flows
• Educational Material

Quick Take

Today’s aggregated G8 FX indices chart leaves no doubt, the torrid market conditions out there, with the S&P 500 shaving over 10% from its all time high, suggests the hold of carry trades has become way too risky. The immediate ramifications of this aggressive unwind is to witness funding currencies the likes of the Euro, the Yen and the Franc flying in style. It’s simply not the time to keep carry-trade exposure when we’ve had the worst week in US equities since the GFC and the VIX at a 2-year high. One can see in the chart below the considerable gap that has opened up between ‘the funding currencies’ and ‘the high yielding complex’ with the Canadian Dollar by a country mile the most punished. I salute you with huge respect if you’ve been able to capitalize it through EUR/CAD longs. What a move! When looking at the Aussie and Kiwi, it’s the same old story, with sellers firmly in control. Make sure you visit the ‘insights into charts’ section for an opportunity to explore the smart money footprint in the Oceanic currencies as short-inventory keeps being built. In this environment of funding currencies thriving, USD longs were too schooled not to marry to a single direction, in this case longs, despite the 2020 bull trend is still in place. Lastly, the Pound remains unloved as the political brinkmanship by UK PM Johnson with the EU ratchets up.

The indices show the performance of a currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

COVID-19 monopolizes the narrative: This will remain the case for some time, as the terrifying prospects of a world economy brought to a standstill creep in. Overnight, the trend of COVID-19 spreading into the West kept playing out, with more cases popping up. France has now over 40 new confirmed cases, a total of 14 in the German state of Nord-Rhine Westphalia, while Italy has now over 700, with 17 confirmed deaths. Worse yet, California is monitoring 8,400 people after 33 cases were identified in the state. Read a summary here via ZH.

WHO’s Tedros warns of ‘decisive point’: The head of the World Health Organization Mr. Tedros said that the coronavirus outbreak has reached a “decisive point” and it has “pandemic potential”. Dr Tedros urged governments to act swiftly and aggressively to contain the virus. "We are actually in a very delicate situation in which the outbreak can go in any direction based on how we handle it," he said. "This is not a time for fear. This is a time for taking action to prevent infection and save lives now," he added. More on what Tedros said via the BBC.
Equity meltdown resumes: The low conviction to gain back risk exposure in equities translated in a short-lived attempt to rebound before indices in the US succumbed another 3 to 4% heading into the close, with the S&P 500 more than 10% off its record highs. The US fixed-income market continues to be the place to park one’s money as seen by the unstoppable falls day after day. One of the main catalysts for the resumption of the bear trend in stocks was a headline that the New York State health Department asked 700 people to self isolate for 2 weeks.

Fear Index at multi-year high: The VIX index, referred to as the ‘fear index’, has gone ballistic nearing the 40.00 handle, after it took out the 36.2 high from Dec 2018. This is the highest level since February 2018. As a historical anecdote, the highest volatility the index tends to reach is about 50% as in the episodes of back in 2015 not to mention during the GFC in 2008.

Forex carry traders give up: The unwinding of risk has led to a strong unwinding of carry trades with funding currencies, especially the EUR benefiting. The consistent dumping of the Canadian Dollar as the highest yielding currency throughout the day also plays into this view in a perfect bearish storm as the collapse in Oil and $1.3350 daily resistance breakout in USD/CAD fueled the rally.

The Sterling remains unloved: The weakness ensues as the dangerous political manoeuvrings by UK PM Johnson as part of the UK-EU trade deal negotiations continue. Johnson made the blunt yet not surprising statement that he is ready to walk away without a deal in the negotiations by June if there are no prospects of a Canada-style trade agreement. Besides, he kept arguing that the UK won’t trade away its sovereignty in the pursuit of a deal. The EU argues that such a hard-line stance violates the Political Declaration of the Withdrawal Agreement.

Vaccine ready ahead of expectations? Even if the market shrugged it off, Israeli scientists said that 'In a few weeks, we will have a coronavirus vaccine'. Once the vaccine is developed, it will take at least 90 days to complete the regulatory process and potentially more to enter the marketplace, according to news reported by The Jerusalem Post.

Watch month-end flows: As it’s the case at the end of every month, activity by fund managers to re-adjust the currency hedges on portfolios will take place. As the National Australian Bank notes, “chatter has it about month end rebalancing of hedges on international equities, ostensibly implying the need for fund managers to be buying back US dollars and selling AUD, the impact of any such flow may not be as great as some will like to make out.”

Circuit breaker coming up? Markets don’t go on a straight line, hence, sooner or later, an event or series of events will occur that may change the current dynamics. In my opinion, as we are getting deeper into the eye of the COVID-19 storm, the onset of a relief rally may come in the form of coordinated monetary/fiscal responses by developed countries, an outcome that G20 countries attending the last summit in Saudi Arabia over the weekend have pledged.

Global easing priced in: On the monetary policy front, the market keeps pricing in easing by the Fed, with the March meeting 'a coin flip’ around 50% chance with 75bps of easing fully priced in 2020. For the RBA, chances of a March rate cut are just under 15%, yet easing in April is about 50% with 44bp worth of cuts by November. The ECB may take a more hands off approach for now, after President Lagarde said she is monitoring the outbreak “very carefully” but not at a point where it may have long-lasting consequences on inflation. Canada has a one-quarter cut fully priced for April and a second priced by September.

Guggenheim's Scott Minerd spooked by events: The well-known investor declared on Bloomberg TV, "this is possibly the worst thing I have seen in my career... it's hard to imagine a scenario in which you can contain the virus threat. Europe and China are probably already in recession and US GDP will take a 1.5-2.0% hit. The stock market could be down 15-20%... and would likely force The Fed's hand. The Fed is fairly impotent in this environment. This has the potential to reel into something extremely serious."

Don't count on German fiscal stimulus to be big: German media reports the likes of Handelsblatt have indicated that the German government is toying the possibility of a stimulus programme should the proverbial hit the fan and cause major economic disruptions in the German economy. However, the German economy minister Altmaier said authorities there are “not planning any fiscal program to deal with the virus.” For more insights, read this note by the team of Economists at Berenberg.

