Global Prime: Daily Market Digest

[IvanGlobalPrime]

Find my latest market thoughts

Holding Pattern Ahead Of The FOMC


The market remains is a state of contained activity until the FOMC policy statement + press conference by its Chairman Jerome Powell later on Wednesday.

Date: 3/20/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The market remains is a state of contained activity until the FOMC policy statement + press conference by its Chairman Jerome Powell later on Wednesday. Equities in the US, with our attention always on the S&P 500 as the bellwether, failed to keep the bullish tendencies going amid the resisting tactics by China as part of the trade negotiations. It has been reported by Bloomberg that the Big Panda (China) keeps playing hardball, and that based on accounts from some US negotiators, concerns are starting to emerge about the stubbornness of China to apply changes to their data protection and intellectual property policies amid the lack of assurances that existing tariffs will be lifted. There is the camp arguing that China is backtracking its initial commitments for a deal to transpire, while others involved in the negotiations believe this is the normal process of any negotiations. By the end of business in NY, the S&P 500 closed down by just under 0.3%.

The USD also continues broadly softer, stripping out a significant spike in US bond yields, which saw about a 50% retracement as the day went by, not helped by a poor print in US factory orders (0.1% m/m vs 0.3% expected). The US 10y yield stands at 2.61% while the 30y exchanges hands at 3.02%. A currency where one could anticipate greater vol, even if it never materialized was the British Pound as the inconclusive state of the Brexit conundrum continues. The latest we learned is that UK PM May is mulling the possibility of requesting for an extension of Article 50 to June 30, even if rumor has it that the extension could be way beyond this time horizon and all of us stuck reporting the Brexit mess for another year or two, which is the timeframe the BBC speculates in a report on Tuesday. Even if a sideshow due to Brexit, the UK published surprisingly solid employment numbers. As the Economics Team at ING notes, “the UK labor data looks astonishingly strong for an economy that is supposedly slowing on most other measures. If the government gets a long Brexit extension, a Bank of England rate hike is clearly on the table for the summer.”

The two currencies that enjoyed the greatest buying interest were the Canadian Dollar and the Euro. The trajectory in both currencies was analogous but the rhythm a far cry different story. While the Euro’s rise was slow and consistent throughout the day (aided by a marked improvement in the German ZEW economic survey series), the Canadian Dollar saw an abrupt spike that lasted a few hours as the US session came online only to retrace most of its gains by the end of business in NY. A currency that underperformed the rest during Tuesday was the Australia Dollar, which reflects its degree of sensitivity towards new developments in the US-China trade negotiations. The Kiwi did better, contained in a tight range against the USD. Lastly, the Japanese Yen, amid the drop in the US Dollar and the rise in US yields, that alone led to a diversification away from risk off instruments, with buy-side flows in equities for the first half of the day further promoting JPY sell-side action.

Dashboard: Intermarket Flows & Technical Analysis

Summary: Intermarket Flows & Technical Analysis

EUR/USD: Steady Buying, Not Sufficient To Break Resistance

• Ahead of the FOMC event later today, the pair has been bid steadily but not enough bids to materialize a break of the previous highs, which increases prospects of a range till the FOMC.
• The P-shaped volume profile formation is a reminder of the amount of offers concentration overhead, which is preventing further progress ahead of the price reassessment post FOMC.
• An ascending trendline originating off March 13th low is still guiding the bullish structure, hence expect any setback to see a fight around the critical level.
• The risk of getting caught in a chopfest ahead of the FOMC by engaging at the wrong levels is substantially high, so make sure you pre-select the key areas (I provide levels of reference).
• If we are to take as reference the 10 year spread in bond yields between Germany and the US, which acts as a leading indicator, the bias still remains to the upside.

GBP/USD: Directionless Flows Ahead Of Brexit Summit

• The GBP continues in a holding pattern with little interest to take the currency exchange in either direction, currently trapped in the middle of its 1.3350-1.3200 range.
• The weakening trend in the DXY still suggests setbacks can be seen as buying opportunities, even if any setup likely to be suboptimal until the UK-US bond yield spread can recover.
• The overall trend in the last week before the balance area formed has been to the upside, forming a structure of higher highs and higher lows.
• The volume profile single distribution from Tuesday is a clear testament of the limited interest to transact the Sterling until we can get further clarification on Brexit.

