Global Prime: Daily Market Digest

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Yen Crosses Plummet As Risk-Off Returns


The recovery in risk appetite has been rather ephemeral, with the circuit breaker via Central Banks' easing (Fed, RBA, BOC) no having the desired effects to contain the fears of the coronavirus quickly evolving into a global pandemic. The disregard towards the macro-policy stimulus is an admission by Mr. Market of the limited effects this is going to have on a pick up in economic activity. As a result, the behavior of the markets remain reminiscent of an acceptance that a global recession is a forgone conclusion. Amid this backdrop, funding currencies rule.

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

So far, the easing measures by the Fed, RBA and BOC have provided a very limited relief rally to the underlying risk-off dynamics, with the funding currencies’ complex still the place to be. Even the added groovy vibes via the major boost of Biden winning the Democration nomination have lasted barely 24h, with the market psyche still deeply rooted towards the COVID-19 as the big macro theme of 2020 as fears of widespread community transmissions in the US mount. As the day went on, risk trades softened and this led to Yen buying, while the Swiss Franc and the Euro followed in lockstep, although the buying flows were not as strong.

The G8 FX indices below illustrates the massive gap that has opened up as a result of the unwind of carry trades with hedges/margin calls favoring funding currencies amid a sky-high VIX. The snowball effect of bailing out carry trade long structures is the decay of the USD & CAD attractiveness, with the aggressive reduction in rates this week fueling the supply flows. The dicey environment created by the COVID-19 impact on world-wide economies is keeping the outlook for the Aussie and New Zealand Dollar very negative as the race to the bottom by the RBA/RBNZ is on as the market is now fixated on RBA’s QE measures later this year.

Amid such huge uncertainty for the global economy this year, the perky Pound has been gaining ground quietly, even if the negative backdrop of tough trade talks between the EU and the UK, coupled with a BOE that may follow the same path of other Central Banks, threatens the sustainability of this run. All in all, the trend this week has been well defined, with funding currencies the safest bets while carry long currencies (USD, CAD) and Oceanic (AUD, NZD) are suffering.

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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.

Risk-off returns: The cheerful mood in equities and bond yields following the political events in the US, where Biden has taken the front seat as the favorite Democrat nominee for the Presidential race, was all evaporated as the COVID-10 continues to dominate proceedings. The S&P 500, as the bellwether of the US stock market, registered a loss of -4% while the US 30-yr bond yield retests fresh record lows. The 10yr Treasury was -13.4bps to 0.92%, while the USD index, still weighted by the aggressive U-turn by the Fed in policies, also took a hit.

Funding currencies best performers: The interest towards funding currencies (EUR, CHF, JPY) is back as risk unwinds and vol increases. This combination was especially impactful for the interest of Yen bulls on Thursday. Remember, under the current conditions, as a byproduct of increases in the vol environment, it no longer becomes appealing for speculators to trade these currencies hoping to profit from the spread or carry trade between the low-interest fiat and a higher-yielding currency purchased with the funding strategy. For a more in-depth look into funding currencies, one can watch this video presentation I put together.

Fear of virus community spread in the US: The markets remain spooked of community transmission of the COVID-19 in the US and other countries around the globe. A few days back, the Washington Post reported that the virus has probably been spreading undetected for about six weeks in Washington state, noting that “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.” There is further evidence that this trend is now playing out.

‘Probability neglect’ behind COVID-19 over-reaction: At the core of this crisis by the coronavirus, even if numbers prove that way more people die of cancer, heart diseases or diabetes, and are good to put things into perspective, unfortunately , the human psyche is deeply rooted towards a cognitive bias called ‘probability neglect’. It is this bias that makes society panic and government over-react as a result. For a more detailed explanation, I highly recommend you to read this article by Bloomberg.
Untraceable transmissions = more uncertainty: We also learnt in recent days that Dr. Anthony Fauci - the director of the US National Institute of Allergy and Infectious Diseases, said "community spread" (infection via unknown origin) of the new coronavirus will be 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…” Untraceable transmissions means more uncertainty about the full scope of the impact that COVID-19 will have on the global economy and for how long.

RBA’s YCC as favorite tool? As the RBA exhausts its conventional policy-setting tools, there is talk that as part of the conversations about QE, RBA’s preference would be to use an approach by which it targets a Yield Curve Control (YCC). According to Tapas Strickland from the National Australian Bank, “YCC is seen as the RBA’s least-worst option. YCC would entail the RBA setting a target on part of the yield curve, with the RBA only buying government bonds when the market tested the RBA’s credibility in maintaining the target. The end result would likely be an even flatter yield curve which could lower longer-end borrowing rates and perhaps risk premiums by reinforcing the commitment to keep the cash rate low for an extended period.”

Warren withdraws from the race: Elizabeth Warren is the last candidate to have dropped out of the Democratic nomination race even if she is yet to endorse a nominee. The betting markets are keeping Biden as the frontrunner with the chances of getting the Democrat nomination to run against Trump at around 85% after Super Tuesday’s victory and the support received by Bloomberg after he too pulled out of the race earlier this week. There has also been an improving trend for Democrats to get both the House and Senate in the election day.

GBP keeps rallying: The Pound continues to find further strength as the BoE is not yet fully committed to resort to rate cuts next week, judging by Governor Carney’s comments. He said that the collective response to virus will be powerful and timely with tools including special liquidity and macroprudential measures along with monetary policy instruments, noting that “we still have a lot of ammunition but we have to use space effectively .” Besides, EU’s Barnier reiterated that “there are many serious divergences with the UK on future relationship”, adding “we can get a good agreement for both sides despite 'very, very difficult' differences.”

BoC Poloz keeps door wide open to more cuts: BOC's Poloz made follow up comments after the decision by the Central Bank to cut rates by 50bp earlier this week. He said that he was shifted toward a rate cut regardless of the virus. There was plenty to sink in as part of his remarks, noting that “downside risks were more than enough to offset worries about leverage and financial vulnerabilities”, and that “Canada is headed for at least another quarter of weak GDP and Q2 could be weak as well.” Bottom line, the Central Bank, in Poloz’s words, “remains ready to cut further if necessary.”

Focus will briefly shift to the US NFP numbers: The data will refer to February and consensus looks for a solid print of 175k with unchanged unemployment at 3.6% and wages growth of 3%. These estimates are a subtle downgrade from the previous month. Note, given the extraordinary times we are living with the COVID-19, the US NFP is seen as a secondary indication to change the Fed’s policy path. That said, there are some significant risks that a softer number may help justify further rate cuts by the Fed, while a strong one will likely be dismissed on the basis that the print is yet to reflect the slowdown that the COVID-19 is set to cause.

Nomura’s take on the COVID-19 and Why CB action won’t cut it: In expectations of further coordinated responses by Central Banks, Nomura's economists cautioned that "macroeconomic policies are less well equipped to help (or “can only help so much”). If health security controls fail to contain the spread of COVID-19, financial markets may soon have to accept that a global recession is a forgone conclusion." Nomura predicts that the COVID-19 cases are yet to skyrocket to a projected 1.5 million worldwide.

Oil back under pressure: Oil has also shed its recent gains this week, down more than 2% below $46.00 after news broke out that OPEC members would agree to a 1.5m barrel a day cut conditional to Russia also joining, which is not looking as a high likelihood at this point.

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Recent Economic Indicators & Events Ahead

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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 regained the upside as the 4-hour chart below shows. The chart is still capped by the 100% projection target but is undeniable that at this stage, it remains very risky to be shorting the Euro as further unwind of carry trades remains a tail risk. Notice, the smart money tracker has also reversed its course back up, shifting the focus to a retest of the previous highs.

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The GBP index, on the back of a rebound off a macro level of support after printing a compression off the lows, it finally found a strong pocket of supply by revisiting a key level of resistance where the currency is struggling. While the 4-hour outlook in the GBP chart has turned more positive, this area is definitely a candidate location for the sell-side pressure emanating off the daily chart to return, be aware of that.

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The USD index has finally cracked a level of key support which reinforces the bearish bias as the picture continues to deteriorate. The market keeps pricing in further Fed easing, which along with the escape of long carry trade structures makes the USD vulnerable. Bottom line, there is renewed technical evidence that the USD is a sell on strength currency at the moment.

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The CAD index keeps selling off on a perfect bearish storm of further unwind of carry trades and a bold move by the BOC to cut rates by 50bp but most importantly, hint at more cuts. The impulsive drop in the currency has now reached what I interpret as oversold conditions, which is what happens when the 100% proj target is met. The validation of the bearish cycle with follow through supply going through the books makes the CAD a sell on strength but note that the position it trades at offers an awful pricing to keep adding shorts unless it corrects higher.

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The JPY index, with risk aversion back in vogue, has risen to retest a key level of resistance, which corresponds to the origin of last year’s supply imbalance area. The bias off the 4-hour chart remains bullish and as a result, the safest bet is to keep betting for Yen strength until technicals prove otherwise. Just be aware that the bias doesn’t imply buying Yens off the bat as the level it trades at I consider it to be rather expensive and straight into resistance. Allowing the release of the buy-side pressure towards lower levels will give better entry points.

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The AUD index has invalidated its short-term positive dynamics as the market structure returns back to bearish with the positive flow effects off the 100% bearish projection target overwhelmed by the return of the risk averse conditions in the market. There is again re-alignment between the macro and the trend in lower time frames, so the AUD is once again, a solid candidate to project weaker levels in coming sessions.

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The NZD index still shows fragility. I made the point yesterday that the NZD remains the most vulnerable currency out of the G8 FX space. My reasoning is that even on the ephemeral return of risk appetite due to Super Tuesday, the currency saw very limited buy-side flows, with the immediate resistance acting as sellers’ strongholds for now. My base case remains, which is, don’t be a hero being long this currency intraday as technicals paint a bleak picture.

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The CHF index has shown a greater level of buy side commitment than the Euro this week, as reflected by the fact that the currency broke and held above its 100% bullish proj target. The aggregated flows into the Swiss Franc now show that the index has finally expanded into new highs, what I refer to as a successful bullish rotation. This new buy-side commitment should attract buy on dip strategies in line with the macro/micro trends.

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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
 
Find my latest market thoughts

All-Out Oil Price War Sparks Market Panic

Is one of the ugliest price wars in Oil market history unraveling before our very own eyes? What are the collateral consequences amid the demand shock of COVID-19? It feels as though in 2 short months of 2020 we've already gone through more than in the entire 2019. If COVID-19 spillover effects into the global economy were not ominous enough, the Saudi are now the ones saying 'we've had enough'. There is a lot to digest, including insane volatility in the Forex market...

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. Global Prime is the #1 broker by reviews in Forex Peace Army.

Let’s get started…

Quick Take

If the demand shock courtesy of COVID-19 was not enough of a stumbling block for the depressed outlook for the price of Oil, an all-out price war broke out over the weekend after Saudi Aramco cut its official selling price and announced that it plans to increase output well in excess of 10m bpd amid OPEC crumbling after a rejection by Russia to further curtail Oil production. The collateral effects have resulted in an absolutely epic hammering of Oil towards the $30.00 mark, another textbook case of what panic selling does to safe haven Yen - Yen crosses flash crash included -, while the max exodus off carry trade continues unabated, leading to also strength in the Euro as hedging and margin calls ensue. The S&P 500 was limit down after falling more than 5%. The most affected currency by the implosion of Oil prices has been, by a large margin, the Canadian Dollar and the Norwegian Krone. The US Dollar is also selling hard as chatter continues to grow that the Fed may soon have no option but to start considering opening the floodgates of money supply by reintroducing QE. Note, both the USD and CAD have also been severely affected by the bail out of carry trades. The Oceanic currency, amid this torrential dripping of negative news have been left out unloved once again, taken to the woodshed after the flash crash as liquidity remains extremely poor. A currency that keeps acting somehow as a ‘bridging’ fiat to diversify into is the Pound, the only one relatively immune to the dynamics at play (risk-off, carry trades) and more exposed to other idiosyncratic drivers such as the trade negotiations between the UK and Europe.

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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.

Oil’s epic bust: Crude Oil was absolutely demolished by over 30% at the Asia open to around $30.00 after news broke out that State oil giant Saudi Aramco cut its official selling price. To make it worse, it also announced that it plans to increase output well in excess of 10m bpd (barrels per day). The drastic measures taken by Saudi Arabia come on the heels of the crumbling seen by the OPEC+ cartel after Russia refused to further curtail Oil production.

Price war declared by the Saudis: According to Bloomberg, “Saudi Arabia has privately told some market participants it could raise production much higher if needed, even going to a record of 12 million barrels a day.” The actions by Saudi Arabia in the oil market “are the equivalent of a declaration of war," said a commodities hedge fund manager, asking not to be named due to the sensitivity of the situation.

Attempts of coup in Saudi Arabia: Not enough with the negative news-dripping out of Saudi Arabia, the Wall Street Journal reported the detentions of two royals on Friday amid an alleged coup attempt. “The publication has since reported that the sweep widened to include dozens of interior ministry officials, senior army officers and others suspected of supporting a coup attempt” the report notes.

COVID-19 = Perfect storm: The plummeting in Oil must be contextualized at a time when due to the international spread of the coronavirus, we are going through a massive demand shock. Estimates suggest upwards of 5 million barrels per day end up unburned, causing an epic Oil glut, with demand expected to fall further before a U-turn occurs.