Australia aims at small-scale stimulus: In terms of fiscal stimulus in Australia, the Prime Minister Morrison is not looking at any large fiscal response to assist the economy in case of a slowdown, according to the AFR. Instead, as the report notes, the Treasury will develop small-scale fiscal stimulus contingency plans.

Economic news a side-show in front of COVID-19: Given the dimensions the COVID-19 has evolved into to now be a global crisis, the market is set to keep ignoring economic data unless it has a severe shift in a Central Bank’s outlook. It will nonetheless serve, as more weeks go by, to understand how the unraveling of the viral crisis is affecting manufacturing, services, sentiment and the economy as a whole. Just be aware that there is a topic that is eclipsing absolutely everything else at this stage.

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

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!
Insights Into Forex Flows

This section includes regular commentary on currency flows and the opportunities that arise as a result of what I call market traps. A brief video summary of this predictive market behavior can be found here. These type of video tutorials are regularly produced and accessible via the Global Prime's YouTube section. The idea behind explaining this concept is to demonstrate that there is a story-line behind unfolding flows and is within everyone’s reach to identify and exploit these patterns.

Let’s get started…

The Sterling is the first market to explore after it triggered a role reversal play on the back of a topside failure to auction higher. What’s important here is to pay attention to the type of ascent we had, with each poke into higher levels an opportunity to build shorts, leading to the creation of back-to-back wicks as a result of each break. Once the market broke its structure by sell-side orders overwhelming the uncommitted buying manoeuvrings, the play was to re-engage on a backside test of the swing low that led to the last upside breakout (optimal entry). This is where trapped longs want to bail and mounting shorts concentrate for a minimum target of the recent trend lows being retested, location where the trade should be cost free. I remain short.

The next market to gift the avid trader with an exceptional opportunity to gain short-side exposure into the Canadian Dollar came via a USD/CAD play. I must say I missed the entry by 1 pip, so all I can think of is “tough luck, moving on…” On to the logic behind this trade. The market had built up a temporary equal-low base which got taken out in early Europe, only to see an aggressive reversal back up as the play was to get the heck out of carry trades. By the time US traders came online, and with a successful rotation having ensued, the play was always going to be re-align one’s bids with the side in control (buyers) at the role reversal level.

Another short play still to make it high enough to fill what I expect to be an important cluster of sell-side orders is the USD/JPY market. An analogous pattern transpired through the US session, with a decisive break of structure getting plenty of buyers into a weak-handed position now. I am anticipating an urge to get out of longs at the market retests the role reversal area (red). Note, the market has been selling off very aggressively and personally, I find this market way too low to aspire for an asymmetric risk reward scenario this time around. Just my 2 cents.

The AUD/JPY is another case study as part of a market that has respected to the pip its role reversal area after the same pattern played out. I am referring to 3 intraday drives followed by a breakout of market structure. By the time the NY close, the chances were to potentially consider gaining short exposure in this market on the assumption that sellers are back in the driver’s seat after a very brief period of time to re-accumulate short positions on the way up. Note, however, the market has reached its 100% proj target off the daily chart, which may see the downside limited. Either way, this is now a cost-free trade as a retest of the prior low has occurred.

By now it is no secret that the market has disregarded the neutral stance the RBNZ assumed it could retain, with aggregated order flow skewed towards the negative side in the NZD/USD market as institutions build up short-inventory. A short could have been identified through a compression into the highs before a break of structure and a retest.

Important Footnotes

• Market structure: Markets evolve in cycles followed by a period of distribution and/or accumulation. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Funding Currencies Rule As COVID-19 Goes Global

Since the covid-19 outbreak appears to have gone global, there continues to be an aggressive unwind of carry trade long structures. This is music to the ears of those long the Yen, the Swiss Franc, which alongside the Euro, are the preferred plays. The Oceanic currencies remain unloved, with the catastrophic historic low in China's PMI over the weekend a fresh reminder that a global slowdown is playing out before our before own eyes. To stay updated in the currencies' thematic, 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
• Insights Into Forex Flows
• Educational Material

Quick Take

A replica of the story narrated in my last report played out last Friday as a market long carry trade structures kept imploding. The colossal weekly losses in equities - worst week since 2008 -, commodities and bond yields kept facilitating higher volatility in FX as the unwind of short exposure in funding currencies becomes the trend to exploit by market forces.
The ‘eye-popping’ miss in China’s PMI over the weekend - worst on record - has only aggravated the fears that the market is quickly headed towards a global slowdown, with coordinated Central Bank intervention through lower interest rates to start as early as tomorrow when the RBA meets. Powell’s ‘emergency’ statement on Friday, laying the ground for lower rates in the US this March, has served as a minor circuit breaker to halt the bloodbath in equities.

Central Banks still have the money bazookas but the vaccines are still a distant prospect, so one wonders that if the ‘probabilistic neglect’ theory the world is trapped into courtesy of COVID-19 keeps damaging consumer and business sentiment, how much of an impact monetary policies alone can have. What’s clear for all to see is the consequences that such treacherous environment is having on the likes of the AUD, NZD, with the CAD also joining the party, as COVID-19 goes global.

The world’s reserve currency is still maintaining a healthy amount of demand when compared to the weakest links, yet it’s also been hammered against the dominance of funding currencies. Lastly, the British Pound, largely immune to COVID-19 related fears, is starting to be negatively affected after experiencing sharp falls on Friday as BOE's Governor Carney show a more pessimistic view on the economy due to COVID-19, with the hard-line stance adopted by UK PM Borish Johnson as part of the political brinkmanship in trade negotiations with the EU not helping.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

Worst week for equities since the GFC: The panic selling last week did not see signs of abating last Friday with equities, commodities and bond yields all hit hard. To put things into perspective, It was the worst week for most indexes both in Europe and the US since the global financial crisis of 2008. The UK FTSE 100 registered losses of -11.1%, German DAX -12.4% or -11.5% in the S&P 500.