USD/JPY: Reliable Trendline, Move Up Lacks DXY Support

• Spike in Asia a bit overdone. DXY in a bearish trend daily and weekly standpoint. US 30y backing up the move but not in tandem with lower equities.
• The move higher in Asia lacks sufficient credence, which is why I tend to like to see DXY, US yields front-running UJ for value propositions and not the other way around.
• The pair remains technically alive as it finds a major cluster of bids at the intersection of the ascending trendline during Tuesday’s trading activity.
• It’s going to take a significant recovery in the DXY to justify much higher prices, or alternatively, equities to regain their mojo to permute back into a state of ‘true risk on’.
• The injection of vol post FOMC will be the highlight of the day. Be always reminded to close your positions if short-term in nature and re-evaluate once liquidity back to normal levels.

AUD/USD: Shift In Flows Towards Bearish Bias

• Sell-off in Asia is breaking the trendline in the hourly, which has been acting as a guidance of the uptrend ever since March 8th when the pair found a bottom.
• Equities + Aus- US bond yield spread justify the move lower. The setback in DXY + Yuan (both inverted) not yet reflected in the daily MA curve (red) adds further pressure.
• The breakout has led to a fresh downcycle after it broke through a period of 2 days of consolidation, with the trendline breach the final validation of a shift in flows.
• The hourly selling candle in the Aussie is one of the largest in March, setting in motion a change in the market’s psyche towards a potentially lower Aussie.

USD/CAD: Fails To Maintain Downside Advantage Sub 1.33

• All micro slopes in intermarket studies look weak, and the same applies for the macro ones taking as reference 1 week worth of data, hence any upside limited.
• The price failed to accept sub 1.33, with the close above the POC. Price likely to struggle at the mid point of the broken range (magenta rectangle), which is also the POC of the entire range.
• Whenever u see this type of volume profile structure with price retracing most of its drop and the POC is now acting as support, that is not a good omen at all for a sell-side continuation.
• Intermarket is not promoting much higher prices as things stand. Remember, later today there will be a reset and re-evaluation of fair prices in currencies post FOMC.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

All Aboard The USD Bear Trend

The JPY and the Euro were the major beneficiaries from the crossfire of vol so badly needed in the Forex market. On the flip side, a battered USD, courtesy of a surprisingly dovish Fed, alongside a hammered GBP, were by a country mile the two clear outperformers.


Date: 3/21/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The JPY and the Euro were the major beneficiaries from the crossfire of vol so badly needed in the Forex market. On the flip side, a battered USD, courtesy of a surprisingly dovish Fed, alongside a hammered GBP, were by a country mile the two clear outperformers, especially the USD. Putting on a very solid performance we find the Oceanic currencies, the Australian Dollar and the New Zealand Dollar, which not only found ample amounts of demand but follow up buying was noted following the releases of the Australian jobs report and the New Zealand's GDP figures. Backpedaling its recent strength from earlier in the week is the CAD.

Key Narratives in Financial Markets

• The Fed was more dovish than the market had anticipated, and as a result, we’ve seen big moves down in the US Dollar as well as in US yields. The Fed’s admission that the economic growth has slowed and that they will be patient to determine the future adjustments to the target range for interest rates was the first red flag of its overall dovish stance.
  
  
• What really sank the USD was the removal of the two-quarter points of rate rises from the ‘median’ dot plot rate outlook projection, which essentially means the Fed is not looking to raise rates anymore this year as opposed to 1 rate hike the market had expected. The 2020 median dot plot is for 1 rate hike, while 2021 was unchanged (implied of 2.5-2.75%). This has led to the market pricing a 45% chance of a rate cut by year-end now vs 30% prior.
  
  
• Making it worse for the US Dollar, the Fed announced is set to taper its balance sheet shrinkage programme from $30bn to $15bn/month starting in May and end the process completely by September, which is earlier than what forecasters were calling for.
  
  
• The Fed’s core PCE inflation forecast was revised a tad lower to 1.9% from 2% this year, while a 0.1bp reduction to 2% from 2.1% was also observed for 2021. Meanwhile, reinforcing the dovish outcome, the Fed revised up its unemployment estimates to 3.7% from 3.5% this year, which implies that they see a labor market no longer at full capacity.
  
  
• The Sterling was also pressured across the board after UK PM May says she is only looking to request a short-term Article 50 extension to June 30th as previously rumored. ECB President Tusk said an extension will be under consideration and most likely possible but conditioned to the House of Commons in the UK passing May’s Brexit bill, set to take place (again) next week.
  