Oil’s collateral damage: The war on oil prices is reverberating across financial markets with the Canadian Dollar or the Norwegian Krone imploding. The latter fell to its lowest since 1985 against the USD. Equity markets, judging by the S&P 500 futures are also in disarray, with the usual safe-haven assets the likes of Yen, Gold or bond yields surging. As I explained last week in this video, EURCAD is the ultimate expression of the carry trade unwind in the G8 FX space.

EZ risk of an ongoing carry trade unwind: SocGen Economist Albert Edwards wrote: “If a carry trade unwind does cause the euro to surge uncontrollably against the dollar towards the $1.2-1.3 zone, the impact on the fragile eurozone economy could be devastating. For despite the euro’s weakness against the dollar, other countries have also been pursuing weak currency polices. As a result, the euro effective exchange rate (ie measuring the euro against a basket of currencies) is much stronger than the headline euro/$ exchange rate suggests. A surge in the euro could crush the eurozone economy. Indeed it could threaten the euro’s very existence.”

Cracks in credit markets: In credit and funding markets, it looks like some cracks are also appearing. JPMorgan strategist Nikolaos Panigirtzoglou wrote that "we see initial signs of emerging credit and funding stress" and cautions that "if these shifts in credit and funding markets are sustained over the coming weeks and months, especially in the issuance space, credit channels might start amplifying the economic fallout from the COVID-19 crisis."

US-China trade deal in jeopardy? According to Global Times, a mouthpiece for the Chinese government, chatter has it that the US may not be able to hold up its side of the bargain in the Phase One trade deal given the worsening coronavirus outbreak. Global Times notes that while the economy in China is returning to normal, the US economic activity could be dampened. “The two sides might have to conduct consultations to put the lingering trade war on hold...”

China’s poor trade figures: Over the weekend, China released its January-February trade data, confirming that the exports and imports activity were both down very sharply. Imports were down 4% y/y in yuan terms, while exports saw a decrease of 17.2% in January and February.

Draconian measures in Italy to contain COVID-19: In Italy, due to the soaring of coronavirus cases & deaths, the government is taking draconian measures and is about to to lock down the Milan region to severely curtail movement and activity until April 3 according to a draft decree cited. This will imply that around 16 million people will be stopped from entering or exiting the most-affected areas. For more details about all the nuances, the readership can head to this Bloomberg article. Live updates available here.

US NFP comes and goes unnoticed: Last Friday’s US NFP report comes to show the secondary impact that economic news are now having as the coronavirus and now Oil are ruling the proceedings. Despite the US February nonfarm payroll came much stronger at 273K vs 175K estimate - largest since May 2018 -, the market barely budged. The unemployment rate was 3.5% vs 3.6% estimate, while the avg hourly earnings y/y remained stuck at the 3.0% mark. Note, the report did not yet account for the COVID-19 crisis that has recently hit the US, another key reason to see the little moves.

Canadian jobs totally ignored as Oil implodes: But this obliviousness towards economic data is best represented by the behavior of the Canadian Dollar to an upbeat read in Canada’s February employment, which came at +30.3K vs +11.0K expected, with a full-time vs part-time split and wage increases also very favourable. The unemployment rate also held up very well as did the participation rate. Despite this bright report, the unfolding virus crisis and the Oil bust render this report largely irrelevant.

Harsh warning on COVID-19: Dr. Richard Hatchett, principal author of the National Strategy for Pandemic Influenza Implementation Plan, and currently heads the Coalition for Epidemic Preparedness Innovations, told the UK's Channel 4: "This is the most frightening disease I've ever encountered in my career, and that includes Ebola, it includes MERS, it includes SARS. And it's frightening because of the combination of infectiousness and a lethality that appears to be manyfold higher than flu."

8 states in the US declare State of Emergency: The coronavirus situation in the US has so far declared 8 states with a State of Emergency. These include CA, FL, KY, MD, NY, OR, UT, WA with an unfolding crisis on the testing kids as the US FDA is still withholding approval to even test for the virus from healthcare facilities.

Fed’s QE to the rescue? In view of Michael Wilson, Morgan Stanley chief equity strategist, markets are likely going to struggle until the Fed launches an official QE program. “I always thought the cyclical bear market that began in 2018 had unfinished business once the liquidity surge ended. COVID-19 provided the spark for its completion, which means pricing in a greater likelihood of US recession. We believe equity markets will struggle until policy-makers get back ahead of the curve with more interest rate cuts and an extension of the current balance sheet expansion and/or an official quantitative easing program – something we think is likely coming.”
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Recent Economic Indicators & Events Ahead

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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 has broken above its previous resistance level and the 100% projection target tat had been holding up for a number of days. The implosion in Oil prices has had immediate spillover effects around all the corners of the market, causing risk assets to sell-off, the VIX to spike, and as a consequence, the safest bet remains to long the Euro as further unwind of carry trades causes the currency to be a very attractive proposition for market speculators.

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The GBP index, after the type of pattern off the lows that resonates with an accumulation of longs’ campaign - compression - , the rally from that low point has been unstoppable. The Pound is seen as a ‘bridging currency’ to diversify into at times of huge uncertainty with at least half the G8 FX space (USD, CAD, AUD, NZD) imploding on the basis of ‘risk-off’ and the unwind of carry trade structures. I have serious reservations that the currency can keep up the strength given the layers of resistance above but these are very dicey times.

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The USD index, after it cracked a key level of support, it unraveled a fast and furious sell-off that in a matter of 24h has now hit its 100% projection target. The market not only keeps pricing in further Fed easing to the tune of another 50bp next week, but chatter about the Fed having to resort to more draconian measures such as a return to QE are keeping the currency at dramatically low levels relative to where we were trading just a month ago. The mass exodus in long carry trade structures has made the USD vulnerable as of late.

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The CAD index continues to face the perfect bearish storm as the further unwind of carry trades, alongside the bold move by the BOC to cut rates by 50bp, now has an all-out Oil price war thrown into the mix. Even on Friday I said that the latest CAD sell-off before the weekend Saudi bombshell had reached oversold conditions, so this hammering makes the price out-of-whack yet remember that the market cans stay irrational longer than one can stay solvent. We’ve definitely and very quickly evolved into what looks like a macro bearish trend in the CAD, although as a huge caveat, don’t think for a minute these are attractive prices to engage in CAD shorts unless you are looking to scalp this market. As usual, wait the market to come to you for entries that may be fitting to your current strategy of engagement.

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The JPY index, with risk aversion back at full steam, has bursted through its latest resistance, one that corresponded to the origin of last year’s supply imbalance area. The frantic amount of interest to join the JPY bid has led to a very fast rise towards the 100% proj target, which is the level in the chart where I consider a market to have reached an inflection point for potential consideration of a return back to ‘mean’ measures. The bias off the 4-hour chart remains very bullish and as a result, the safest bet is to keep betting for Yen strength. Granted, the currency looks very expensive in the near term so pullbacks will offer better deals.

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The AUD index is back under pressure by retesting its previous level of support, which as a reminder, was a 100% proj target respected with the usual striking accuracy. The index invalidated its short-term positive dynamics last Thursday as the market structure started to roll over, which has now resulted in follow-up supply dynamics. There is again re-alignment between the macro and the micro trend, hence weaker levels in coming sessions are a real possibility.

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The NZD index has been unable to gain much traction off the lows. It has been the most vulnerable currency out of the G8 FX space, even if in the last 24h, the CAD takes that title. Even on the ephemeral return of risk appetite last week, the Kiwi failed to break above its most immediate resistance level, which speaks volumes of the low interest to accumulate longs. The unwind of carry longs has also hit the NZD as the currency was also part of the group of G8 FX currencies that offered relatively decent rates compared to funding fiats.

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The CHF index just won’t stop its appreciation with or without the SNB intervention in the market. The epic unwind of carry trade positions is also benefiting the CHF, which alongside the panic selling in equities and Oil, has taken the ‘risk off’ profile to the next level. These conditions continue to be music to the ears of CHF long speculators. The magnitude of the strength in the index is well reflected by the fact that the currency is not respecting the 100% bullish proj targets as of late, which is a sign that few market makers are willing to step in to get in the way of what’s a stampede of bulls which desentivizises sell-side commitment.

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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
 
Find my latest market thoughts

Insane Forex Vol Reminiscent Of The GFC

The level of volatility in the market is borderline insane. The pip ranges have expanded massively as the perfect storm hits the currency market. This volatility is unlike anything seen for many years and fair to say we can start drawing parallels with the dislocation and distortion in FX swings reminiscence of the Global Financial Crisis from back in 2008/2009.

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

Monday, March 9th, will go down as one of those catastrophic days in history books. The Forex volatility traders are having to navigate through is unlike anything seen for many years and fair to say we can start drawing parallels with the dislocation and distortion in FX swings reminiscence of the Global Financial Crisis from back in 2008/2009. The incredible volatility implies pip ranges and spreads are much wider due to poorer market liquidity. To understand this perfect storm in FX, it just so happens that the market is freaking out at the prospects of a global recession amid the rapid international spread of Covid-19, at a time when an Oil price war just broke out. Risk-off moves were intense, disorderly, and unrelenting, circuit breakers in the S&P 500 or bond yields had to kick in only hours after the Asian markets opened. Central Banks are undoubtedly the next key focus as further rate cuts are baked in the cake while the market is once again bullying the Fed by forecasting another 75bp of rate cuts on March 18th. QE anyone? Many higher yielding EM currencies were absolutely destroyed, with a clear example of the calamitous movements suffered by perma long carry traders seen in MXNJPY, down more than 10% at some point. The AUD/JPY wasn’t far behind, even if the rebound was impressive too. The CAD and NOK were taken to the cleaners, unsurprisingly, as the oil exporters most vulnerable to the historical 30%+ collapse in the price of Oil. The Forex darling continues to be the Yen as safe havens draw disproportionate demand, while the Swiss franc and the Euro, continue to also outperform in times of huge uncertainty. The USD, hit by the prospects of Fed QE and the unwind of carry trades, kept falling and has shaved in two short weeks the gains it managed to register during the first two months of the year. Lastly, the Pound is a relative sideshow compared with some of the moves seen so far, in what I see as a fiat useful to tap into for diversification purposes amid the fall out of high-yielding currencies.

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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.

FX vol as not seen for years: In FX, we’ve seen the kind of market volatility and dislocation not witnessed since the 2008-09 Global Financial Crisis. This is no joke and it has a huge impact on how we should be all approaching the markets as traders. The incredible volatility implies pip ranges are too wide and nothing compared to where we were weeks ago. It also means wider spreads due to poor market liquidity. A higher than normal spread generally indicates one of two things, high volatility in the market or low liquidity due to out-of-hours trading, although in the current circumstances, due to the perfect FX storm as the next paragraph explains.

The perfect storm for FX markets: The team at ING touches on why this is the perfect storm in the Forex market. In their note to clients, they include as main culprits "(i) Covid-19 spread going global and investors fearful of a spike in US cases this week as US authorities play catch-up with testing, (ii) a collapse in the OPEC+ agreement, which now triggers a market share grab between the Saudis and Russia (oil linked currencies smashed) and (iii) a report in the FT that Citibank is pulling out of two-thirds of its vendor trading platforms raising some (perhaps ill-founded) concerns over FX market liquidity."

CAD, NOK taken to the cleaners: By assessing the damage caused by the Oil bust, unsurprisingly, the oil exporters (NOK and CAD) were the most vulnerable currencies right from the get-go on Monday. The NOK was particularly fragile given the context of the low liquidity of the currency. NOK’s meltdown vs the appeal towards the EUR as a funding currency embodies this danger. On the contrary, the market’s favorite safe havens (Swiss franc and Japanese yen) were the outperformers.

Context of Oil bust unprecedented: The total collapse in the price of Oil after Saudi Arabia declared a price war is unprecedented, according to IEA (International Energy Agency) Executive Director Fatih Birol. “The situation we are witnessing today seems to have no equal in oil market history. A combination of a massive supply overhang and a significant demand shock at the same time.” To be reminded why Saudi Arabia has launched a price war in Oil prices, read the following article.
Market fast pricing return of QE by the Fed: After the insane volatility seen in what’s referred to as the ‘new Black Monday’, the market has adjusted the chances that the Fed will cut to zero rates again by March 18 meeting. A 75 bps rate cut is now priced in for this meeting. If that’s true, the Fed will reach a low rate-setting band of 0.25-0.50% range and we all know what followed on the aftermath of the GFC. A final cut to 0.00-0.25% range followed by QE. Other considerations could be lowering charges for swap lines or cash lending to smaller banks.

Central Banks forced to act: The fact that equity indices in the US are hitting circuit breakers and falling to the tune of 7% to 10% is not going to appease the Fed, which is rapidly being cornered to act. But the same can be said about the ECB, BOJ, pushed further into unknown territory to react via unorthodox policies given the exhaustion of conventional policies. In the case of the BOC, RBA, RBNZ or BOE, there is still some small ammunition left but that’s the room for manoeuvre is too limited.