Funding currencies rule in a world caught long carry: In FX, since the outbreak appears to have gone global, instead of flows moving away from specific regions like Asia, the movements are more classic in nature. This implies that there is a genuine interest to go into the safety of the Yen, the Swiss Franc, which alongside the unwind of carry trade structures (paid by holding high yielders), is also benefiting the likes of the Euro as one of the preferred funding currencies.

China PMI implodes, worst level on record: To make matters worse, leading to further Yen buying and Aussie selling through interbank dealings on Monday, China’s PMIs plummeted to the lowest reading ever. The manufacturing print stood at 35.7 (expected 45.0), while the non-manufacturing was 29.6 (expected 51.0).

A world headed into recession in 2020? The depressed reading, especially after the sharp fall in new export orders, plays into the view that a global slowdown will materialize. Global PMIs this week will shed further light, as well as today's Caixin manufacturing print. The market has certainly taken for granted how bad things in China really are as the weekend devastating print was miles away from expectations.

Insights into China’s PMI debacle: The Research Team at National Australian Bank notes that “most firms expect to resume production by end of March, though the pace of a pick-up remains to be seen and high-frequency data continues to suggest activity running 15-30% below 2019 levels. Sourced headlines also suggest Chinese Q1 GDP will be sharply negative. Source stories suggest annual growth may be closer to 3% y/y, meaning Q1 GDP could be -1.5% q/q.”

Fed lays the ground for a March rate cut: The bloodbath in equities managed to be reversed almost in its entirety on Friday after Fed’s Powell signaled a March rate is on the table as an extraordinary measure to address the tightening of financial conditions. Powell’s ‘emergency’ statement read that “while the US economy remains strong, the coronavirus poses evolving risks…” Markets have fully priced a rate cut in March with a 30% chance of a 50bps cut.

Fed’s blackout period coming up: The Fed’s blackout period starts on Friday, so if the Fed is into talking the market out of this aggressive pricing, they should be acting in the following days. In my opinion, Powell’s statement is an admission that they are indeed preparing the market for easier policies. Otherwise, it makes little sense to come out with an unscheduled statement.

This is what Powell had to say… The unscheduled statement from the Fed chair that warns about a rate cut at the upcoming March 17-18 FOMC meeting read the following. “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

RBA first to cut? As Central Banks appear to be reacting in a coordinated fashion, according to RBA watcher McCrann, who’s somehow gained an unfounded reputation as the authority that the market tends to follow about the RBA internal manoeuvrings, “we will now all-but certainly get a rate cut from the RBA on Tuesday, if not also “other” action”. The market is fully pricing in a March RBA rate cut this week as chatter about negative rates and QE to intensify this year. What’s quite perplexing is the fact that only 2 out of 28 economists are calling for a move, an unusual divergence in views that may see an adjustment during the course of the day.

BoC to follow with a rate cut? Note, the Bank of Canada is another Central Bank that may resort to lower interest rates when it meets on Wednesday this week. The markets are pricing 82% chance of a cut. Chinese tourism to Canada has been growing in importance. In the Conference Board of Canada‘s latest “Provincial Economic Outlook,” released last week, it’s predicted that Chinese tourism spending in Canada will be cut by a third this year.

BoJ to act with soft measures as well? Chatter has it, via MNI, that the BoJ is set to soon release a statement in order to appease markets by ensuring actions to be taken as necessary, possibly expanding special loans to support bank lending to companies and injecting fresh liquidity into the system.

BoE sees downside risks as COVID-19 effect goes global: BOE's Governor Carney has also shown a more pessimistic view on the economy by noting via Sky News that the Coronavirus could mean economic growth downgrade for the UK. Carney, nonetheless, refuses to overcommit to any predetermined path in policy by saying that it’s too early to tell how deep the impact will be on the UK economy.

Watch COVID-19 spread in the US: The Washington Post reported that the COVID-19 spread in the US has probably been spreading undetected for about six weeks in Washington state. The news adds to the negative vibes following the first U.S. death on COVID-19 in Seattle. As the article notes, “a genetic analysis suggests that the cases are linked through community transmission and that this has been going on for weeks, with hundreds of infections likely in the state.”

International cases of COVID-19 soar in Italy: On a more global scale, Coronavirus cases have continued to jump over the weekend. The official statement by the World Health Organization (WHO) notes that 1,739 new cases of the infection confirmed over the past 24 hours, with the total tally at 87,137 globally. Italy continues to see the fastest increase with over 500 new cases. For a full round up of the latest news concerning the coronavirus, follow this link via ZeroHedge.

WHO raises risk for COVID-19 to ‘very high’: The WHO has now raised the global risk for coronavirus to "very high", noting that the window of opportunity to contain the spread of the virus is narrowing every day. The daily press conference last Friday added that the health system around the world is not yet ready, and that the continued increase in the number of coronavirus cases is clearly a concern.

Added challenge in containment: Dr. Anthony Fauci - the director of the US National Institute of Allergy and Infectious Diseases, said on Sunday that "community spread" (infection via unknown origin) of the new coronavirus are becoming more common throughout the US. According to Fauci, “this was something that was entirely expected when you have diffuse infections throughout the world, sooner or later there are going to be cases in your country that you can’t directly trace to anyone," he said.

Biden keeps chances alive after landslide win: In the US political landscape, Joe Biden was given a boost after a landslide victory in the South Carolina primary, which keeps his chances alive in the race to challenge President Donald Trump in November's election. Biden was 48% vs Sanders 20% and Buttigeig’s 8%. Ahead of Super Tuesday primaries, the pledged delegates include Bernie with 56, Biden with 48 and Buttigeig with 26. According to betting markets, Sanders remains the favorite.
If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!
Insights Into Forex Flows

This section includes regular commentary on currency flows and the opportunities that arise as a result of what I call shifts in order flow that leads to ‘market traps’. A brief video summary of this predictive market behavior can be found here. These types of video tutorials are regularly produced and accessible via the Global Prime's YouTube section. These examples aim to demonstrate the story-line behind unfolding flows and the exploitable patterns as a result.