  
• According to US President Trump, the intention is for the US to leave the existing tariffs on China for a long period of time until they comply and there is sufficient evidence that whatever deal is agreed will be in full compliance and respected in detail. US trade negotiators are set to travel to China next week to resume talks in order to make further progress but as it stands, with considerable sticking points still in place, the market is starting to suspect a deal may be taking longer than previously expected, with reports that a potential signing ceremony between Trump and Xi not to happen until at least May or June, assuming they do hash out a deal.
  
  
• The Australian jobs data came with an upbeat jobless rate at 4.9% vs 5% expected, and despite the headline number failed to miss the estimates, the Australian Dollar was re-ignited to hit a fresh 7-week high. The participation rate and the full-time employment changes were a miss.
  
  
• The NZ GDP for Q4 came in line with market calls at 0.6%, which makes the reading a little more pessimistic compared to the estimates of the RBNZ. The conclusion after analyzing the data is that a rate cut by the RBNZ should not be ruled out should the trend of growth deceleration continue.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

Short-term, the environment has turned strongly USD negative, but this time with the added caveat of lower equities for the second day in a row, as the micro bearish slope in the S&P 500 indicates. Under these dynamics, the Japanese Yen will always be the shelter that the market flocks off to for protection, and that’s precisely what transpired during Wednesday, with the Euro, in line with its low yielding status, which makes it a funding currency, also ripping the benefits of the deleveraging away for the US Dollar.

Either it is from a daily or from a weekly analysis, one trend is clear, and that’s the selling of the USD, what remains more uncertain is to convey the outlook for the overall risk, which has been left to equities as the ultimate arbitrare, as has been the case for most of 2019.

This matters, because if the sell-off sell off continues to gather steam on lower equities, the degree of strength to be expected in currencies such as the JPY can be largely magnified. If equities do recover their mojo in line with the macro bullish trend as per the slope of the 5-DMA, then expect currencies such as the AUD, NZD, CAD to perform better. Remember, you must always account for fundamentally-driven events that can also alter these scenarios.

Intermarket Flows & Technical Analysis

EUR/USD: Strong Buy-Side Momentum, Resort To Intraday Levels

The surprisingly dovish FOMC has sent shockwaves which makes the market go through a period of macro re-evaluation towards the US Dollar. Real and fast money are likely to keep jumping onto the USD bear bandwagon, which means potential shallow pullbacks at intraday decision points for a further extension of the strong bullish momentum. The close at the highs of the day, with the volume profile forming a double distribution up strengthens the chances of a continuation higher. Besides, the fair valuation in the exchange rate based on the major narrowing of the German vs US bond yield spread (10y) is congruent with the spike in prices, further supporting the notion of buy on dips. In terms of market structure, the upthrust bar post FOMC has set into motion what looks to be the potential beginnings of a fresh bullish cycle judging by the magnitude and speed of the move. It’s worth noting, even if the majority of the vol may be concentrated in the GBP, that the EU-Brexit Summit get underway today, which becomes a sources of spontaneous vol events intraday on a headline by headline basis. The fact that the Euro was bought up to the boots even as the GBP fell sharply on Wed, is a positive sign, as it reflects less dependency on Brexit headlines.

GBP/USD: Choppy Moves As Both Currencies Unloved

An extension of the price action wrangling with clear characterizations of a directionless market, as the yo-yo type swings from Wednesday reflect. Both currencies were badly punished by the two hottest narratives market were fixated with (FOMC and ongoing Brexit developments). By the end of business in NY, the Sterling managed to recover most of its losses on the back of the dovish FOMC, and judging by the intermarket flows, we’ve now entered a period of buy-side bias based on the synchronicity of micro/macro slopes in the DXY (inverted) and the UK-US bond yield spread. However, be warned that we are at the peak of the Brexit pandemonium-led vol, which means that trading around potential times when headlines may arise (Brexit summit underway from today) makes any short-term trading engagement inherently riskier given the erratic headline-by--headline vol, which is going to make the GBP behave not necessarily in line with the cues obtained by the DXY, more so by the fluctuations in the bond yield spread as a barometer of optimism in the Brexit process. If you look to exploit movements in the currency market, there are way better currency alternatives to exploit the USD weakness than dipping one’s toes in the wildly unstable GBP and its price action.