Deflation feared: The chaotic fall in the price of Oil could not have come at a worse timing. The largest one-day percentage fall since 1991 - gulf war - will create further deflationary pressures around the globe. When combined with the prospects of an economic recession felt worldwide, it will force Central Banks to carry a massive burden by acting in ways still unknown. Collaboration with fiscal authorities, cash handouts, intervening in the yield curves, buying stocks, etc.

Stats for the history books: At its lows today, the S&P 500 saw the biggest down day since 1987 (by the close the biggest since Oct 2018)! This is the only day in the history of S&P 500 futures that they gapped down more than -5% and didn't close above the open. Besides, when looking at the total U.S. Trading volume, on a 10-day moving average basis, is now higher than during the meltdown in 2008. Volume is another whopper today, over 17 billion shares.

Trump in denial: Will Karma bite him back? In a tweet, he downplayed COVID-19 by noting its business as usual. “So last year 37,000 Americans died from the common Flu. It averages between 27,000 and 70,000 per year. Nothing is shut down, life & the economy go on. At this moment there are 546 confirmed cases of CoronaVirus, with 22 deaths. Think about that!” Not the slightest sign of encouraging a bit of social distancing from Mr. President! The state of denial about the scale of the problem, and an underwhelming fiscal response is not a good sign.

Italy’s lockdown expands nationwide: There is chaos in Italy as the Prime Minister Conte confirms the country is on lockdown with the quarantine now expanded throughout the country as coronavirus cases, deaths keep soaring. The restrictions will last for two weeks, and during that time, movement will be restricted across Italy. All of Italy will be under same condition to limit public assembly. It follows a scary increase in cases to over 10,000 with the death rate increasing by 27% in 1 day.

WHO gives a positive spin: The World Health Organization gave its daily update to the press, noting that “even if we call it a pandemic, we can contain it”. The top representatives, WHO's Tendros/Ryan spoke about how the Italian health system is overrun, that the epidemic is still very much in the up cycle, with data showing 43 countries have less than 10 cases, while 79 countries have less than 100.

FX turnover soars: As Reuters reports, the unwind of leveraged bets and the carry trade saw trading volumes turnover soar across platforms. “Yen turnover was four times the usual volumes, euro volumes were 6.4 times the average and Aussie turnover was 3 times its 30-day average on Citibank’s platforms, one of the largest players in the forex market.
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Recent Economic Indicators & Events Ahead

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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 keeps flying as the tightening of financial conditions go from bad to worse. Still, on the way up, after the flash spike, the index has settled below its next logical target - the 100% projection target - after a failed retest to re-take it. The bullish outlook is undeniable with the VIX at such an insanely elevated level, which is forging the unwind of carry trades as the trade of this short 2-month new century so far, with the Euro poised to be bought on dips as the structure suggests across all timeframes, including the 4-hour chart below.

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The GBP index is a relative sideshow compared with some of the moves seen so far, a fiat useful to tap into for diversification purposes amid the fall out of high-yielding currencies. The Pound has been stubbornly strong in line with the fortitude of other European currencies (EUR, CHF). The negative prospects towards half of the G8 FX space (USD, CAD, AUD, NZD) on the basis of ‘risk-off’, unwind of carry trade structures has so far benefited the Pound, as the market’s focus moves temporarily away from the UK/EU trade talks amid such treacherous conditions.

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The USD index is quickly moving towards its worst levels of the year as the gains made through Jan and Feb get evaporated in a matter of weeks. The combination of a market fast pricing in the return of liquidity injections by the Fed via an outright balance sheet expansion reminiscent of the QE era, alongside the rapid decay of carry trades is weighing on the USD. Sooner or later, if the distorted market movements leading to ‘risk-off’ become the new norm, it’s expected that the USD will attract greater capital flows, although much will depend on the upcoming set of policy actions by the Fed to address the capitulations witnessed.

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The CAD index can be best defined as having gone through a perfect bearish storm. The logic behind the debacle of the currency is three fold. (i) Huge unwind of carry trades, (ii) Expectations of further aggressive measures to ease by the BOC (iii) Most importantly, an all-out Oil price war thrown into the mix which saw Oil get busted in a historical move. As suggested, given the outsized vol, CAD shorts look out of whack unless you are looking to scalp this market.

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The JPY index is showing levels of volatility that have rivalled anything I have seen in the past several years. One will probably have to go back to 2008/2009 to draw parallels. Risk-off moves were out of control, with circuit breakers kicking in on equity and bond markets, which speaks volumes of the intense, disorderly, and unrelenting movements. The frantic amount of interest to join the JPY bid has caused all types of technical targets to be thrown out of the window as the market suffered from a worrying lack of liquidity in the last Asian session. The bias off the 4-hour chart remains very bullish, and despite technically unattractive to engage in longs, the dislocation in capital flows is definitely a big driver to keep seeing Yen strength.

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The AUD index, which is widely recognized in the trading floors as a growth-currency, meaning that it tends to perform best in times of economic bonanza globally, continues to take the toll of the calamitous market conditions witnessed. The action seen so far strengthens the bearish case, as bulls were once again taken to the cleaners as the previous low was taken out, even if the buy-side interest that existed ever since the flash crash has been impressive. All signs keep pointing at weaker levels in coming days and weeks as the COVID, Oil crisis plays out.

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The NZD index had a round trip the likes of what I had not seen since the GFC more than 10 years ago. The sell-side pressure that came through the books in Asian was fully reversed, even if that V-shaped reversal was not sufficient to invalidate the bearish market structure off the 4-hour chart. The NZD has been the most vulnerable currency out of the G8 FX space during the COVID-19 crisis as a global recession has severe implications for the relatively small and exports-driven NZ economy. Yesterday, I argued that the unwind of carry longs has also hit the NZD as the currency offered relatively decent rates compared to funding fiats.

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The CHF index appreciated violently. The epic unwind of carry trade positions and the disastrous risk-off dynamics are music to the ears of CHF long speculators. By assessing the chart below, it’s hard to ignore the power of symmetrical targets in Forex, with the CHF index the perfect case in point. Notice that off the original bracketed area outlined in a white rectangle, do you mind checking what are the levels acting as resistance on the way up? Each and every 100% proj sequence, without exception... Coincidence? Hopefully by now I've proven through enough examples how critical it is to have these areas marked. Buy dips remains the safest bet.

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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
 
Find my latest market thoughts

Best USD Day Since 2016 Amid New FX Vol Regime


Feels like every day a new milestone can be written about. This time, the stat that captured my attention was the out sized move in the USD, to the point that it registered its best performance in over 4 years amid ongoing lofty vol as the market hopes for a large economic package out of the US. What else contributed to Tuesday's dynamics in FX? Keep reading ...

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

Let’s get started…

Quick Take

The harrowing ‘risk-off’ scenes recently witnessed abated as the market appears to be welcoming news that the US is preparing a rich stimulus package to support the economic fallout from the coronavirus outbreak. Further coordinated intervention by G7 governments has too contributed to add fuel to the risk rally. With the S&P 500 rising circa 5% and US bond yields sharply higher too, the USD was the clear winner, with aggregated gains when crosschecking its performance vs G8 FX, unlike anything seen since 2016. The magnitude of the upside move in the USD speaks volumes of the amount of volatility we are experiencing as traders. On the flip side, the main beneficiaries in this chaotic market phase (Yen, Swissy and Euro), all performed quite poorly as the bloodbath in the unwind of carry trade structures takes a temporary pause. The Pound, a currency recently permuting as a play for diversification purposes amid the fall out of high-yielding currencies, also suffered the consequences of an increase in risk appetite, hence reinforcing this new adopted role. Lastly, the outperformance of the AUD and NZD despite sharp gains in the equity and yields space is a bad omen for these two currencies as the market shifts the focus to QE and negative rates by the RBA/RBNZ in coming months, even if RBNZ’s Orr is still downplaying the odds.

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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.

Trump pitches economic stimulus: Hopes for a stimulus package out of the US have calmed market fears a tad, with the S&P 500 up nearly 5%, while US bond yields also portray a better bid tone. As CNN reports: “Trump pitched Senate Republicans on a payroll tax cut and other policy proposals meant to ease the economic fallout from the coronavirus outbreak, but multiple sources told CNN no consensus was reached on the proposals.” The US Treasury will also convene a meeting with the Fed, and SEC to discuss the impact of the virus on markets.

Coordinated intervention by authorities: It’s not only President Trump’s proposal to cushion the fall out of the US economy via varies stimulatory policies, but similar fiscal responses are also being unveiled as in the case of Italy with a €16bn package, while the UK, Canada and Australia are all about to announce their own set of measures this week. ECB president Christine Lagarde has also ordered a ‘rapid fiscal response’ from EU govts, plus a range of other measures. In Japan, The Abe government is about to unveil a second fiscal stimulus north of Y430b.

Bi-partisan consensus likely: According to the Research Team at NAB, amid the extraordinary circumstances faced due to COVID-19, “it is likely a bi-partisan consensus will emerge, though the exact formulation of a package is yet to be determined. Despite a fiscal response, markets still price aggressive Fed easing with 72bps priced for the March 17-18 Fed meeting.”

Bail out of the oil industry looms: Some industries in the US such as oil and airlines appear to have reached very quickly an insurmountable pain point, to the extent that the White House is already talking about bailing out oil companies. The Washington Post reports that “the White House officials are alarmed at the prospect that numerous shale companies, many of them deep in debt, could be driven out of business if the downturn in oil prices turns into a prolonged crisis for the industry.” The US federal budget deficit is set to keep ballooning uncontrollably.

Biden paves the way to nomination: Biden continues to be so ahead on delegates based on the distribution of the latest votes out of Michigan this Tuesday, that rumor has it that Bernie Sanders may be considering pulling out of the campaign. Biden is now the choice of a majority of Democratic voters nationwide, according to most of the polls.

China’s Xi takes victory lap: Chinese President Xi visited the city of Wuhan (the epicentre of the coronavirus outbreak). State media in China have promoted the visit as a positive sign that in China they are experiencing an inflection point in the battle to defeat the COVID-19 as the country aims to slowly go back to business as usual albeit with big precautions. Xi said that Hubei province should resume production step by step.

The USD has best day since 2016: The optimism surrounding a substantial stimulus package by the US is driving flows away from bonds and back into riskier assets such as equities, which has had a positive impact on capital flows drawn to invest in USD-denominated assets. Besides, the temporary pause in the unwind of structural carry trades is a dynamic benefiting the USD. Once the bulk of the carry trade gets unwound, and with US yields near the zero bound, the USD is set to no longer attract carry plays and further benefit from a risk-averse environment.

The price of Oil bounced sharply: The price went up over 10% even if there wasn’t a single catalyst driving the price up, bur rather, the rise was fueled by the overall improved market sentiment and a sense that the movements seen since the Monday open were an overkill.

Saudi Arabia is not bluffing: The news out of Saudi Arabia is far from encouraging as the country remains adamant to flood the world with Oil supply after it double-downed on its pledge to increase supply by over 12.3m barrels a day in April, more than initially indicated last week. Russia is also said to be preparing for a rise in production by another 0.5m barrels/day.

COVID-19 continues its advance: In Europe, the COVID-19 headlines continue to be pessimistic. Not only has Italy expanded its lockdown nationwide, with cities resembling a medieval town, as COVID-19 cases breach the 10,000 mark, but in the US, the CDC made the sobering statement that “the window for fully containing the coronavirus has passed in some parts of the U.S.” In Spain, events with more than a 1,000 people have been banned, the health minister announced, while Switzerland has now closed its border with Italy to prevent further spreading.

RBNZ Governor Orr plays down immediate measures: The Governor of the Reserve Bank of New Zealand said that the 50bp rate cut last year has made “time to be on our side” and that “we don’t need a knee jerk” monetary policy reaction. Orr added that the “50 bps rate cut last year has bought us an enormous amount of time”, and that “the RBNZ has powder in the gun in the face of an economic shock”. Orr went on to say that the Central Bank is “re-working forecasts as the coronavirus impact is seen worsening.” Orr did not rule out that lower bound for policy rates could be in negative territory. The market is pricing in just a 25 bps cut in March.

American Hospital bracing for a chaotic situation: The American Hospital Association (AHA) conference in February revealed that US hospitals are preparing, according to leaked medical conference documents, for 96 million coronavirus infections across the US. 4.8 million hospitalizations from the infection and 480,000 deaths in the United States are also the projections based on the document. Dr. James Lawler, a professor at the University of Nebraska Medical Center, presented the harrowing “best guess” estimates.

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Recent Economic Indicators & Events Ahead

GlXkEraCuwyW_xZB0675lMbqKON8repoSdLGEAlk1Cc3juxNCSbpcDtxIMAo-ifcUqHqx_WMM5NLUajP8mQZ5KdQ6RHQ94htRRL1mSFQsT_3lMEINo6mqsFQODtIbwBPFXWwD-Hh
Dw8lFUOXcBEQvUKUvJMl9EXlgLMeunVTD9AbvavtO8PG5_MRHEaYFDIHATtHhsMKxEp2mInWyonE0wTpuysrerL80qEt-dp-SOob5yRfpxv67DV6eXlTQBECU5_3_OLrVHs2AB9E


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 has come under minor pressure as risk appetite emerged in the last 24h. Following the flash melt up in price, the index has settled below its 100% projection target after several failed attempts to retake the upside. The outlook remains firmly towards the upside amid the lofty levels the VIX still trades at. The Euro is poised to keep reacting positively to spells of risk aversion in the market as further unwind of carry trades ensues.