Accustomed to such low vol environment (lowest in years pre-COVID19), it’s very seldom to see the magnitude of Friday’s movement in the USD/JPY, with the dislocations of capital returning back to the allure of the Yen leading to a negative 200+ pips move. The pattern preceding this rout in the pair saw a poke into upper liquidity before a shift in market structure led to an immediate recognition by longs that mitigating exposure was the safest play. The unfolding flows that followed were one-sided throughout the day.

A similar picture was observed in what was the best Forex play during last week (short AUD/JPY), after an upward stepping formation trajectory turned in a dime. The shift in order flow created a structural breakout in line with the dominant trend. The retest of the backside level that had initially led to the last manipulative move up served as a pristine entry point to gain short exposure, capitalizing on the bearish momentum at an inflection point for it to resume.

A pair that has been absolutely destroyed by sell-side forces has been the New Zealand Dollar. The compression-like correction last Thursday saw an intraday break of structure, a point from which sellers maintained the dominance by defending the backside of the last swing low before the latest sell-off eventuated. This play yielded some incredible downside potential for the avid traders that managed to spot and exploit the pattern towards the end of NY on Thursday.

Last but not least, the Gold market, against conventional belief, remained pressured following extremely overstretched conditions off the daily as of late. A land in the sand had been drawn where buy stop orders would most likely be placed got taken out on Thursday before a shift in order flow back down. This break lower raised the prospects of sellers re-engaging in pockets of strength at the role reversal level. The selling that followed was nothing short of extraordinary. Bold yet rewarding play for 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

 

[IvanGlobalPrime]

Find my latest market thoughts

G7 Central Banks To The Rescue?

Central bankers and finance ministers look set to step up in order to stabilize the markets in a coordinated manner. All the focus in now on an emergency call, scheduled at 11pm ET this Tuesday, to discuss a response to the impact of the coronavirus. Playing into this global intervention, the RBA is the first Central Bank to cut rates in a move that was fully priced in. Keep reading to stay in tune with the latest...

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
• Insights Into Forex Flows
• Educational Material

Quick Take

The European funding currencies (EUR, CHF) kept charging higher on Monday even if the aggregated flows, I am highly agnostic of this one-way traffic to continue. One of the much-awaited circuit breakers to see the bloodbath in carry trade long structures to come to an end was always going to be a coordinated intervention by G7 Central Banks.
That’s exactly the type of response that the market is now awaiting for after reports indicate a conference call has been set up at 11pm ET Tuesday by Central Bankers and Finance Ministers to discuss a response to the impact of the coronavirus. This call will be led by Mnuchin and Powell. Whether or not the massive turnaround seen in equities has further legs will largely depend on how much details they are able to provide in decisive actions to be taken.

The RBA, just minutes ago, is the first Central Bank that showed renewed willingness to support the economy by cutting the benchmark rate 25bp. The Aussie, with the cut fully priced in, appreciated as the initial algo sell activity was used to close long-held positions. A currency that has re-discovered its safe-haven profile in this market rout was the Yen, so as a consequence of the nearly 5% rally in the S&P 500, the currency was the most punished on Monday.

The US Dollar, meanwhile, continues to see tepid flows, even if the technical studies at an index level reveal a very attractive area to start toying long inventory in the currency once again. A currency that shows no signs of life is the Pound, as the market psyche appears to have turned rather negative following the defying stance by UK PM to walk away from EU trade talks later this year if not enough progress is made. The first round of talks started on Monday and will run until Thursday and will center mostly on negotiating formalities. Lastly, the Canadian Dollar retains a better short-term outlook following the transient recovery in risk appetite.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

The RBA cuts interest rates by 25bp: The statement prepared by Governor Lowe read: “The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further…”

G7 Central Banks to the rescue: Central bankers and finance ministers look set to step up to the plate and intervene in the markets in a coordinated manner. Reports indicate a conference call has been set up at 11pm ET Tuesday to discuss a response to the impact of the coronavirus, which may include emergency rate cuts across multiple countries, including the Fed. For more info, visit Reuters.
Equities’ circuit breaker: As a result of the news, the S&P 500 as the bellwether of equities in the US, gained 4.6% as hopes for rate cuts build up. The prospects of central bank stimulus is yet to spark selling interest in the funding currencies, which have been outperforming across the board as of late. The Carry trade unwind continues to see pressure on the USD while lifting the EUR.

Powell laid the ground last week: Fed’s Powell was the first to suggest, via an ‘emergency’ statement last week, that a March rate cut is on the table, warning that “while the US economy remains strong, the coronavirus poses evolving risks…” Markets fully price a rate cut in March, with even calls for a 50bp rate cut, around 25% priced in.

BoJ first to act by pumping liquidity into the system: We’ve already seen the Bank of Japan announcing measures to boost liquidity support into the financial system via a ¥500bn repo market injection and further purchases of equity ETFs.

The virus is now in 8 US states: On COVID-19, US VP Pence said that he expects many more cases of coronavirus, the same day the OECD warned that global growth could fall by half. The virus is now in 8 US states: Washington, California, Illinois, Rhode Island, New York, Florida, Oregon and New Hampshire. The latest updates on the virus can be followed via ZeroHedge.

It is Super Tuesday tonight: One third of the delegates to the US Democratic Convention will be determined tonight. It will take 1,991 pledged delegates to win the Democratic nomination on the first ballot of the convention with Sander still the favorite by betting sites. CNN Politics carries more details ahead of the event. Note, Anne Klobucher has quit the race, and is now endorsing support for Joe Biden, increasing the prospects of a Biden win.

Trump criticizes the Fed again: Although nothing new, Trump attacked the Fed’s independence by tweeting that “As usual, Jay Powell and the Federal Reserve are slow to act. Germany and others are pumping money into their economies. Other Central Banks are much more aggressive. The U.S. should have, for all of the right reasons, the lowest Rate. We don’t, putting us at a competitive disadvantage. We should be leading, not following!”