USD/JPY: Ferociously Sold, Perfect Bearish Storm

Mark my words here. Whenever you see the DXY and US 30y bond yields move in the same direction, as shown in yesterday's YT video, the exchange rate in the USD/JPY is going to pay the consequences by adjusting lower in the vast majority of cases. Throw into the mix a predominantly bearish mood in equities for the last 2 days, and the downside risk is only going to be magnified, as it has eventuated. In the accompanying chart, I’ve drawn a series of horizontal levels of resistance, with each and every one of them potentially acting as an area to re-engage in sell-side action. The fact that as I am writing these lines the price has been struggling to recover even the very first level of the mentioned resistances around 110.75 is a clear testament of the depressed flows towards the US Dollar. As in the case of the EUR/USD, where shallow pullbacks before a resumption of the trend is a real possibility, the same can be said when it comes to the USD/JPY. However, be aware that if you are not trading to catch intraday movements but instead you are inclined to swing or day trading, the current levels are largely unattractive, with a retest towards 111.00 up to 111.20, at the bare minimum, a more sensible strategy to improve the prospects of a better risk reward (major assumption about your style!).

AUD/USD: Aus jobs, FOMC Send Rate To Highest in 7 Weeks

Not only the FOMC outcome vindicate the bullish movement in the Aussie, but the reduction in the unemployment rate in Australia from 5% to 4.9%, despite not accompanied by a beat in the jobs headline number, has sufficed to send the exchange rate above 0.7150. Note, the Aussie has not been able to gather as decisive buying flows as the Euro or the Yen, given that the US-Sino trade talks appear to have hit a wall that may see further delays to ink a deal, and as we all know, there is no better and more efficient way to trade China than through the Australian Dollar as a proxy. For now, judging by the intermarket flows in the hourly, I consider the market to be predominantly in buying mode only as well, with the flows in the DXY, Yuan (both inverted) as well as in the AU-US bond yield spread backing up the trend. The only downside that may act as a counterbalance effect is the short-term gloomy mood in stocks as the bearish micro slope in the S&P 500 reflects. The best course of action, until micro intermarket flows shift, is to support the buy-side bias.

USD/CAD: Prospects Of Further Selling Justified

As I ask myself, is the pair’s backdrop conducive for an extension of the losses seen on the back of the dovish FOMC? The unambiguous answer would be ‘Yes, it is’. The congruence is clear, with Oil on the rise, the DXY falling off a cliff and the US-CA bond yield spread revisiting its Feb lows. However, it’s not only a matter of deciphering intermarket flows, but also marrying that up with technicals, which as a caveat, are not yet as clear cut as intermarket is. The reason being is because the pair has failed to break into lower lows to instead find a cluster of bids circa 1.3260, as was the case on March 19th. What this means is that the market should still be potentially treated as being in the process of a potential range until we do see a breakout lower before. That said, there is no reason to think that buy-side attempts off 1.3260 or thereabouts will gather much momentum as things stand.

AUD/JPY: Trapped In A Range, Low Vol Trappy Pair

Trading the pair outside the Asian session (I can attest that), has been an exercise of patience and in the majority of times it feels like watching paint dry. Even since March 12th, the exchange rate has been moving in diminutive incremental bullish steps, forming range along the way, as the chart exhibits. The latest consolidation episode has market makers taking control of the 78.70-79.40 vicinity, creating an awful lot of noise in price action unless you trade at the extremes of the range. As the intermarket flows stand, we might be in the midst of a rather transient pass through the resistance level around 79.30-79.40 on the back of the Aus jobs before a reversal back down, contingent to the performance of equities. The reason can be found in the divergence between the pricing of the exchange rate and the micro slopes in the US 30y bond yield and the S&P 500, both pointing lower. Pay special attention to equities, as any resumption of the downtrend would reinforce the prospects of further range trading, while a rebond in equities, alongside USD weakness, make this market a clear contender to establish a renewed bullish momentum.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Low Vol Promotes USD Carry Play

It's worth pointing out that even if the low vol environment is suppressing directional biases from a higher timeframe perspective, it doesn't mean there is a deficit of opportunities if you know where to look for. There have been 2 currencies (GBP, CAD) which have exhibited strong directional moves intraday as our currency meter shows.

Date: 3/22/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

To start with, it's worth pointing out that even if the low vol environment is suppressing directional biases from a higher timeframe perspective, it doesn't mean there is a deficit of opportunities if you know where to look for. For instance, ever since the FOMC meeting, there has been 2 currencies (GBP, CAD) which have exhibited strong directional moves intraday as our currency meter shows. The same can not be said about the USD, as one of the key factors behind the attractiveness towards the currency, even after a clearly dovish FOMC, is that it continues to act as the pick of choice when it comes to carry trading (borrow low yielding currencies and play long high yielding). It is on the basis on this market dynamics of capitalizing on low vol through carry trades, coupled with overextended nature of the moves post FOMC, that led the Euro to give back its gains. On the flip side, the JPY showed a more combative spirit amid the 'weak risk off' environment given the falls in US yields yet the rise in the DXY (equities higher as well). Somewhere in the middle, still showing signs of decent demand we find the Aussie and the Kiwi, backed by the recent economic data (Aus jobs, NZ Q4 GDP).