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The GBP index continues to be a sideshow, rather immune to the COVID-19 or Oil dramas. Cable has permuted into a currency playing catch up with funding currencies as a good vehicle for diversification purposes amid the fall out of high-yielding currencies. So, with the risk tone on the mend, the GBP has come under renewed downward pressure. The market’s focus has moved away from the UK/EU trade talks amid such dicey conditions. The Pound index has found static support in the form of a sequence of previous lows so far.

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The USD index has had its best day since 2016, a move in the chart that reveals the outrageous amount of volatility we seen. To put things into perspective, it’s taken the USD barely 24h to make back the same magnitude of gains as in 30 days back in the Jan-Feb period when the volatility in Forex was rock-bottom. That’s how quickly vol dynamics have evolved. The combination of stimulatory measures by the US and a return to risk appetite has emboldened the appeal towards the US Dollar, pausing its rise at a key resistance level.

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The CAD index has found willing buyers after the 10%+ rebound in the price of Oil as the market corrects its oversized downside movement. This shallow upside bounce plays into the view that adding CAD shorts when the price is so out of whack tends to be a dangerous proposition. The outlook for the CAD, nonetheless, remains bearish from a macro perspective as the Saudis are certainly not bluffing on flooding the market with Oil supply, which will be a major problem for Canada’s high cost oil producers. There is still a long way for the CAD to fill the huge gap as the price still struggles to even make it back to the opening level from Monday.

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The JPY index is back as the king of the market when conditions deteriorate, which by the same token, exposes the currency to suffer considerable losses if these dynamics revert, as seen in the last 24h as government around the world look set to intervene to cushion the COVID-19 economic fall out that is happening before our very own eyes. The levels of volatility in the Yen remain unlike anything seen in recent years amid a context that is hugely favourable for the Yen to keep appreciating in the grand scheme of things as the chart below illustrates with a market structure that is unambiguously bullish. With the virus situation only going to get worse, and an all-out Oil price war, the Yen enjoys the right context to be a buy on weakness.


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The AUD index, which is widely recognized in the trading floors as a growth-currency, has had to deal with yet another blow after the curveball thrown by the Saudis. Saudi’s response to Russia’s oil supply is very detrimental for the global growth outlook, and as such, the currencies most exposed to the global economic growth story (AUD, NZD) are set to suffer. The level the AUD trades at, however, is rather expensive even if the mid-term outlook is firmly bearish as the RBA ponders the option of QE as it’s fast approaching the lower band on rates setting policy.
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The NZD index continues to play catch up with the Aussie, not only technically, but fundamentally it also looks poised to see the RBNZ follow the same steps as the RBA by lowering the interest rate band later this month. I'd like to reiterate the point that the NZD has been the most fragile currency out of the G8 FX space during the COVID-19 crisis, and with the fluid situation only to get worse in the near-term, it’s hard to think how the market will shift its psyche towards a more benign approach towards the Kiwi.

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The CHF index remains, hands down, alongside the Yen, one of the safest bets out there. The combination of an epic unwind of carry trade positions and the harrowing risk-off dynamics as of late have been the perfect bullish storm in the currency. I still remain perplexed by how accurate the symmetrical targets have played out in this market since the onset of the rally. Notice that off the original bracketed area outlined in a white rectangle, each and every 100% proj sequence, without exception, has been respected. The only way for this market, based on the price structure and the momentum is to the upside.

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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
 
Find my latest market thoughts

Scramble For US Dollars Goes Up A Notch

Again, so much to touch on as part of this Friday's note. The markets remain in utter disarray as the disjointed movements in the currency market clearly show we are in a period of transition from capital repatriation to panic-buying the USD amid the implosion of the funding/liquidity channels (USD shortage in the system) as the market keeps telling us the actions by the ECB/Fed remain underwhelming...

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

The mass exodus of long-held positions in global equity markets amid an increase in margin calls, the disjointed movements in currencies, the sky-high volatility form part of the daily harrowing script the market has sadly settled into as the total loss of trust in policy actions flare up. The latest measures by US President Trump, the Fed or the ECB have not moved the needle and are a cruel reality check that the dire situation due to COVID-19 won’t be overcome through the type of policy actions we’ve been so accustomed since the GFC (liquidity injections). Don’t get me wrong, the Fed stepping in with more cheap money thrown into the system is still needed amid major stresses in the credit/funding channels to get US Dollars (explains the scramble to long the world’s reserve currency into fresh 2020 highs) but the market’s verdict is still turning a deaf ear and one wonders what’s the ultimate circuit breaker? The market is screaming that an even bolder response from the Fed must come, and I am not talking about rock-bottom rates or the confirmed QE resumption (that’s backfiring) but a clear commitment that they may be pondering to dip their toes into buying corporate credit and even equities outright, essentially a 'Japanification' of the US monetary policy, even if the blessing of Congress is needed for these extraordinary measures to see the light. The markets, with a VIX around the 60.00 market, at a level of panic not seen since the GFC, however, unlike that period, this time what will revert the treacherous and fluid situation is a vaccine and containment/mitigation measures by governments/health system, which is why this black swan event is so hard to cope with from a monetary/fiscal policy standpoint alone. The net result when aggregating the flows in the last 24h through G8 FX, illustrates a reigning USD, with the usual suspects (EUR, CHF, JPY) following miles away but still net positive. On the contrary, the AUD, NZD, CAD and GBP are the currencies most punished by the brutality of these markets.

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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.

Markets in utter distrust no matter the policy action: The chaos and disjointed moves in equities, bonds and currencies have become the new norm as the latest measures introduced by US President Trump (the US has banned, effective this Friday, all travel from Europe for next 30 days), ECB’s Lagarde (fell short on expectations), alongside the lack of bolder action by the Fed and politicians in the US gets penalized by markets.

Fed steps in, makes no difference: Even if the Fed stepped up to the plate by announcing stresses in the money and UST markets in order to attempt to circuit break the meltdown in equities, the plans backfired. The Fed measures also included an extension of $60bn Treasury purchasing to the whole UST Term Structure, which effectively means a re-introduction of QE (4th round). The market was unimpressed, which speaks volumes about the absolute loss of confidence and current panic.

ECB impotent in the wake of the COVID-19 crisis: At least, that’s the impression one gets from following Lagarde’s press conference, the bearish reaction in the EUR and judging by the underwhelming measures. The Central Bank, against expectations, held rates steady, while it decided to increase QE and lending via LTROs and TLTROs. Lagarde was very clear that this is a crisis that must be fought as part of a joint fiscal response by governments ‘first and foremost’.

US bi-partisan response not clear: The prospects for a meaningful bipartisan policy response by the US Congress to cushion the fall out of the economy are not yet that clear. As Politico reports, “Republicans have raised major objections to the Democrats’ multi-billion-dollar emergency proposal, which was unveiled close to midnight on Wednesday.”

The rout in the equities is brutal: For instance, the Dow Jones dropped beyond the 10% in what marks one of the worst days in history. The S&P 500 was not far behind, after circuit breakers kicked in and halted trading again. Yesterday, I mentioned that some of the statistical anecdotes included spooky developments such as the drop in equities has been the fastest drawdown from a peak into bear market in history. Gains in bonds no longer offset losses in equities is also another big issue fueling the selloff.

German to break its own rules: Bloomberg learnt that German Chancellor Merkel’s government looks set to break its own long-standing rule of respecting its balanced budget policy in light of the “exceptional circumstances” the economy is facing. Essentially, once approved, the German government will be able to lift the debt levels restriction it sets. No official announcement yet.

Europe en-route to a complete shutdown: The draconian measures taken by governments around the world amid the rapid propagation of the COVID-19 is extending worldwide. In the last 24h, we’ve learnt that the containment strategies implemented have been taken to the next level in countries such as Italy, Spain, France, Ireland, or via the suspension of all types of sporting events in most of the West. Closures of schools and universities, as well as enforcing social distancing and limiting public transport have been some of the impositions in developed societies. Latest developments can be found here via ZeroHedge.

Experts’ opinions on COVID-19: Renowned Infectious disease expert Michael Osterholmn gave a talk in the latest Joe Rogan show explaining in detail how serious is the coronavirus. You want to watch this short clip. Don’t forget the words from Dr. Fauci: "I can say we will see more cases and things will get worse than they are right now," Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said Wednesday morning. In fact, Congress' in-house doctor told the government this week that he expects 70-150 million people in the U.S. — roughly a third of the country — to contract the coronavirus, according to Axios.

USD liquidity shortage new driver: As I explained in yesterday’s note, the total loss of confidence as expressed by the turmoil in equities, the dislocation of capital amid sky-high volatility (VIX nearing GFC levels) and the crumbling of credit/funding channels (3m FRA-OIS spread), continues to fuel massive demand for the USD as it communicates shortage of dollars. Fed measures not enough: The more credit/funding deterioration, observed via the FRA/OIS spread, the more shortage of US dollars in the system, with the measures by the Fed a temporary relief but so far not having the intended consequences.

USD shortage vs repatriation of capital: The unstoppable rise of the USD against the likes of the Euro, Swissy or Yen means that new dynamics, other than the unwind of carry trades, are now at play. We’ve therefore moved from a scenario where repatriation of capital via hedging and margin calls in carry long structures driving currencies to USD liquidity shortage. The selloff in Euros, FRA-OIS spread blowing up, bank stocks tanking would suggest the carry trade unwind may have run its course in favor of the USD.

Massive stress in the banking sector: The reason the Fed decided to step in on Thursday is because the credit/funding channels are under extreme stress. The FRA-OIS spread difference between 3-month Libor (the inter-bank lending rate) and the overnight index rate (the risk-free rate set by central banks) has been on a tear. This shows massive stress in the U.S. banking system as lending is seen as more risky amid the anticipation of companies going under in the wake of this demand/supply shock.

Fed not done yet, more cuts are coming: The market is now pricing Fed rate cuts (100bp) by March 18 with further open liquidity lines, as well as an almost uncapped repo facility and further QE expansion. The aggressive move by the Fed overnight leaves no doubt that the Fed will do what it takes to guarantee sufficient USD liquidity for now. The fact that the NY Fed will offer $500bn in a three-month repo today, with a further $500bn three-month and a $500bn one-month repo tomorrow, shows that commitment.

GBP taken to the woodshed: The Pound, which had been holding relatively steady until the surprise rate cut by the BoE, tanked without mercy. As a reminder, the Bank of England, alongside the UK government, launched a coordinated effort to stimulate the economy, including an emergency rate cut by 50bp and fresh fiscal stimulus valued at GBP30 billion ($39 billion).

Canadian PM under self-isolation: The jury is still out there as to how this may affect the CAD after news broke out that Canadian PM Justin Trudeay said he's self-isolating because his wife is sick and they're awaiting testing on COVID-19. "The doctor's advice to the Prime Minister is to continue daily activities while self-monitoring, given he is exhibiting no symptoms himself. However, out of an abundance of caution, the Prime Minister is opting to self-isolate and work from home until receiving Sophie's results," read the statement.

The most vulnerable currencies: The Canadian, Australian and New Zealand Dollar remain the currencies most exposed to the calamity we are witnessing in the global economy due to this black swan event called COVID-19. It looks almost certain that these economies are headed into a recession along with many other countries, but the market has always considered them, as part of the G8 FX space, as the ultimate growth currencies, therefore, will be most punished at times of maximum stress.
If you found this fundamental summary helpful, just click here to share it!

Recent Economic Indicators & Events Ahead

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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 has broken into a fresh structural bullish cycle after finding a resolution away from its range. Follow-through buy-side continuation is now expected as the new regime of sky-high volatility continues to fuel the appeal towards the EUR…

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The GBP index has accelerated its downward pressure after the impossibility by buy-side forces to hold a level of macro support that has been respected multiple times in the past. The price structure is telling us this market looks poised to keep selling-off in the near term...

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The USD index has soared way out of proportion by any measures that we may have been accustomed to this year, which comes to show the panic buying currently underway given the shortage of USD liquidity despite the extraordinary measures by the Fed…

2rNcPqdcvCcONzlyB9uDPYMF6zJVcX6l8yOfXIMYfBi3VQiX1gHFqHi7e3eiu9UFCQiKKiDfJmhzCEvy2iabcyigvAQSsoCOJbQTONAWRf6s8R0luodeB2mfHGvV2rcrnENHH4WT


The CAD index holds a bearish outlook in the mid-term after it confirmed a major breakout of a 100% macro projection target. This development, in the wake of the Oil price war, is a major outlier movement that tends to happen when the market has fundamentally shifted 180-degree as in the case discussed here with the Loone. Selling strength is the way to go…

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The JPY index continues to be the darling in Forex and with such elevated risk aversion for weeks if not months to come, it’s the best positioned to keep appreciating… The chart below shows the buy-side flows into the Yen are not abating with a bullish structure in place…

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The AUD index remains one the currencies most exposed to the global recession that is unfolding, and as a result, the market is rushing to unload AUDs in mass. The proof is in the pudding (charts), with another collapse towards the next 100% proj target…

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The NZD index is another currency that holds a very dire outlook in line with the other growth/commodity currencies (AUD, CAD). The chart below illustrates how sellers maintain the clear upper hand amid the huge uncertainty the virus has caused around the globe...