US/EU PMIs not as bad as feared: The economic data in the US saw the Manufacturing ISM come worse than forecast even if it still managed to scratch a read above 50 (50.1 vs 50.5 expected). Meanwhile, the final Eurozone manufacturing PMIs readings were barely changed from the previous ‘flash’ estimates.

SNB intervention 'hand' remains present: Data by the Swiss National Bank and analyzed via Reuters provided further evidence that the SNB is stepping up its interventions in the foreign exchange market to stem the rise of the Swiss franc. "The SNB is clearly intervening at the moment. I don't think they have a lower threshold they will come in at, but they are showing the market they are present and they want to prevent too fast an appreciation of the franc," said Credit Suisse economist Claude Maurer.

EU/UK trade talks kick off: The EU and the UK trade talks got underway on Monday amid deep tensions over Prime Minister Boris Johnson’s threat to walk away from the negotiations if not enough progress is made within four months. As SCNow reports, “the first round of talks will run until Thursday and will center mostly on negotiating formalities, although some discussion on the substance of an agreement is expected. The teams are expected to meet every two to three weeks. Half a dozen or so rounds of negotiations are expected to take place by the end of June.”
If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!
Insights Into Forex 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. 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 unwind of the carry trade has sparked a massive rally in funding currencies, with the Euro at the front-seat of this enormous rise as the market bails out of long carry structures.

However, we need to start asking, at what point will the market be attracted to start adding short Euro inventory? When will the market start to perceive the Euro valuation out of whack?

As the regular reader of my report can attest, the most powerful predictive tool I’ve ever come across to answer such a question is the drawing of symmetrical 100% measured moves.

Guess where we are at in the EUR index? You guessed it. We’ve hit the 100% projection target off the daily timeframe, which holds major weight to anticipate near-by exhaustion.

Interestingly, this potential toppish formation in the EUR pairs comes at a time when the GBP is visiting a huge level of support. However, treat this support with extra cautious so far, bulls are nowhere to be found as depicted by the bearish close near the NY lows.

Nonetheless, if this market keeps breaking lower, it will soon be facing its 100% proj target too, so be aware that most of the move may be done by then.

The real value when performing these aggregated flows analysis is to match up expected strength against weakness. That’s the whole point of monitoring these non-tradable indices.

This approach can serve the purpose of finding incredibly valuable areas to engage in certain pairs. A clear contender to start face added sell side pressure could be the EUR/USD.

Why? Check where the USD index has landed at. Major support, which comes at a time when the EUR is incredibly inflated from a technical valuation standpoint.

The CAD index is a chart that definitely looks more tricky as the bounce off a key support has already occured, yielding solid buy-side opportunities for those keeping an eye on this area.

I’ve highlighted on the way up the next key resistance levels to bear in mind. There is a decent likelihood that the market may look to re-engage short at these technical levels.

The Japanese Yen index, amid the monstrous movements in equities and stocks, has been on a tear as of late, yet in the last 24h, the upcoming G7 call by Central Banks has deflated the momentum. This move lower has landed at a key support where buyers will be lurking around…

Talking about overextended currencies, if the EUR looks extremely pricey, the opposite is true when analyzing the level of the AUD as the sharp declines stalled at the 100% proj target.

If you are a brave soul looking for contrarian trades, even if I’d never recommend it unless backed up by intraday price action, short EUR/AUD or a strategy that looks to exploit a short-term campaign short the pair definitely looks attractive (positive swap as bonus).

There is not much clarity in the NZD index to be honest. The currency has been absolutely demolished as of late and even if it looks extremely cheap, I struggle to see a technical case.

Lastly, another currency that looks very expensive, akin to the Euro, is the Swiss Franc. It’s very aggressive to remain a buyer on this currency unless there is a release of the buy-side pressure.

When we trade currencies, unless looking to scalp intraday, we must ask ourselves, whether or not value exists to engage in purchases of that currency that would put us in an advantageous position. I’ve always struggled to understand how, as a retail trader, if you are not into scalping, you’d see any kind of value by engaging in CHF buys at these levels. But again, if that gets to be matched against a currency with weak prospects near term, it can still work, no doubt.

The point of these daily analysis in flows aggregation is to provide an eagle view of where we stand macro wise, so that one can make better and smarter decisions.

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

Fed's 50bp Rate Cut Aids FX Volatility

There was a time when the equity market would have absolutely embraced the promises and/or deliveries of easing by the Fed as an unambiguous bullish sign. Not that long ago, the market was also used to build long carry trade structures to exploit how cheap it was to borrow funding currencies only to park that capital in a higher-yielding fiat. Well, if by paradigm shift we understand a fundamental change in approach or underlying assumptions, we are right in the middle of one as the COVID-19 global crisis shakes the grounds of what once worked and no longer appears to cut it (pun intended). Lots to go through 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
• Insights Into Forex Flows
• Educational Material

Quick Take

Anyway we slice it, there is little room for ambiguity, the Forex market is well and truly alive with very healthy levels of volatility the new norm. With the Fed going above and beyond to avoid being schooled by the markets again, it resorted to a surprising 50bp rate cut as part of an emergency meeting, which was the first one since the 2008 global financial crisis, and speaks volumes of how rapid the economic prospects have deteriorated. And they may not even be done as more rate cuts may follow ahead of the March 18th FOMC. A return to Fed’s unconventional tools (QE) may not be such a distant prospect after all.

The rate at which old dominant thematic such as be long carry trades (short EUR, CHF, JPY) or buy stocks on expectations of more easy money flooding in are no longer cutting it for investors. This is leading to a serious re-assessment of certain paradigms, and so far, these uncertain times have opened up an enormous gap in performance between funding currencies and the rest. The spike in the VIX, the break sub 1% in US 10-year Treasury yields, the selling of equities, it’s all contributing to higher volatility in Forex as ‘true risk off’ + elevated VIX is a receipt for disaster.