Key Narratives in Financial Markets

• A major rebound in the USD just one day after the surprisingly dovish Fed, essentially sending the currency back to about pre--Fed levels against the majority of peers. The recovery vindicates that macro directional movements in the Forex arena are almost non-existent, further reinforcing the notion to zero in on intraday flows to stay on the right side of the market.
• Central Banks’ policy divergences are nowhere to be found, and if on top of that we add the drag of the Brexit saga for another XX number of months, the commitment by real money accounts to promote regular buy or sell-side flows in a particular currency is almost null.
• Brexit news continue is a state of fluidity and uncertainty. After UK PM May’s pitch in Brussels, the EU seems willing to offer an unconditional extension until May 7th, which is significantly earlier than the June 30th date the UK government was seeking out. This extension is contingent to potentially be extended beyond if UK’s May Brexit deal is defeated for a 3rd time next week. Such an extension would be granted if the UK agrees to hold EU elections. Meanwhile, the DUP party is not backing UK’s May deal as it stands, which makes the prospects of the Brexit bill passing through parliament very slim. As a result, GBP is suffering.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

It didn’t take long for the USD weakness environment to reverse it course, even if the admission by the Fed to stay on the sidelines for the most part of 2019 and 2020 was a potential catalyst for the USD to endure a more sustainable period of supply flows. The issue, however, is that there is no clear winners in the currency space, in a world where Central Banks have permuted from a tentative tightening bias back in 2018 (BOE, BOC, FED, ECB) to one of the relatively high chances of deploying back most of its easing artillery to combat tighter financial conditions and promote the decade-long elusive mandate of creating real inflation. Amid this environment, the US economy is still the one that, in its own right, wins the least ugly contest. The low vol regime, which increases the appeal of carry trades (borrow low yielding currencies EUR, JPY & buy the higher yielding USD), makes it even harder to see a sustainable bearish trend in the US Dollar. When it comes to the RORO (risk on, risk off) model, the environment has turned ‘weak risk off’ in the short term, as the magenta slope (microflows) based on the 25-HMA depicts. The S&P 500 is back making new highs for the year, but that is not being supported by further ‘risk on’ cues, as the combination of lower US yields and a higher US Dollar makes the overall risk backdrop not ideal, even if the rapid and elongated rise in equities takes a bit of heat and pressure off ‘beta currencies’. Note, the RORO model and the link it has to gauge the performance of FX is contingent to individual economic data merits as well.Summary: Intermarket Flows & Technical Analysis

EUR/USD: Quick Round Trip From North To South

The FOMC-induced gains have evaporated amid low conviction to promote further USD selling. One of the key reasons hindering the upside potential can be found in the still relatively high appeal to jump back into the USD bandwagon in an environment of lower volatility, which makes the countries with a yield advantage, as in the case of the United States, an attractive destination amid the lack of FX alternatives. The U-turn type of movement since the FOMC found pockets of demand at 1.1340-45. The volume profile is characterized by a triple distribution down, with the NY close sub POC a negative development, even if the overall technical structure still lacks bearish credentials. Instead, until further price dynamics play out, the structure is best described as a wide 100p range, despite the clear refusal to find acceptance above 1.14 makes for a tentative 1.1340-1.14 range box as reference heading into Friday. Only an hourly close back above the $1.14 handle would start to suggest a potential resumption of the uptrend, which at this stage, given the abrupt retracement, is not the preferred case. Stay proactive analyzing technicals, especially in a market so choppy and directionless from a weekly standpoint as the Euro vs USD is.