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The CHF index, alongside the Yen, is primed to attract the most buy-side flows in a world where all that matters is the containment of COVID-19. The Swiss currency, based on the aggregation of flows, has broken into new highs, which means buy on weakness is technically well justified...

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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
 
Find my latest market thoughts

USD Benefits From Unfolding Liquidity Crisis

The race to the bottom by Central Banks is almost complete, with the RBNZ and Fed stepping in again. Yet, the attempts by the latter to appease market fears continue to prove unsuccessful. The latest draconian actions taken by the Western hemisphere to lock-down entire countries to mitigate COVID-19 ensures a huge economic blow this year as a globalized world is put on hold. These are 'testing times' for humanity and traders alike, with market still expressing the huge line-up of 'unknowns' that lie ahead by selling equities and buying safe havens.
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

There is no respite in financial markets as equity futures in the US (S&P 500) hit a limit-down just minutes after the open of markets in Asia as forced-selling and liquidation from those trapped long appears to still play out. Remember, selling originated from the longest bull market in history! That's important to understand in order to put into perspective the sheer magnitude of positioning unwind going on.

This reaction in equities is certainly not what Central Banks would have wished for after yet another round of coordinated intervention to enhance the provision of global U.S Dollar liquidity and soften the economic blow. The Fed and the RBNZ, both cutting rates to the lowest bound, are the latest to step in (second time for the Fed), even if the market keeps telling us loud and clear such measures are insufficient.

The Bank of Japan is next with an unscheduled emergency meeting for this Monday to discuss steps to stabilize markets. Last Friday, it was time for the BOC and Norges Bank to also move down rates as both countries calibrate on the fly monetary policy after the double-whammy of the Oil bust/global recession.

The unfolding COVID-19 crisis has continued to expand the gap in performance in what can be classified as the safe-haven currencies (JPY, CHF) and the growth currencies (AUD, NZD, CAD). We then have a EUR that still finds further residual demand from the unwinding of carry long structures, which even if it may have run its course, may have inflicted a paradigm shift whereby the single currency is seen as a safer harbor to allocate capital in times of stress.

The US Dollar, meanwhile, continues its rampant appreciation as the real crisis the market is facing involves the shortage of US Dollars in the system. Proof of that is that no matter what action the Fed takes (cut rates, QE to infinity), the USD keeps appreciating. Lastly, the Pound’s sharp fall has defied any logic, although in these imperfect and tumultuous times, it will be a futile exercise trying to make sense of each and every move amid the dislocation of capital.

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

Coordinated Central Bank measures to soften the blow:
News over the weekend continued to move at light speed, with Central Banks, in yet another coordinated move, rushing to cut rates near the 0% bounce. These emergency policy actions by Central Banks, even ahead of the official meetings, is a clear declaration on the utter state of desperation to do whatever little is possible from their side to soften the blow in economies.

Fed lowers rates again: The Federal Reserve cut interest rates to near 0% on a Sunday evening emergency meeting, as a follow-up move less than two weeks before it cut rates for the first time. In the official statement, the Fed said that “the effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook…” The Fed will also expand holdings of treasury securities by $500 bln and mortgage backed securities by $200 bln in coming months. One can follow the subsequent virtual press conference in this link and comments summary.

Shortage of US Dollars in the system: The Coordinated Central Bank action to enhance the provision of global U.S Dollar liquidity, which also saw the Fed, BOJ, Bank of Canada, ECB and Swiss National Bank agreeing to lower pricing on standing US dollar liquidity swaps by 25 bps, is the real crisis unfolding. As FX strategist Viraj Patel puts it, "the Fed has thrown a kitchen sink of policy measures that should in theory weaken the US dollar. Problem is the global backdrop due to Covid-19 isn't conducive to putting money to work in other countries/FX…”

Cash flow crisis: One of the banks best explaining the situation is Nordea Bank. They note that this is an unprecedented crisis that at its core involves a cash flow shortage as opposed to a credit crisis as Central Banks are addressing. This strengthens the notion that the Fed QE is not the optimal tool. "Everybody seemed to build cash positions at the same time last week, and it is arguably also tough to find value these days”, Nordea notes. By looking at the behavior of metals last week, it becomes clear that the global dash for cash was a prelude to the liquidations seen, not acting as safe-havens but liquidity vehicles.

RBNZ the last to cut rates in an aggressive move: The RBNZ cut its key interest rate by 75bp to 0.25% from 1.0% in another emergency decision, with Governor Orr assuring markets that the rate will stay this low for at least 12 months. The culprit is the impact of COVID-19 in the economy as the government plans broad-based economic stimulus. “The slowdown in the global economy would act as a serious headwind for the economy. International and domestic initiatives to limit the spread of the virus would have a serious impact on travel and trade affecting both supply and demand channels in the economy.”

BOJ next to step in: The Bank of Japan has called an emergency meeting for this Monday to discuss steps to stabilise markets. The meeting is due at 12pm Singaporean time, and will replace the scheduled rate review on March 18-19, the BOJ said in a statement released on Monday. As the Strait Times notes, “the central bank's nine-member board will likely discuss measures to smooth corporate financing and stabilise financial markets, a source familiar with its thinking said.”

BOC/Norges cut rates last Friday: Bank of Canada and Norges Bank (Norway) both unexpectedly cut by 50bp on Friday, joining the rest of Central Banks in releasing further liquidity into the system. In China, the PBoC lowered its Reserve Requirement Ratio for some banks to also support the economic pain.

RBA’s QE nears in Australia: The RBA said it is ready to purchase Australian government bonds, according to various market sources. RBA will announce further policy measures on Thursday this week. This move would be in line with the aggressive measures taken by Central Banks elsewhere.

Market doesn’t care about rate cuts: Despite the coordinated intervention by Central Banks, equities are unfazed with the newly introduced measures as the S&P 500 futures hits limit down at the open in Asia, clearly telegraphing that at this stage in the game, this is not enough.

Will the Fed go the extra mile? The incessant sell-off in equities as the world goes into a hold (both demand and supply shocks) has the market in absolute disarray and desperate for the Fed go out of its way by negotiating with Congress a new mandate whereby it proposes a targeted stocks/corp bond buy program.

US banks’ stock buy-backs done for now: The Financial Service Forum, representing eight of the nation's largest banks in the US, issued a statement noting they are done repurchasing stock until at least the end of Q2. The Full FSF statement read: “The Financial Services Forum announced that its eight members decided today to temporarily suspend share buybacks for the remaining period of the first quarter and the second quarter of 2020.” This decision is only going to put further strains in the Fed to act with unorthodox measures in coming weeks.
Inevitable surge in US COVID-19 patients: The Washington Post reports that "triage tents are popping up outside emergency rooms in the United States, and health-care workers are physically squeezing extra beds into break rooms and physical therapy gyms to prepare for what seems like the inevitable surge in patients.” For a round up of all the latest news regarding the unfolding COVID-19 crisis, check this link by Zero Hedge.

CDC keeps pressure on White House: US' CDC recommends gatherings over 50 people should be postponed for 8 weeks. The help stem the spread of the coronavirus outbreak, US’s CDC recommended cancelling all large in-person events with 50+ people anywhere in the US for the next eight weeks.

Draconian actions all over: The measures taken by authorities in the Western hemisphere continue to occur at light speed amid the unfolding crisis. The NYC Mayor said NYC schools will close for at least a month starting Monday, Italy reports largest one-day jump in cases, while France also reports highest daily jump since the outbreak began. Germany also reported 1,000+ new cases, while Spain goes into total lockdown and deploys the military to patrol the streets and enforce confinement.

Insanity in US airports: Trump's Europe travel ban, which went into effect, have backfired in an epic proportion as US airports see unprecedented crowds of people freaking out wanting to return to Europe. To make matters worse, it happens at a time when procedures are slower as new federal travel requirements and coronavirus 'enhanced' screening was instituted by Trump. As the Breaking Aviation News report, “Chicago’s O’Hare International Airport revealed the most chaotic scenes with thousands standing shoulder-to-shoulder in an airport corridor amid a deadly pandemic, reportedly for at least seven hours before entering the screening area .”

Recent Economic Indicators & Events Ahead

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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 extended its upside towards the next 100% proj target in another display of strength as the correlation between risk-off flows and the currency stays the course. The path of least resistance for the Euro is unambiguously to the upside as portrayed by the price structure of higher highs and higher lows and backed up by the smart money tracker off the 4-hour chart.

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The GBP index
sold off very harshly in the last 24h of trading after a break of structure found a backside resistance as the perfect role reversal location to amplify the bearish move. The overstretched movement in the Pound has now reached the 100% proj target, where a bounce has ensued as supply dries up. The Pound’s outlook has worsened considerably in recent days.

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The USD index
has surged by a magnitude we haven’t experienced for years, which comes to show the panic buying amid the cash flow crisis explained in the narratives section. None of the measures introduced by the Fed have moved the needle to depreciate the currency, which speaks volumes about the direction the market is betting the currency to travel to for now. I am expecting, therefore, the USD to be a major beneficiary of the current conditions playing out.

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The CAD index
holds a bearish outlook and is now back into a wide box outlined below where I’d consider the market allocations to be net negative in the Canadian Dollar judging by the recent double whammy events unfolding (Oil price war and true risk-off conditions). There are not yet price action clues that may suggest the expected turnaround. The further appreciation of the currency despite the BOC 50bp rate cuts tells us the market was definitely overstretched.

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The JPY index
has entered a consolidation pattern in the context of a solid bullish trend. I am expecting the market to go through a transient accumulation of longs before the next phase up. Watch BoJ action today for further clues on the next fundamental move. The take out of lows late last week saw a quick grab of liquidity rejecting the level decisively towards the mid-range. When ranging, look for what side goes through most fake outs. If to the downside as seen, that allows to solidify the notion that the market is preparing for the next bull run by amassing Yens.

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The AUD index
hit its lowest levels since late-2008. News over the weekend of additional containment down under and the RBA preparing QE measures dented the appetite towards AUD long holdings. Besides, stock market crashes and global recessions are historically very pervasive combinations for the outlook of the Aussie.

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The NZD index
should trade as a carbon copy of the Aussie as the market follows conventional dynamics that are known to be respected. In the case of the Kiwi, it is set to follow the downward trend in the Aussie following the 75bp rate cut by the RBNZ today. The chart below illustrates the dire technical picture as measures of risk aversion remain extreme.

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The CHF index
, alongside the Yen, is primed to attract the most buy-side flows and the chart below resonates with such a bullish view as the price structure based on the aggregation of flows is clearly pointing towards this direction. The Swissy has broken into new highs and the only way to play this currency is to engage in buying weakness until there is some type of circuit breaker implemented by the Fed that tilts the balance towards a change in sentiment.

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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
 
Find my latest market thoughts

Special Report: The USD Analog In Times Of A Liquidity Crunch


“History never repeats itself but it rhymes,” said Mark Twain. If the speed at which things have moved may have baffled you, history tells us, based on the last liquidity event back in 2008 and the wild swings that eventuated, that the volatility and appreciation in the world's reserve currency may just be getting started. This is an analysis intended to be objective, factual and actionable for traders to prepare on what may come...

If as a trader you are still baffled by the speed at which Forex market dynamics have morphed from bottom-rock depression by any historic volatility standards to the insane wild swings witnessed, this article will be a breeze of fresh air to help you navigate the new paradigm shifts taking place in the currency market.
By the end of it, you will have a better understanding of the total massacre by EUR shorts as carry trade unwound, but most importantly, why by drawing parallels with the last liquidity event from back in 2008 (Global Financial Crisis), going forward, we should be expecting the US Dollar to keep appreciating.
This is a story on how the market went from long carry trade exposure, to a repatriation of capital, only to end up in a USD liquidity crunch.

Where do we come from?

Not long ago, on Jan 17th of this year to be precise, which was 5 days before the coronavirus saga made it into mainstream media, Forex traders had witnessed record lows in FX volatility. This that I show you here is an article by Bloomberg that reflects that suppression in vols.

ice_screenshot_20200318-070732.png


As a byproduct of this low-vol environment, it became popular by foreign exchange (FX) speculators to borrow a currency which has a low-interest rate to use it as a funding currency. These traders would hope to profit from the spread or carry trade between the low-interest fiat and a higher-yielding currency purchased with the funding strategy.

Now, while any world currency can become a funding currency. In recent times, the euro (EUR), Japanese yen (JPY), and the Swiss Franc (CHF) were all been the preferred funding currencies due to the aggressive monetary stimulus which resulted in low-interest rates.
The whole point of the carry trade is that funding currencies fund the currency carry trade for two main objectives. The first is obviously to make money on the interest rate differential. The second objective is to gain a profit from the capital appreciation.

However, there are inherited risks. Why? The possibility to capitalize on these yield advantages is attractive conditional to the market maintaining low volatility dynamics.

What happens when volatility starts picking up?

If volatility kicks in, as seen due to the 'COVID-19' Black Swan Event, it implies more nervous markets and that has detrimental effects on currency pairs that are considered to be “carry pairs,” and without proper risk management, traders can be drained by a surprising and brutal turn due to the culprits explained below.

Hedging:
High-interest-rate currencies are negatively related to explosions in global foreign-exchange volatility and thus deliver low returns as in those times low interest rate currencies provide a hedge by yielding positive returns.