Amid this turmoil in the markets, the Aussie’s strength may have some scratching their heads, although I do hope it’s not by those reading my daily edge as I did warn that based on G8 FX aggregated flows, the Aussie valuation was way out of whack and that a correction was due, which happened to occur on the aftermath of the RBA rate cut. Yep, that was the trigger event for long-held shorts to close positions as the outcome had been fully priced in. Today is the turn by the BOC to meet market expectations with a 25bp cut or like the Fed, look to exceed them with a 50bp, even if the result they may have wanted (boost equities) never eventuated.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

The Fed unexpectedly cut rates by 50bp: The Fed, in the context of an emergency meeting (first since the 2008 GFC), reduced the interest rates by 50 basis points. As part of the press conference by Powell, his COVID-19 assessment was rather bleak, leading to an eventual reversal in US equities after the initial rate cut-induced gains. The Dow was the index most punished with a fall of nearly 5%. Meanwhile, the US 10Y Treasury is now yielding sub 1%, a fresh record low.

More to come at the March 18 FOMC? In Powell’s Q&A presser, his stance remains rather ambiguous, not giving away what’s coming next. “We do like our current policy stance, it's appropriate but prepared based on flow of events.” His comments don’t make it any clearer as to whether or not the Fed will follow up with more cuts, even if the market is pricing in further easing at this month’s March 18 meeting. Powell did not close the door to further easing in a few weeks after noting that “In the weeks and months ahead we will continue to closely monitor developments.”

A return to Fed’s unconventional tools? That March 18 meeting by the Fed in just 2 week will be key. Why? Because it will be faced with either utilizing the full extent of its conventional tools to stimulate the economy before talk of further QE settles in or worse yet, underwhelming investors’ expectations, which may see further carnage in the stock market. The market is telling us, by pricing further cuts, that once the effective lower-bound in rates is established, expanding the balance sheet is up next.

Limitations to what Fed can do against COVID-19: Besides, the Fed Chair also recognized that the Fed is rather impotent and doesn’t have at its disposal all the tools necessary to deal with the negative impact from COVID-19, “We do recognize a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain. We get that. But we do believe that our action will provide a meaningful boost to the economy.”

Official Fed statement: “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. In light of these risks and in support of achieving its maximum employment and price stability goals, the Committee decided today to lower the target range for the federal funds rate by 1/2 percentage point, to 1 to 1‑1/4 percent. The Committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy.”

Fed’s Mester hints more cuts could be in store: Cleveland Fed President Loretta Mester, at a speech in the UK, also implied that more rate cuts could be in store as she warned of a slowdown for at least half a year if no longer. “The underlying fundamentals of the U.S. economy remain strong, but the coronavirus will weigh on U.S. growth at least during the first half of the year, with a pullback in spending by households and businesses, with a supply shock that could evolve into demand shock,” Mester said.

USD, CAD sold as carry trade unwind stays the course: The immediate reaction post Fed rate cut was to sell the US Dollar as the market keeps waving ‘goodbye’ to carry trade long structures amid the ‘true risk off’, where the carnage in US yields won’t abate, alongside another considerable spike in the VIX, also keeping FX volatility at fairly elevated levels. The Euro, the Swiss Franc and the Yen continue to be outperforming, alongside a rare episode of AUD strength as well, while the market, on the flip side, finds it’s the turn to build shorts on the Canadian Dollar too, with the BOC set to lower rates next later today.

G7 statement underwhelms: While the Fed went above and beyond, the official statement by G7 Finance and Central Banks as part of an extraordinary meeting failed to live up to the expectations with no concrete measures announced. The statement read: “Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks. Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase…”

BOC policy meeting up next, rate cut done deal: With regards to the Bank of Canada interest rate decision, the market sees a 25 basis point cut as baked in the cake with the chance of a 50bp cut to replicate the Fed at 64%. There are further cuts priced in for later in the year as well. With the coronavirus outbreak to be a major drag on both the global and Canadian economies this year, the BOC is forced to act. The Economics Team at ING does a great job contextualizing this event risk in their preview.
AUD appreciates despite RBA cuts rates by 25bp: The movement in the Aussie overnight, the strongest currency notwithstanding the RBA easing, has prompted the usual bewilderment as to how that’s the outcome eventuating. The lesson here is that when a market has fully priced in a rate cut ahead of the actual announcement, unless the Central Bank over-delivers, many times over the initial sell-side pressure on the Aussie will serve well the purpose of closing long-held short inventory in the Aussie, as what we saw on Tuesday. Expect the next RBA meeting on April 7th to see another rate cut, which means the doors get wide open to start the discussions about introducing QE in Australia via the RBA buying Aussie government bonds.

RBA statement hints more cuts possible: The statement prepared by Governor Lowe read: “The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity. It will continue to monitor developments closely and to assess the implications of the coronavirus for the economy. The Board is prepared to ease monetary policy further…”

Where are we at in the COVID-19 situation? The latest developments in the virus saga saw the CDC report 60 confirmed cases of coronavirus in the US, with 4 more deaths bringing the total to 6 deaths, all in Washington state. In an interview yesterday with Bloomberg, Dr Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, said coronavirus was at "pandemic" levels. Meanwhile, most of the most severe outbreaks of COVID-19 outside China remain in South Korea, Iran and Italy. In the latter, the coronavirus case numbers have continued to soar to over 2,500, with the number of deaths now at 79 from 52 the prior day.

First time COVID-19 claims more deaths outside China: In yet another sign that the virus has truly gone global, Tuesday was the first time that the majority of coronavirus deaths reported came outside China since the outbreak began. If one wishes to follow all the live updates, this ZeroHedge feed is the source I personally recommend.

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

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!
Insights Into Forex 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. The idea of this analysis is to complement one’s daily bias so that traders can make better and smarter decisions by accounting for the aggregation of flows.