GBP/USD: Sellers Exploit Brexit Uncertainty

The UK government has failed to convey a message of stability in the Brexit saga amid the lack of consensus in the UK parliament to instead find itself in a real mess as it scrambles for an extension to remain a member of the EU. Whenever a country and a currency as the by-product goes through a period of uncertainty, that tends to be a recipe for disaster (read a precursor of deleveraging away from the country’s currency). The chart clearly portrays this level of unpredictability about Brexit, as the Sterling completes a round trip from the low 1.30s, up to the mid 1.33s only to be snapped back down again. That’s the lay of the land when trading the GBP these days, 0 complacency and be on top of every single Brexit development. Fortunately, if you follow the intraday intermarket analysis, the UK-US bond yield spread remains an excellent barometer to keep you on the right side of the market as a gauge of capital flows. The latest sell-side episode starts to have connotations of being climactic in nature as per the elongated extension to the downside towards 1.30, which implies a further continuation should be strongly conditioned to a deterioration in Brexit rather than technicals as the key driver. The latest decline allows us to draw a descending trendline that acts as a guidance of the developing bear trend. The multiple volume profile distribution saw a close sub the POC (Point Of Control), which reinforces the idea that buyers are far from being out of the woods unless they can regain the other side of the mentioned trendline. Overall, the risk towards further bearish tendencies intraday remains well and alive, even if it feels as though a prolonged ‘status quo’ in the Brexit pandemonium this Friday would cut it to find further demand on a retest of the lows 1.30s.

USD/JPY: Buyers Re-Emerge, Not Out Of The Woods

The pre-conditions for the pair to recover some ground off the lows were met, as the combination of higher equities/DXY alone counterbalanced the depressed state of US yields. From an intraday perspective (sub-hourly charts), the break of the previous swing high at 110.75 has allowed the formation of higher highs, which strengthens the mentality of buy on weakness as buyers found enough of an impulse to overwhelm sellers jumping in way too late in the game. As I mentioned yesterday, whenever we have the rubber band so overstretched (analogy for price extension), unless you have the interest to get involved in very short-term intraday movements, you run a high risk of getting into less than ideal risk-reward prospects. The volume profile formation in the last 24h supports the notion of further buying on dips given the P shape formation with acceptance near the highs of the day. The next pockets of liquidity where buyers and sellers will fight it out for price control can be found between 110.75-65, with a break lower potentially exposing the recent lows, while on the upside, a resumption of the correction sees 111.00-111.05 as the key resistance ahead of 111.20. As intermarket analysis stands, the reinvigoration in the DXY and equities should serve well the interest of buyers, who would most likely perceive weakness as buy-side opportunities.

AUD/USD: Technicals NoT Backed By Intermarket Flows

The Aussie has also been a victim of the resurrection in USD buying flows, as the 60+ pips selling off the trend highs reflects. However, unlike the rest of the currencies, where the USD strength has caused damage in technical structures, the same cannot be said about this market. The bullish stepping formation of higher highs and higher lows remains in place, with the setback in the last 24h finding stubborn buyers circa the 0.71 psychological round number. The ascending trendline underneath is the technical manifestation of a structure that remains constructive for the bulls. In terms of intermarket flows, I wouldn’t expect the bullish trend to resume as the lay of the land stands, with only equity flows acting as underlying support for the Aussie, not sufficient to neutralize the sell-side bias that emanates from other correlated instruments such as DXY, Yuan and Aus-US bond yield spread. This puts buyers in a difficult position, as technicals disagree with intermarket flows, that’s why further setbacks are a scenario that I can see playing out towards a retest of the bull trendline as all stands.

Gold: Case To Buy On Dips, Risk Of Rotational Profile

When all things considered, Gold is still widely perceived as an ideal shelter to diversify one’s portfolio amid the lack of solid investment alternatives in the FX land. Against the USD, and akin to what I’ve shared about the AUD, the precious metal also shows a rather benign technical outlook following the creation of a new up-cycle on the back of the FOMC, which is yet to be invalidated. The latest setback, as part of the USD buying wave seen, has stopped in its tracks at Wed’s POC intersection, where a fairly sizeable tail in the hourly acts as a clear testament of the solid interest to engage in buy-side propositions in that first pass. Looking at intermarket flows, the risk of transitioning into a period of rotational fluctuations in the market, which essentially means fading breakouts as the conviction towards a directional bias wanes. This is predicated on the basis of the conflicting signals from the DXY (strengthening) and US yields (weakening). Overall, gold remains an instrument that should attract decent interest but if you aim to exploit it, there are other currencies with poorer fundamentals or of low yielding nature it can be traded against to maximize potential runs.