Leverage: An important risk factor for retail forex traders to consider with the carry trade is that if substantial leverage is used to implement it, then sharp unfavorable market movements could result in losses that may prompt margin calls or the position being automatically stopped out by your forex broker.

Exchange rate differentials:Apart from the risk of a drastic decline in the price of the funded asset, the speculation trade also carries the risk of a steep appreciation in the funding currency if it is not the speculator's home currency.

The blow up of to the carry trade as vol exploded?

We’ve had primarily two currencies that due to the higher interest rates set by the Central Banks had concentrated the most carry trade interest. These were the USD and CAD. However, as vol as expressed by measures such as the VIX (fear index) spiked, with swings the likes we haven’t seen since the GFC, there was a sudden shock.

As part of the reshuffle of portfolio to adjust to the new reality, the funding currency short positions were unwound, which led to the strong appreciation of the EUR, CHF, JPY.
The risks underscored above all eventuated at once, with forced-selling of funding currencies due to hedging, margin calls due to over leverage, to name the main reasons. This event is what we would call a repatriation of capital back to funding currencies as the carry trade long trade imploded.

The era of USD liquidity crisis - The USD analog

With most of the repatriation of capital back into funding currencies having run its course amid the decimation of the carry trade, the market has now transitioned very rapidly into balancing out positions to long USD. With that in mind, next I will draw some parallels with the previous GFC crisis on how things may play out from here.

Therefore, in the USD front, I believe we’ve transitioned from a repatriation of capital, which initially led to USD weakness as the unwinding of carry trade structures took place to a new scenario dominated by the shortage of USDs. That’s why I believe that in this new chapter, the USD is now poised to appreciate to the tune of 20% and for that, I will draw parallels with the last liquidity event seen by volatility standards, which as we all know, dates back to 2008.

I’d call this section the USD long analog. As human, we have certain cognitive biases that when combined with repetitive market dynamics under the right context, makes trading in a particular direction are higher than 50% probability, especially when taking a higher time scale approach as I’d be making the case from a weekly timeframe.

The new context being traded

We have a significant worldwide liquidity event across all asset classes. I would personally put this financial event in the top 3 most disastrous and nerve-wrecking of all times. Think about it, we’ve never been so interconnected and integrated in a globalized world, yet we are forced as a human race with an economy machinery to go on full ‘sudden stop mode’, leading to both a supply and demand shock. This is unprecedented.

Because of it, we are at what I believe to be the onset of a global dash for cash as forced selling and massive liquidation kicks in. Central Banks have been trying to act but their actions have fallen into deaf ears. The Fed has been notoriously stepping in making available via funding channels more than $1 trillion, but the uptake has been poultry.

The total loss of confidence as expressed by the turmoil in equities, the dislocation of capital amid sky-high volatility (VIX closed at all time highs) and the crumbling of credit/funding channels (3m FRA-OIS spread), continues to fuel massive demand for the USD as it communicates shortage of dollars.

Fed measures are not enough as they are willing to lend but banks don’t want to hold a bag of risky bets by lending it to businesses at risk of going under. Essentially making those with access to Fed’s funding not interested and those interested without legal access (I am talking about Oil, aviation, cruise line companies).

The more credit/funding deterioration, which leads us to the distresses of a market unable to operate, from a framework or structural perspective, properly. This has also been observed via the FRA/OIS spread, which is a way of measuring the shortage of US dollars in the system.

The reasoning behind the USD strength to come

For those interested in watching a video presentation of the USD long analog, here it is:
First, we need to think about the qualifiers that would cause a run to the USD in mass for an extended period of time. For that, in this chart of the USD index below, which aggregates in equally-distributed terms the flows in or out of the USD against G8 FX, there are a number of factors to consider.

ice_screenshot_20200318-072729.png


*If you'd like to access the G8 FX Indices I use, feel free to access the following public document or alternatively, you can access the indices charts via Mataf.

First, is the USD starting to outperform safe haven assets? Yes it is. The chart below shows the strength of the currency vs funding currencies and safe-haven assets.

The tipping point to understand when the USD shortage is a real concern is the liquidation in gold positions despite the insane risk aversion. This also happened during the GFC, which is a point I prove in the chart above in the 4th panel in blue line, which features gold priced in USD.

ice_screenshot_20200318-073137.png


Next, are we seeing a structural breakout in volatility standards, with a lag of 1-week (5-period). If so, that is a red flag that the fear is kicking in. In the chart below, once can clearly seen in the second panel that vol breakout via the white line at a time when the VIX has gone absolutely ballistic. Last time this happened was in the GFC.

ice_screenshot_20200318-073558.png


Third, has the USD index broken its price structure as well? As in the case of 2008, when the USD liquidity crunch led to the breach of a descending trendline, this time, the demand flows into the USD have caused a resolution above the upper end of a multi-year range.

ice_screenshot_20200318-074017.png


So, now that we have evidence of all these 3 elements converging at the same time, the last liquidity event from the past where a scramble for USD liquidity also manifested, suggests a run of about 20% in the USD is in store. The upside seen so far is a poultry 2% as of March 18th.

ice_screenshot_20200318-074511.png


How long would it take for this run into the USD until the move completes? By duplicating the same candle patterns that we saw back in 2008, we are looking at approximately 3 months (15 candles in the weekly). You can find the reasoning in the chart below.

ice_screenshot_20200318-074803.png


“History never repeats itself but it rhymes,” said Mark Twain. We are at the very onset of this USD bull run which provides huge opportunities for those nimble enough to spot the opportunities. The parameters I need to see to qualify this type of movement have also now been met as the USD index and vol broke structures.

Brace yourself because if the speed at which things have moved may have baffled you, history tells us, based on the last GFC, that the vol in the USD is just getting started.
 
Find my latest market thoughts

USD Panic Buying Stays The Course


The predictable movements in the currency market that one would be expecting in a 'liquidity event' continue to play out, with the US Dollar the king of Forex, unrivaled by any G8 FX so far. The Oceanic currencies and the Pound, on the flip side, are being completely decimated across the board. Today's report includes analogs in currency behaviors relative to 2008.


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

As authorities around the world continue in an unprecedented race against the clock to resuscitate battered stock indices, and laboratories ramp up resources to come up with a vaccine unlikely to see the light for distribution this year, there is a bigger problem at play. Governments simply can’t bring back to life an economy in comatose mode as global lockdowns are still in phase 1 and getting worse by the day. It's a simple equation: No movement of people, no economic activity. So, what’s left? Governments must keep taking draconian measures on the fiscal front to mitigate the social unrest that is to come as the job is now to assert minimal decent living conditions as the ramifications in terms of job losses and bankruptcy is very ugly as the black swan of COVID-19 engulfing the whole world in a state of fear plays out. What does this backdrop mean for currencies? Well, same old dynamics, with a massive run towards the USD, which keeps its status as King of Forex. The JPY, CHF, and EUR, are also part of this group of beneficiaries, even if none is able to keep up with the fortitude in the USD. In stark contrast, Oceanic currencies and the Pound are being punished severely as the market behavior so far appears to be in strict resonance with movements in currencies from the last ‘liquidity event’ from back in 2008 when the GFC unraveled. Lastly, the CAD has been holding up firmer, but with such a perfect bearish storm in the background, still remains relatively expensive.

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

USD liquidity crunch at play: The volatility in the currency market has gone up a few notches as the scramble for US Dollars, a liquidity event I’ve documented extensively in previous reports, stays on a steady course. AUD and NZD both broke through 0.60, hitting the lowest levels since April 2003 and May 2009 respectively. The GBP has been destroyed sub 1.15 to levels not seen in over 30 years. A similar picture can be found against the CAD, about to break into its highest since 2003.

Expensive USD an added problem: A rising USD is a major headache for the world economy as we live in times where the world’s reserve currency is more integrated than ever in the global payments system. Therefore, the higher it goes, the more stress it creates for businesses and governments to serve their dollar-denominated debt. This blow is especially acute in emerging markets. The outperformance of the USD against its peers as the Fed deploys all its bazooka is the ultimate signal that the need for USDs has far outweighed the negative impact of Fed policies. Bloomberg carries a thorough article that delves deeper into this hot topic at play.

Equities recover from lows: US stock indices managed to recoup half of Monday’s severe daily losses, with the S&P up more than 6.0% from its bottom. However, the VIX still exchanges hands in the hefty 75s following its highest close ever by NY close on Monday. Oil, industrial commodities, metals, continue to implode as everyone and their dog is piling into USD amid an acute USD liquidity crunch.

Desperate fiscal measures rolled out daily: Governments worldwide are adapting on the fly and have so far acted as a minor stabilizers of the stock market bloodbath seen. However, this comes at a time when social distancing expands globally, and more borders get shut down as each country looks to mitigate the virus expansion. With projections of extending lockdowns from a short 2 weeks into at least one month if not more, this is absolutely devastating for the proper functioning of an economy.

Chopper money as temporary patch: In the US, the term ‘helicopter money’, which essentially means handing out cash to citizens of about $1,000 to cope with the financial distresses that will surface in the short-term is gaining traction. This will be a very minuscule path that won’t do much to eradicate the core issue at play, which is that the world needs a vaccine and control the number of cases/deaths, but nonetheless can obviously help to delay the inevitable social chaos. The way these cash handouts work is that central banks print cash and give it to the government to spend.

Commercial Paper facility re-opens: The Fed and the BoE, in more desperate measures to provide a backstop to the cascade of possible defaults that are to come, announced the re-introduction of Commercial Paper (CP) funding programme. Top Central Banks around the world are under extreme pressure to re-activate the US Swap line facility the Fed has made available at lower rates, while the Bank of Japan yesterday keeps pumping money into the local money market.

ECB announces emergency measures: The ECB has launched a EUR 750 bln pandemic emergency purchase programme (PEPP) of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19, the ECB announced.

Trump to invoke wartime act: As Trump scrambles to address the global crisis due to COVID-19, as Reuters reports, “U.S. President Donald Trump moved on Wednesday to accelerate production of desperately needed medical equipment to battle the coronavirus pandemic and said an estimate that U.S. unemployment could conceivably reach 20 percent was a worst case scenario.” Trump said “we’re going to defeat the invisible enemy.” Trump als decided on Wednesday to close the border with Canada. “We will be, by mutual consent, temporarily closing our Northern Border with Canada to non-essential traffic. Trade will not be affected.”

It’s happening... White House economic adviser Kudlow is the first one to start speculating about the US government potentially considering to buy stocks. Larry Kudlow said “equity positions could be part of coronavirus aid.” I’ve argued left and right that as part of a circuit breaker for stocks, either market closures are enacted or the Fed/government acts as the ultimate buyer of both equities and corporate bonds in what would be a bold move into uncharted waters.

Spooky GDP forecasts: We are starting to see banks finally providing new updated estimates. The numbers by JP Morgan put into perspective the damage this Western-hemisphere lockdown is having on the outlook for the economies. JPM sees US Q1 GDP at-4%, and-14% in Q2 GDP. In China, the numbers are way worse with Q2 -41%, Europe Q2 GDP -22% and -30% in the UK. These figures are certainly a reality check to further drill in everyone’s mind how dire things look near term.

Recent Economic Indicators & Events Ahead

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u8K8FxtAxsZrp7wPlzn0tt89cz_7xZlkfl6a800zOKcCWrflN_9rFp1D8dS4ZALovF1DTxrAKTdoMFHywXaWyxeB26Dv7MXGp_nJR-tVnOC4-5s44o87hBzMcpICN3OL5r6DG3T4


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!
  • RORO (risk on, risk off) conditions remain extremely depressed at a macro level.
  • On the bright side, fixed income was sold after the draconian measures by the Fed.
  • The S&P 500 recouped more than half its post crash losses by the end of NY.
  • The industrial commodity complex (CRB index) is in free-fall.
  • Oil is en-route to $20/barrel as the rout resumes after brief consolidation last week.
  • Gold priced in USD hammered as run to cash (dollars) keeps playing out.