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

Notwithstanding the unwind of carry trades as FX volatility keeps picking up, it’s my technically-inspired observation that the EUR is going to face a bumpier road ahead.

The case I made yesterday for the EUR to start slowing down its fast and furious appreciation remains true as we’ve reached what’s usually an inflection point in any chart.

I am referring to the 100% measured movement that got hit last week, a location in the chart that suggests the Euro valuation is out of whack in this daily time window?

Meanwhile, the GBP index continues to hold at a macro level of support. As the chart below reveals, this level has proven to be a solid area to initiate buy-side campaigns in the GBP ever since early Nov last year and the land in the sand drawn by the market.

Granted, the tiny bullish candle printed at this support in the last 24h is far from conclusive, but at least it shows that the market remains adamant to let this level go without a fight. Should the market break into lower levels, be mindful that it will be headed straight into its 100% proj target, so be aware that most of the move may be done by then.

The US Dollar index has been the big mover overnight, as the aggregated flows depict a deteriorating picture even if judging by the structure of the daily, not all is lost yet.

The index has hit a pocket of demand at the previous swing low, with a minor rejection so far ensuing, although is not looking convincing amid the negative fundamental backdrop as the Fed goes aggressive with a 50bp rate cut to meet the market’s demands for easing measures.

Leaving aside the fundamentals for a moment, this remains a cheap valuation, technically speaking, for traders to consider long positions in the currency, no doubt about that.

The CAD index sold off hard ahead of tonight’s BOC policy meeting as the market appears to be front-running the decision by the Central Bank with expectations high for a 25 or 50bp rate cut.

Given the impulsive drop in the currency, there is a real chance that the currency may finally see the breakout of what’s arguably been the key level of support this year.

If this scenario ends up materializing, look for the next support where my lines are drawn - reactionary in the past -, selected based on the aggregated flows seen.

The JPY index, with the risk-off tone settling back in, has found renewed willing buyers off a key area of support in the chart with multiple interactions as marked below.

The Yen, amid the ongoing bullish momentum, is now confined in a broad area between an overhead resistance in response to last year’s supply imbalance origin and the tested support.

Yesterday I made a case for AUD shorts to start bailing out of long-held positions before a fresh cyclical bearish bias settles in, which is certainly very unlikely to occur when the recent sharp declines in the currency have led complete a 100% proj target move.

Along these lines, I did suggest that markets such as EUR/AUD would be facing further downside pressure as the rubber band was at a point of maximum tension at these levels.

So far, a short-term campaign to buy the Aussie is underway as the market starts a process of auctioning the currency higher until the next pockets of supply imbalances are found. The first projected area for sellers to step in doesn’t come until the marked resistance in the chart below.

The NZD has reacted as one may have expected off its first resistance line, with a sizeable pin bar as a result of the ongoing sell--side campaign that shows no signs of abating for now.

When it comes to the CHF index, this is another currency that remains very pricey to consider longs, very much as in the case of the Euro. It’s very hard to justify further buys on this currency unless there is a pullback towards more technically valuable areas.
That said, unlike the Euro, the Franc shows a greater level of buy side commitment, as reflected by the fact that the currency has been able to hold marginally above its 100% proj target.

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

Biden's Resurrection Boosts 'Risk On' Profile

The US Democratic nominee Biden was given a significant boost to become the eventually face Trump in this year's Presidential election after Super Tuesday primaries saw him win 9 of the 12 contests. The news contributed soothe the market’s psyche about the ramification of a Sanders nominee. Funding currencies saw a reduction in buy-side flows as the Aussie and Pound, like Biden, resurrect.

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
• Insights Into Forex Flows
• Educational Material

Quick Take

A reversal in sentiment to bullish in the US stocks market saw the need to tap into funding currencies reduced quite significantly. The main culprit behind the rally in equities came as Bernie Sanders’ Democratic nomination was decimated in favor of a Presidential race between Trump and Biden after the latter was the big winner of Super Tuesday. This temporary return of the groovy mood in equities and bond yields kept therefore the EUR, CHF and JPY stable. The other major story was the 50bp rate cut by the Bank of Canada, a move that follows the extraordinary action announced by the Fed the previous day to combat the virus-induced tightening of financial conditions. The decision was too heavy a burden for the CAD, which ended up as the worst performer as the BoC appears not yet done with its easing cycle. On the flip side, the Aussie keeps showing near-term strength as it extends the bounce off its 100% measured movement, an area susceptible to a mean reversal as warned. The Pound joined the Aussie at the top of the leaderboard on Wednesday after buyers made a comeback off a macro level of support judging by where the GBP index bounced off. The USD, on the back of the desperate move by the Fed to ease policy, tread water by consolidating recent losses. Last but not least, the Kiwi remains unloved with very poor interest to get off its depressed levels.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime's Research section.
If you found the content in this section valuable, give us a share by just clicking here!

Narratives In Financial Markets

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

BoC follows Fed’s steps: The Bank of Canada went ahead and followed the Fed’s steps by cutting the rates by 50 basis points. A 25bp rate cut was baked in the cake, with expectations for the actual 50bp at around 60% chance. The Canadian dollar was sold in the immediate aftermath.

BoC downgrades outlook as COVID-19 takes its toll: As part of the official statement, the BOC said that they stand ready to adjust monetary policy further if required, and that the outlook is clearly weaker now than it was in January. The coronavirus is a material negative shock to Canadian and global outlook, and as the virus spreads, business and consumer confidence is likely to deteriorate, further depressing activity.

Positive US data ahead of US NFP: In the US, the ADP jobs report showed an improvement by printing 183K vs 170K estimate, although the prior month was lower at 209K vs 291K. Meanwhile, the US ISM non manufacturing index for February came at 57.3 vs 54.9 estimate, with the employment and new orders the strongest areas. The US NFP is the next risk event in the US this Friday, even if one must be reminded that economic data has become a secondary input as COVID-19 still rules.