Bitcoin: In A $100 Balance Area, $4k Tough Nut To Crack

The rise in Bitcoin during March has some interesting dynamics worth exploring, which speaks volumes of the commitment by buyers to accumulate the digital currency. The double bottom formation in early March around $3.7k has exhibited technicals merits to have been the onset of a potentially prolonged buy-side campaign. The fact that an almost analogous price pattern involving a double rejection of $3.8k took place shortly after is a vindication that the price has been in a developing bullish cycle phase, where the upside breakout through $3.9k proved the latest clue needed to suggest that we are still missing one more leg to complete a full 3-leg cycle. Clear patterns have emerged in how the cycle has evolved in March, such as each break higher is accompanied by the compression in price dynamics within a $130 range before the next breakout occurs. That’s been very accurate in the formation of the 3 boxes drawn in the chart. Not only that, but each time Bitcoin achieves a new cycle high as the blue line in the chart depicts, in both instances, the rally has been worth $270, but what’s positive about the prospects for an eventual breakout of the current box is the fact that the selling impetus appears to be dying down a tad, as the max extension of the last correction off recent highs could only run for about $130, even if quite impulsive in nature. Overall, the structure in bitcoin still suggests buying on dips is a strategy set to find ample demand.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Pick Up In Vol As Risk Off Rules

The agitation in financial markets, triggered by a shocking miss in the German PMI last Friday, is evident across a wide spectrum of instruments. The rampant Yen is the manifestation of a phase, spearheaded by European & US yields, in which the proverbial has finally hit the fan...

Date: 3/25/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The agitation in financial markets, triggered by a shocking miss in the German PMI last Friday, is evident across a wide spectrum of instruments. The rampant Yen is the manifestation of a phase, spearheaded by European & US yields, in which the proverbial has finally hit the fan, as we finally see the German 10y Bund trading sub 10% or the inversion of the US yield curve in the 10y-3m. The dramatic fall in yields had immediate spillover effects into equities, vol measures (VIX), credit markets (junk bonds down big), and as mentioned, the Yen is the clear winner. In yet another demonstration of the disjointed dynamics between the Sterling and the rest of FX, even under such risk-averse fluctuations, the currency managed to follow the Yen in almost lockstep as the market prices in the positives of an extension of Article 50 for all of us to contend with more weeks of Brexit. Just wonderful! The next pack of currencies displaying a decent performance includes the USD, underpinned by the risk-off diversification flows, while the Kiwi is more of a fundamental play I reckon, with the RBNZ one of the only Central Banks not blinking to further easing just yet. The Aussie and the Loonie follow next, as part of a group trading on the backfoot vs most peers. However, no currency is under more intense pressure than the Euro as the market re-adjusts to levels more congruent with the possibility that Germany goes through a prolonged recessionary period.

Key Narratives in Financial Markets

• The theme of poor European data went from bad to worse as the German flash manufacturing PMI collapsed to 44.7 vs 48 exp (lowest reading in 6 years), triggering fears of a deeper global slowdown as Germany acts as a proxy to take the pulse of the global economy. The details of the report gave no reasons to feel encouraged, with an even weaker outlook into Q2.
• The favorite measure of the yield curve by the Fed, that is, the 10y US bond yield minus the 3-month bond yield, has inverted. Whenever this event occurs, if history is any indication, it communicates an economic recession in the US follows, on average, 311 days later. The 10y US bond yield has broken a major monthly support, the 10y Bund trades sub 0, while in Australia, the 10y bond yield is at its lowest level on record. Not pretty.
• A few caveats must be pointed out whenever we have an inversion of the yield curve and for this signal to become more reliable. Firstly, the inversion should be prolonged in time for at least a quarter to add further weights to its predictability, while at the same time, given the unorthodox Central Bank policies (QEs) and the external forces at play (slowdown driven by China, which has hit the EU real hard), it makes drawing historical parallels trickier.
• Clear signs of stress in financial markets in the last 24h of trading, with the microflows turning ‘true risk off’ as reflected by the sharp selloff in US and European equities, global yields at historic or near historic lows across the world, while the Yen goes gangbuster.
• UK PM May is under tremendous pressure to resign as it faces an ongoing revolt from her own Cabinet, aimed at replacing her with deputy David Lidington. A highly fluid situation which follows an agreement to extend Article 50 until April 12th with conditions attached.
• UK PM May said she will only put her Brexit deal to a vote through Parliament this week if she managed to gather enough support, which is unlikely at this stage. The parliament is set to hold what’s referred as ‘indicative votes’ this week on possible alternatives, which include from revoking Article 50, canceling Brexit, celebrate a new referendum, a customs union solution, an approach for free-trade agreements, an EEA membership or a no-deal (hard) Brexit.
• Special counsel Muller released the findings of its report over the Trump-Russia investigation to the US Attorney General last Friday. Mueller found no sufficient evidence of a collision with Russia but did not consider there was sufficient ground to exonerate President Trump on the charges of obstruction of justice. Long story short, expect months of more court rulings.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