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  • The EUR index weekly chart shows price entering decade long resistance.
  • This resistance aligns perfectly with the 50% retrac from last decade’s sell-off.
  • The correlation between risk-off flows and EUR remains firmly positive.
  • The levels of vol in the EUR expected to keep increasing based on historical standards.
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  • The GBP index on the weekly shows GBP has further room to fall based on GFC analog.
  • GBP tends to underperform G8 FX indices in a global crisis as the one seen unfolding.
  • The last GFC and Brexit precipitated the GBP index into a 20% depreciation.
  • Now that vol structure broken, if the same pattern follows, only half way done.
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  • Ongoing run to cash out assets into USD on the notion that liquidity/funding channels are not functioning properly with all Fed measures so far not addressing the issue.
  • The fact that the Fed failed to make any difference in depreciating the currency is the ultimate clue that the outlook for the currency is unambiguously bullish.
  • The USD index has only completed a small portion of the forecasted gains that is set to achieve in the next 3 months based on the analog behavior from the GFC.
  • The levels of vol the currency has hit are akin to the GFC, with everything sold against the USD in what fully validates a ‘liquidity event’ not seen for 12 years.
  • The world now holds a much larger USD-denominated debt that back in 2008, therefore, the scramble to get hold of USD to serve debt could be greater than in the GFC.
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  • The CAD index is surprisingly still within the consolidation parameters from its last 4-year range despite the perfect bearish storm hitting the currency.
  • The CAD, which has the characteristic of a growth/commodity currency, is poised to be one of the most exposed to the economic downturn to come.
  • A resolution of the long-held range to the downside opens up the doors for an additional 8% fall in months to come in what I still perceive as an expensive currency.
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  • The JPY index has broken its weekly price structure, which implies the next macro bull phase is well and alive until the ultimate target circa 15% higher.
  • Even if the JPY only appreciates half in magnitude relative to the moves seen in the GFC, this final target I point at below would still be met.
  • Note, the target selected that may represent a potential top in the JPY aligns perfectly with the highest JPY valuations in 2008 + 100% proj target.
  • Moves in the JPY, in terms of vol, are still poultry compared to the 2008 GFC, hence the JPY remains a risk of a significant pick up in vol as it appreciates.
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  • The market shows no mercy to the AUD despite the area it has reached is the most relevant level of support it has traded since the last GFC.
  • In fact, as I type, the valuation in AUD when cross checked vs G8 FX basket has never been this low before as far as I can tell by the index chart.
  • The level of support reached is a major confluence as it includes the 100% proj target from last decade’s most active bracketed area + support line.
  • Should the supply in the AUD stay unabated, a much more dire scenario that will come into play is that the Aussie may keep falling towards its next 100% proj.
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  • The NZD index has shown more resilience than the Aussie, but in a world with a reset of global economies, I think NZD has more catch down to do than the Aussie now.
  • This pessimism in the NZD finds resonance in the bullish outlook in AUD/NZD as it tests the parity level, which has been an absolute line in the sand forever.
  • This gloomy outlook in the Kiwi is backed up by technicals, with the breakout of structure now validating an ultimate target 18% lower from the breakout point.
  • If the acceleration in the NZD losses eventuated, the low that would be put in would come in complete alignment with the low reached during the GFC in 2008.
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  • Just as the AUD index pierced its GFC low, the CHF is following a complete opposite course of action, breaking through its previous GFC high.
  • In times of risk aversion, the market has a preference to resort to the Swissy, with technical snow confirming that the sky's the limit.
  • There is very little the SNB (Swiss National Bank) can do about it (slow down the appreciation via intervention, but largely irrelevant amid the capital heading into CHF).
  • As in the case of the JPY, the vol realized so far in CHF has been tepid relative to the GFC, therefore, I wouldn’t be surprised that we see a pick up in vol moving forward.
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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
 
Find my latest market thoughts

Market Not Done Pricing In COVID-19 Drama


As the collection of negative news keeps piling in with more countries in lock-down, one wonders how much is left to be discounted. By now, it's hard to argue that the unfolding COVID-19 black swan event has damaged the global economy engine in ways that were unimaginable just a month ago. The open of markets in Asia, with the S&P 500 limit down, tells us 'sell on rallies' mentality prevails. This week, will be all about a multi-trillion $ bill negotiated in the US, the progress of COVID-19 in the UK, the US and Australia, alongside staggeringly high US jobless claims set to be published.

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

The same old story of US equities hitting a limit down has rapidly eventuated at the open of markets in Asia. So far, the relative calm in the form of short-term equity rallies as seen in the early stages of last Friday has been deceptive and continues to serve the purpose to offload the next round of further selling actions by a market mentally shifted to ‘sell the rally’. If all the mammoth-size actions by Central Banks, from rate cuts, new QE programs, swap lines, new funding facilities, has barely achieved a short lived 1 day rally in equities, there is clearly a statement by Mr. Market that the measures are not enough. Nobody knows where the bottom is as we are still in phase one where countries are busy shutting down cities. This week, the focus will shift towards more COVID-19 headlines, which are set to depress sentiment further as scientists predict that soon the US and UK, the two main financial centers, are the countries set to follow Italy in experiencing a creeping wave of COVID-19 cases and deaths. Traders should also brace themselves as we are in for another rollercoaster week. Be prepared not to be taken aback as the US is about to announce a staggering weekly surge in jobless claims the likes we’ve never seen in history (over 2 million eyed). Amid this unfolding negative backdrop, and with more economies to enter a state of semi-paralysis (Australia last one to join), the market can’t cling to any positive development, as the political brinkmanship in the US causes further delays for the multi-trillion fiscal package in the US to pass the Senate. As a final note, the performance in currencies remains quite predictable based on the central themes of a USD liquidity crunch and risk averse dynamics, which results in the world’s reserve currency as the undisputable king, followed by the JPY, CHF, EUR. The AUD, NZD, GBP are the three currencies most punished, while CAD remains surprisingly stable.

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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. If you found this fundamental summary helpful, just click here to share it!
US equities hit limit down: Judging by the open of prices in the Asian session, the market remains in a state of huge anxiety as the selling of US equities (S&P 500 futures) extends all the way to hit the 5% limit down mark. Further countries around the Western world went into full lockdown, with even stricter measures of confinements, while in the US, more and more regions also follow-suite with draconian measures to isolate people. Besides, the failure by the US Senate to pass the COVID-19 fiscal stimulus bill was the last straw to hit the limit down.

USD takes tiny breather on Fed swap lines: The epic USD squeeze from last week appears to have moderated following the aggressive action taken by the Fed to open up USD swap lines with central banks around the world. “The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets,” the joint statement said.

Where is the focus this week? With so much negative news discounted by the market, one wonders what gives to keep the avalanche of selling orders in equities overwhelming buyers. This week is all about a multi-trillion $ bill negotiated in the US to stem the economic fallout, how bad it gets in countries not yet as severely hit in relative terms vs Europe. I am referring to the UK, the US and Australia (numbers are set to increase exponentially). The more strict measures to limit mobility in these big financial centres, the more unrest. Besides, get ready for the staggeringly high US jobless claims set to be published.

NY progressively shutting down: The NY Governor Cuomo announced that 100% of non-essential workforce must stay home as the total shutdown of NY nears, which has become the most worrying cluster of the COVID-19 spread. The NY cases have been increasing at a staggering pace of 35-40%/day. About ⅓ of the US population is already under lockdown, including LA and Chicago.

London the next Italy? As Sky News reports, “the capital now has 90 deaths… representing ⅓ of all UK cases.” As a matter of fact, Business Insider notes that “the UK has just 2 weeks to stop a coronavirus outbreak as bad as Italy’s.” Business Insider published an article to help the readership understand why time’s running out in London as well.

Australia goes down the same path as Europe: Australia (NSW and Victoria) announced severe measures to cut down the flow of mobility. Australia has been slow to react, and is now catching up to the new reality with clubs, pubs, sporting venues, churches, cinemas, gyms and casinos all shutting their doors across the country. Australia’s PM was quoted as saying that “you should not put in place measures that you would not be prepared to have in place for six months”, which sets a bad omen of what’s to come.

Realistic to go on lockdown for just 1 month? Learning from other countries such as China, Hong Kong and South Korea, the containment measures included a complete isolation of society for around 15-30 days after lockdowns were implemented, with measures lifted only gradually even if concerns of a resurgence are high. However, the anglosaxon world does not tend to have neither the mechanisms of big-data/surveillance nor the culture to enforce the rules in the same strict manner. Scientists have warned we may need to live with social distancing for a year or more. As Vox notes, “researchers say we face a horrible choice: practice social distancing for months or a year, or let hundreds of thousands die.”

US jobless claims in the millions: Traders should brace themselves for a staggering US jobless claims figures this week, likely to shock the unprepared, with economists talking about 2 to 3 million Americans to file for claims insurance this week. This is the type of headline that when confirmed (Wednesday), may shock markets. GDP-wise, Fed’s Bullard flagged the US GDP could fall 50% in Q2, which only reinforces the need for a powerful fiscal response by US Congress.

Coronavirus stimulus bill fails in Senate vote: But this mammoth-size fiscal package in the US is facing bi-partisan opposition. At the conclusion of a Sunday meeting with top congressional leaders and Treasury Secretary Steven Mnuchin, House Speaker Pelosi told a staffer "We are so far apart." The coronavirus funding package has so far failed to gain enough votes in a procedural vote Sunday. According to the Financial Times, the White House is toying numbers in the $2tn vicinity to stem the fallout from coronavirus, to include cash handouts and loans to business.

Fed as an endless fountain of cash: Further elaborating on what the fiscal package entails, U.S. Treasury Secretary Steven Mnuchin said on Sunday, as Reuters reports, that “the coronavirus economic relief bill by the U.S. Congress will include a one-time $3,000 payment for families and allow the Federal Reserve to leverage up to $4 trillion of liquidity to support the nation’s economy.” Reinforcing the notion that the Fed will go above and beyond to support the economy, Fed’s Kashari bluntly said ‘the Fed has infinite cash…”

Precursor of what’s to come in the US: In terms of unprecedented jobless claims report to come, Canadian PM Trudeau notes that the employment department received over 500K applications for unemployment vs 27K normally, noting that this “puts an unprecedented amount of pressure on the system” and that the 500K number is only for one week. This insane number would translate into about 5 million Americans filing for claims insurance.

RBNZ, RBA resort to QE programs: The RBNZ announced additional measures via a new QE program worth $30bn. The RBNZ will buy NZ government bonds to help finance the fiscal efforts by the country. It will do so at a pacing of around $750m each week for the next 12 months. Remember, last week, the RBA started its QE program to extend support to the economy and financial system.
Recent Economic Indicators & Events Ahead

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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!
  • RORO (risk on, risk off) deteriorates again as broad selling resumes.
  • The S&P 500 futures sold at the open of Asia hitting a limit down of 5%.
  • US bond yields as a barometer of global yield, after holding up on global central bank stimulus actions, saw a major sell-off, reinforcing the risk off narrative.
  • With the VIX so hyperly inflated, it’s rather unrealistic to be expecting a bottom in equities, there is just way too much uncertainty in such a fluid situation.
  • The industrial commodity complex (CRB index) is approaching recent lows once again, resonant with the sell-side action seen in instruments elsewhere.
  • Gold priced in USD has seen a recovery, which gives us some early clues that investors might be finally jumping back into the safe haven attributes of the precious metal.
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  • The EUR index daily chart continues to show major interest to be bought on weakness.
  • The daily shows we are in the midst of what might be a third drive up towards a retest of the last high.
  • There is a resistance overhead as an area where buyers may find a major stumbling block as EUR sellers have shown interest to defend it on multiple occasions.

  • As long as risk-off prevails, EUR weakness is not the base case to be expecting as a paradigm shift of EUR demand on risk aversion is well and alive.
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  • The GBP index has sold extremely hard, with the movement unfolding in a very fast manner, one that in normal circumstances would be far from sustainable.
  • Nonetheless, these are not normal times, and based on the projections of London being a next major hub for the COVID-19 to spread, anything is possible for the GBP.

  • GBP tends to underperform G8 FX indices in a global crisis as the one seen unfolding, with the last GFC and Brexit leading to the GBP index falling to the tune of 20%.

  • The Pound has so far been respected with surgical precision, as it’s usually the case, the symmetrical projectin targets srawn in the chart.
  • Fundamentally, the re-introduction of a bold QE program by the BOE, equivalent to almost 2% off interest rates as such, argues for supply in the GBP to still be justifiable.
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  • The unbelievable rally in the USD is a very seldom episode of strength as part of a rare ‘liquidity event’ that sees the whole financial system scrambling to buy USDs.

  • The measures by the Fed to reactive swap lines by adding additional Central Banks as part of its borrowing facility access has assisted USD weakness at the margin.

  • The macro theme remains a Fed failing to move the needle to prevent the currency from showing disorderly appreciation as the world heads into a recession/depression.

  • What may turn the trend around is coordinated, in mass intervention in the USD by Central Banks and the Fed to slow down the rapid appreciation.
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  • The CAD index continues to trade at an area that I predict to be quite attractive to consider building short inventory in coming days/weeks.
  • This bearish view is predicated on the technical basis that the currency has returned back to the 50% fibonacci retracement after the sharp selloff seen earlier this month.

  • Considerations to re-engagement in CAD shorts have the fundamental backing of a world rapidly descending into a global recession and a new era of low Oil prices.

  • Very few currencies show levels where I would qualify them as providing technical value given the overstretched movements. The CAD appears to be the exception.
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  • The JPY index remains on a one-way street to the upside, with its upward stepping formation yet to be challenged by sellers.
  • The true ‘risk-off’ conditions out there are fuel that should keep igniting the JPY fire.

  • An important macro-oriented observation: If the JPY only appreciates half in magnitude relative to the moves seen in the GFC, there is about 20% of upside potential!

  • Moves in the JPY, in terms of vol, are still poultry compared to the 2008 GFC, hence the JPY remains at risk of a significant pick up in vol in coming months.
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  • The AUD has discounted an awful amount of negative news and one wonders how much further it can fall before it starts to look historically too cheap.
  • In such a dicey environment, a trend can go on for longer than a bottom picker can stay solvent, so be mindful that these are extraordinary times.

  • The Ausssie has been bashed from all angles as the ultimate proxy to play a global recession story and as emerging markets get decimated.
  • The measures by the RBA to cut rates and dip its toes on a QE program to buy government bonds is a negative input.