Biden resurrected: Democratic nominee Biden was given a significant boost after the Super Tuesday primaries. Biden claimed victory in 9 of the 12 contests, and is now ahead of Bernie Sanders in the delegate vote. This development in the political front appears to have contributed to soothe the market’s psyche about the ramification of a Sanders nominee. In four days, Biden’s odds on PredictIt of winning the nomination have gone from 27% to 70%.

Bloomberg throws in the towel: Michael Bloomberg, the magnate and co-founder of Bloomberg L.P., officially suspended the Presidential campaign after spending more than $500m of his own money to defeat Trump. In a statement he said: "I've always believed that defeating Donald Trump starts with uniting behind the candidate with the best shot to do it. After yesterday's vote, it is clear that candidate is my friend and a great American, Joe Biden."

Stocks love a Biden nomination: As a result of Super Tuesday, in which the prospects of a Biden presidential
race became real, and keeping in mind the US equity market is grossly oversold, the Dow industrial average led the way by rising over 1000 points on the day. The market was also given a recent impulse via a 50bp rate cut by the Fed on Tuesday, even if the jury is still out on how effective this will be to stimulate the economy. The reaction in stocks (selling) was telling.

Italy’s measures taken to the next level: Italy confirmed schools will close until March 15. It also ordered sporting events without fans until April 3. These are all drastic measures implemented by the 8th largest economy in the world after seeing a dramatic increase in the number of COVID-19 in recent days. A total of 107 people have been killed in Italy to date. Obviously, the fear by market participants is that such measures are replicated in other developed countries, further depressing economic activity. We’ve already seen France ring-fencing certain towns by closing about 120 schools so far.

ECB, BOC, RBNZ up next: The next Central Banks to come into focus next week include the ECB and BoE, while later this month, it will be the turn of the RBNZ toward. Chances are that the RBNZ walks back its neutral stance to potentially cut rates in line with the rest of Central Bank.ECB’s Lagarde has shown less of a rush to act via more stimulus just yet, while incoming BoE Governor Andrew Bailey said the Bank needs further evidence before deciding on a move.

RBA’s QE not far… RBA's Deputy Governor Debelle testified to a Senate committee, saying that “we have capacity to cut rates one more time, beyond that we will have to consider QE.” The market is fully priced in for a final rate cut next month, which means the focus has truly shifted to QE prospects. On GDP, Debelle said that the projections have been downgraded due to the impact of COVID-19 on tourism and education, likely to shave about 0.5% off Q1 GDP, which combined with the negative implications from the bushfires, will likely see Q1 GDP negative.

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

Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that can display data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!

Insights Into Forex 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. The idea of this analysis is to complement one’s daily bias so that traders can make better and smarter decisions by accounting for the aggregation of flows.
If you found the content in this section valuable, give us a share by just clicking here!

The EUR index shows the first cracks in its impressive uptrend after it broke the bullish structure in the 4-hour chart. Notice, the smart money tracker has also reversed its course to now display a bearish slope. Notwithstanding the unwind of carry trades as FX volatility keeps picking up, the rise in equities in the last 24h has added downward pressure as hedges into EURs are reduced. It remains my view that the EUR is going to face a bumpy road ahead as the reversa back down is occurring off the 100% measured movement that got hit last week, a location in the chart that suggests the Euro valuation got out of whack and a correction was needed.

The GBP index, not only held at the macro level of support, but the pattern printed off the 4-hour chart, with a compression off the lows followed by a structure breakout, is a powerful signal that this market could be headed higher in the short-run. Remember, the GBP chart is bouncing off a level proven to be a solid area to initiate buy-side campaigns in the GBP ever since early Nov last year and the land in the sand drawn by the market.

The USD index, as the aggregated flows reveal, shows a deteriorating picture as the market structure and momentum off the 4-hour chart stands. While the index has hit a pocket of demand at a previous swing low, the minor impetus so far to get the price away from this danger zone for buyers is an indication that selling pressure keeps building up. The negative fundamental backdrop as the Fed goes aggressive with a 50bp rate cut is not helping either. Bottom line, there is no technical evidence to support the USD index at this stage off the 4-hour.

The CAD index sold off hard in the immediate aftermath of the BOC 50bp rate cut. The market had already been front-running the decision by the Central Bank the previous day, but the aggressive cut and the bleak outlook, have justified further sales. The impulsive drop in the currency has validated the creation of a new bearish cycle with acceptance found below. Looking for areas of resistance and bullish traps intraday to engage in shorts is the way to go judging by the technical outlook off the 4-hour chart.

The JPY index, amid the appeasing in the risk-off tone, has entered a period of consolidation, with willing buyers still showing up off a key area of support in the chart with multiple interactions, while the upside is capped by an overhead resistance in response to last year’s supply imbalance origin. As a result, the Yen no longer offers the technical clarity it once had through this COVID-19 treacherous environment. A neutral to bullish bias remains my view.

The AUD index kept finding further buy-side flows as the short-term dynamics have turned more favourable after what I suspect to have been a reduction in long-held short positions at the 100% projection target. This unwinding of shorts at this inflection point has fueled an exploit of the upside towards a retest of an old support-turned-resistance, where bigger struggles will come for the brave group of AUD longs. Remember, I’ve encouraged some considerations to look into shorting markets such as EUR/AUD on the basis that the rubber band was overstretched.

The NZD index is a market that shows little signs of life by buyers. It really makes you wonder how much upside potential there is near term if even the return of risk appetite today sees such limited buy-side flows in the Kiwi. It is as if the market wanted to punish the currency after the Central Bank acted rather impudent and cocky by stating that a neutral bias in policy was to be retained by downplaying the COVID-19 risks, which has proven to backfire for them. But I digress, back to technicals, the NZD is the notorious underperformer in the last month.

When it comes to the CHF index, this is another currency that remains very pricey to consider longs, very much as in the case of the Euro. It’s very hard to justify further buys on this currency unless there is a pullback towards more technically valuable areas. That said, unlike the Euro, the Franc shows a greater level of buy side commitment, as reflected by the fact that the currency has been able to hold marginally above its 100% proj target.

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