  • The only piece of news that has caused a rethink of AUD shorts is the warning by RBA Lowe that intervention is not ruled out if further disorderly movements occur.
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  • The NZD index is as vulnerable as the Aussie in what constitutes two of the most battered currencies to the rapid risks of a transition into a depressive global outlook.

  • The NZD has a lot of catch down to do, more than the Aussie, based on the technicals, and now supported by the fundamentals as the RBNZ announces QE.

  • The breakout of a macro structure in the index validates the notion that the currency is likely to face a protracted bearish trend this year.
  • If the NZD losses play out as envisioned this year, the low that would be put in comes in stark alignment with the low reached during the GFC in 2008.
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  • If the risk-off conditions keep extending, unless a circuit breaker is put in place, the CHF is poised to keep appreciating with technicals backing up the bullish call.

  • Buying on dips remains the base case as this is a trend that has been paying enormous dividends for those committed to the long side since the start of 2020.

  • The index has broken its previous GFC high, which speaks volumes about the huge amount of capital repatriation that has taken place + safe haven attributes aiding.

  • The vol realized so far in CHF has been tepid relative to the GFC, therefore, I wouldn’t be surprised that we see a further pick up in vol moving forward.
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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
 
Find my latest market thoughts

'Infinite' Fed Easing, 'Finite' Market Bounce

Not matter how big the guns the Fed pulls - QE infinity this time - the market is still in a state of 'glass half empty' when it comes to buying into the old mantra of 'the Fed Put', which gained widespread popularity on the belief that the Fed can always rescue the economy and equities. The market told us on Monday, again, that these paradigms are shifting...

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

Let’s get started…

Quick Take

The Fed has gone all in with QE infinity and yet stocks, despite a short-term spell of strength, are largely unfazed, with the S&P 500 closing down near the 3% mark. In a world where demand and supply have been decimated amid the fastest descent into a bear market in history, week after week, we have further evidence that the Fed’s old tricks are no longer working. Still, they are necessary to provide a backstop in the avalanche of bankruptcies that would eventuate otherwise in a global economy that is imploding for desperate measures. It’s precisely this state of despair that is forcing Germany to break its own long-held rules of a balanced budget by signing off a €750 billion economic package to combat the virus fallout, the US soon to approve the release of $2 trillion in fiscal stimulus, RBA/RBNZ testing the waters of QE, etc. The last country to cave in and go into lockdown is the UK, which only reinforces the notion that since the countries where the main financial centers exist (NY, London) are just getting started to toughen the rules, we should be expecting worsening virus stats before they turn the corner. In the currency market, even if QE infinity has done little to lift the equity valuations, the US Dollar has seen a temporary pause in its macro bull phase after recently breaking into all-time highs at an index level. The Oceanic currencies benefited from the Fed announcement, as did the Euro and the Swiss Franc. The worst performers included the GBP, CAD, and JPY.

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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. If you found this fundamental summary helpful, just click here to share it!
Fed goes all in: Amid the frenzy race against the clock to throw yet another lifeline to battered equity markets, the Fed went all in with an unprecedented move to launch “unlimited QE”, among other measures, making the Central Bank’s efforts to fight off the last GFC small in comparison. Not only the Fed committed to buying debt via government and residential mortgage backed securities but also commercial mortgages in unlimited amounts, it also set up a credit line worth $30bn from the Exchange Stabilisation Fund for corporate lending.

US fiscal stimulus around the corner: The US Congress is yet to agree on a +$2tn coronavirus fiscal stimulus package. Nonetheless, it is expected to pass soon as millions of lives are at stake. The delay in the bill is adding sell-side pressure in equities. The Financial Times notes that “the negotiations hit an impasse after Democrats on Capitol Hill said that the proposed deal offered big business an overly generous bailout with limited conditions and scant oversight. They also argued it would not release enough new funds to hospitals.”

Equities shrug off Fed QE-infinity: The latest measures by the Fed proved to be a short-lived stimulant for equities, and after a brief run higher, most of the QE unlimited-induced gains were given back, with gold the major beneficiary of a world that is about to be flooded with further USDs. Government bonds were bought in a follow-through move after the ferocious demand from last Friday.

USD strength caps risk markets: In the USD domain, the action by the Fed was largely ignored. It’s looking increasingly likely that for risk markets to go on a sustainable jubilee run, a weaker USD and tighter corporate credit spreads is a combination that must materialize. Traders should not rule out, should the bullish run continue into fresh record highs, that the Fed will step in, coordinated with other Central Banks, to intervene in the currency, even if there are not yet any early noises or suggestions by politicians that this is imminent. The NY Fed put out a paper explaining in detail the circumstances and guidelines to act in the exchange rate.

COVID-19 makes Fed Put obsolete: The fact that equities in the US succumbed to the historical measures by the Fed is a reminder that the market is unwilling to justify clinging on to the old mantra that the endless liquidity by a Fed Put will always work. This old paradigm has shifted as the market appears to still be excessively anxious about the complete destruction of wealth in a world that is rapidly descending into a new phase. This includes very limited economic activity for a protracted period of time, which leads to companies’ revenue projections decimated, corporate debt defaults, major scale bailouts around the world, and essentially a reset of global economies.

Trump doubles down on line drawn at some point: US President Trump said “we cannot let the cure be worse than the problem itself”, in reference to coronavirus containment measures. His tweet read: “We cannot let the cure be worse than the problem itself. At the end of the 15 day period, we will make a decision as to which way we want to go!" The administration appears to be weighing all possibilities, realizing that the measures to put off endless fires via a tsunami of liquidity runs counterproductive to the ballooning economic costs, which may lead to even more lives taken should a depression settle in. Trump has started to imply a choice they will face is to be willing to go into lockdown for a long time or go back to relative normality and minimize deaths. This is precisely what I was pointing at yesterday in this article by Vox.

Germany signs off huge fiscal stimulus package: In Europe, Germany is finally recognizing that it must abandon the old stance of a balanced budget to instead go all in with a very generous fiscal and monetary support program to stem the economic blow that COVID-19 is inflicting not only home but across Europe, especially in the countries most punished such as Italy or Spain. The German government, therefore, agreed earlier today to a €750 billion economic package to combat the virus fallout.

‘Flash’ PMIs to paint a new reality: Coming up today, ‘Flash’ Markit PMIs from Germany, the wide European Union, France, UK and the US will provide the first real taste of the magnitude at which these sectors are sinking. Projections are pointing at around 40 in Germany from 48 the previous month, the Eurozone at 41 from 49 last month, a slide to 49 from 51.7 in the UK and 45 from 50.7 in the US. While the data may be shockingly low, the market continues to trade on pure sentiment and I doubt these numbers will be a primary driver to set the market mood. The risk is that it will just feed the negative narrative around COVID-19 as the new reality sinks in.

MAS hints at further easing sooner rather than later: The Singaporean Central Bank has announced that it will bring forward its monetary policy statement to March 30th. The market’s reaction was to weaken the SGD as it interprets that such a move implies they are looking to take earlier measures to deal with the economic crisis. As the Strait Times notes, “economists expect the MAS to ease monetary policy significantly as recession risks rise owing to the impact of the coronavirus pandemic on the economy.”

UK latest to enforce lockdown: The fluid COVID-19 situation has finally led UK PM Johnson to cave in by announcing that “everyone in the U.K. must stay at home. Residents can only leave home to shop for basic necessities, for one form of exercise per day, for medical needs, and to travel to and from work when necessary, according to ABC, a site that live blogging the latest. On a more positive note, even if that may sound quite a stretch given the context, the new virus cases in Italy, while rising by nearly 5,000, is the first time that in percentage terms it has gone below 10%. All the latest developments in the COVID-19 can also be followed via ZeroHedge.
Recent Economic Indicators & Events Ahead

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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 weekly aggregation of forex flows reveal some great insights on the potential directional biases each G8 currency may follow in weeks to come. The technical observation when stepping back and staring at these macro outlook tells me that the USD run is just ⅓ mature in the full scale of its potential magnitude. It also suggests the EUR faces some major stumbling block overhead backed up by 10 years worth of price action data. The Pound remains a fragile currency as drawing parallels with GFC tells us more weakness should be expected. However, no currency offers more technical value than short CAD. On the complete opposite side of the spectrum is the Yen, with the aggregation of flows finally providing sufficient validation to make me think that the next cyclical bull run is now underway (15%+ potential). The AUD has rebounded from its most relevant support in a decade, so those following my daily deconstruction of flows won’t be too surprised to see AUD appreciation. The NZD has transitioned into a cyclical bear trend with a very ambitious downside target from current levels. Lastly, the CHF is looking like it may soon validate a huge technical breakout.

Let’s now get started with a look at every index…

* The EUR index weekly chart pulled back from its decade-long resistance - 50% retrac from the post GFC sell-off -. This level is huge and EUR shorts were initiated from here.

* Volatility in the Euro remains exceptionally high, and based on the last GFC, it suggests that we are set for a protracted bumpy ride of high vol in months to come as COVID-19 plays out.

* Only a weekly close of the EUR index above the red rectangle (50% decade-long resistance) would suggest the EUR is heading into a more macro cyclical change in dynamics.

* It is on this black swan event that this technical milestone may occur, but we are still far from it, and with conditions overstretched, a deeper pullback is my base case.

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* The GBP weekly chart does not bode well for the currency, as technicals are pointing towards further room to fall based to the historic low.

* If the GBP weakness accelerates further from there, a final bearish projection target would result in an additional 8-10% downside potential in the currency.

* This bear rally resumption would therefore complete a 20% move from peak to trough, which would be matching in percentage terms the collapse seen in the last GFC of 2008.

* GBP tends to underperform G8 FX indices in a global crisis, but caution is warranted that we only make it to the first support as GBP selling originates from much lower than pre-GFC.

* Fundamentally, the aggressive actions by the BOE alongside the mandatory lockdown of Britain announced by UK PM Johnson anchors the bearish sentiment in the currency.

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* We are still in the early stages of a new cyclical USD bull run, with the currency having appreciated strongly but only ⅓ of the expected upside movement.

* The fact that the Fed has gone all in with QE infinity yet the USD still trades near record highs is the ultimate clue that the outlook for the currency is unambiguously bullish.

* I will reiterate that at this point, the only effective way to ‘impose’ weakness in the USD is via coordinated, mass intervention in the USD by the Fed.

* Even if intervention were to occur, history has taught us that while it may lead to a temporary reversal in the currency, it’s hard to fight the market (BOJ, SNB as examples).

* The levels of vol the currency hit last week surpassed the peaks in vol during the GFC, validating a ‘liquidity event’ but may warrant ‘excuse’ to intervene down the road if vol prevails.

* The world has greater needs to get USDs as USD-denominated debt has doubled since the last GFC, implying that the scramble to get hold of USD to serve debt is here to stay.

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* The CAD index has seen an acceleration in the building of short inventory off a very attractive level in the form of its range mid-point.

* CAD is my prefered short on the basis that the Canadian economy will go through a double-whammy of services/energy plunge alongside further room to ease by the BOC.

* The existing range parameters have been at play for the last 4 years but with the perfect bearish storm hitting the currency, I can’t help but to see big technical value here.

* If an eventual bearish resolution of the long-held range occurs, it paves the way for an additional 8% fall this year. This is the time to exploit this discounted value.

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* The JPY index finally broke and closed above its weekly price structure, suggesting a major technical milestone that implies the next bull phase is underway.

* The next bull projection target is found over 15% higher, which means that some great opportunities to engage in JPY longs in coming weeks may arise.

* In the worst case that the JPY only appreciates half in magnitude relative to the moves seen in the GFC (this crisis in many ways is worse), the final target I point at would still be met.

* The target selected (around 15% higher) that may mark a potential top in the JPY aligns perfectly with the highest JPY valuations in 2008 + 100% proj target.

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* The AUD, after reaching a massive level of support dating back to the last GFC (all-time low as far as the chart goes + 100% bear proj), has found aggressive buyers.

* Since the level of support reached was such a major confluence as it includes the 100% proj target from last decade’s + support line, I can envision a short-term recovery.

* If the bounce proves to be a ‘dead-cat’ type with its shallowness leading to further sell-side pressure, I’ve come up with scenario #2 as an alternative playbook.

* If the bear rally extends this year, the Aussie would be exposed to severe losses until the next 100% bear projection target is met (see projection target below).

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* The NZD index confirmed last week a breakout of a decade-long structure, which sets the ball for a new cyclical bearish trend in the NZD this year.

* This breakout of structure valides an ultimate target 18% lower from the breakout point, which makes the prospects to short the currency on strength this year my base case.

* If the NZD bearish playbook materializes during the months to come (in 2020), the low that would be put in comes in stark alignment with the bottom found during the GFC in 2008.

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* The CHF weekly chart is yet to validate the acceptance of the currency above its last all-time high, therefore, one must horse its horses to expect the bull cyclical phase as confirmed.

* Stepping back, the index recently broke through its previous GFC/record-high, and upon a weekly close above, it allows to draw a new bull proj target.

* Should this new bull run eventuate, the magic of market symmetries tells me that the run towards the ultimate target is 12% above the breakout point.

* As in the case of the JPY, the vol realized so far in CHF has been tepid relative to the GFC, therefore, I wouldn’t be surprised that we see a pick up in vol moving forward.

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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
 
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