As the template above demonstrates, the environment supports the notion of ‘true risk off’ flows being the dominant dynamics in the market, which is why we’ve seen the likes of the Japanese Yen, the Pound (Brexit-based) and to a lesser extent the USD the main beneficiaries. The harshness of the selloff in all JPY cross is in line with the synchronized one-street movements in US equities and the US yields, with the latter in absolute free-fall sub 2.90% in the 30-yr. Surprisingly, Gold is yet to catch a strong bid, suggesting that the market is currently paying more attention to the DXY as the main proxy to assess the precious metals intrinsic value as opposed to US yields. That said, under the current negative backdrop in risk, interest to flock into Gold should only rise. As the RORO model stands, not only microflows have permuted towards a textbook ‘risk off’ phase, but the macro flows, which depict the weekly trend, are also in agreement to play the ‘true risk off’ trade.

We can even look at alternative measures to analyze risk with ‘red flags’ all over. For instance, the VIX (vol index for the S&P 500) just saw its largest 1-day increase since Dec 24, around 16.5. Another sign of stress in financial markets can be observed off US credit, where the ratio HYG (US high yielding corporate bonds aka junk bonds) / LQD (ETF tracking US investment grade corporate bonds) dropped sharply to its lowest level since early January. The lower this ratio goes, the more yield the market demands to buy corporate debt perceived as the least safe with the poorest cash flow. If we shift our focus to emerging markets, the EEM / SP500 index is also edging lower towards a retest of it's yearly low, while emerging markets-based currency ETFs such as the CEW (Wisdom Tree Trust) show a triple top, with a break below the previous swing low to confirm the price formation.

Summary: Intermarket Flows & Technical Analysis

EUR/USD: Sell-Side Bias Main Scenario

On the back of the dismal German PMI data, the market has adjusted EUR value in accordance. The volume profile exhibits a double distribution down on Friday, with most of the volume transacted around the 1.13 round number in what should be perceived as a sell-side continuation pattern. The endorsement of the short bias is only reinforced by the breakout of the ascending trendline, but also by the magnitude and speed of the removal of liquidity, which led to the 2nd down-leg in this ongoing hourly bearish cycle to surpass the previous downward extension on March 21. What’s more, the fact that the initial withdrawal of liquidity post German PMI was followed by another impulsive hourly bearish candle off 1.13 breaking into new lows, it translates in the round number acting as an area that sellers will be taking as a reference to extend the bearish momentum, hence the risk of shallow pullbacks. Interestingly, the German vs US 10yr bond yield spread still points to a buying bias, so at the bare minimum, it should act as a counterbalancing effect preventing major overextensions. Remember, by far, the best case is to align intermarket + technicals. Whenever there is a conflict of signals, a more cautionary approach reading price action as the ultimate truth is warranted.

GBP/USD: Critical Resistance Overhead Amid Brexit Mess

The Sterling has put on a stellar performance in the last 24h of trading, even challenging the aggressive buy-side flows going through the books in the Japanese Yen, on the basis that kicking the can down the road a few more weeks/months in the Brexit saga removes an immediate uncertainty. However, with Theresa May facing its toughest hours and her days as PM potentially numbered, this creates yet another source of uncertainty for markets, as the range of scenarios widens, even if judging by price action, the market seems to see a replacement for May as not increasing the tail risk. We are at peak noise in Brexit, which means, trading intraday price action becomes a more difficult exercise of reading the flow and be prepared for whipsawing price fluctuations on a headline by headline basis. Friday’s volume profile formation, despite it shows a P-shaped bullish structure, it is headed straight into the stickiest horizontal level of resistance in the chart, which carries the risk of the recent breakout of a descending trendline being a bull trapped. On the way down, there is now the extra support of a newly formed ascending trendline, making 1.3245-50 all the more relevant. The intermarket analysis is a mixed bag of conflicting signals for now, with DXY inverted heading lower and the UK-US bond yield spread looking to retest recent highs.

USD/JPY: ‘True Risk Off’ Invokes Concentration Of Offers

With the US yields and the VIX experiencing its sharpest moves this year, no wonder offers largely outnumbered any buy-side attempts as the pair continues to move in lockstep with the deteriorating risk profile in the markets. Regardless of the analytical measure utilized to get a pulse of the market, the end result is unambiguously bearish, and it could even get worse if the free-fall in US yields is accompanied by weakness in the DXY, which is not expected for now as the EUR implodes. From a volume profile showing a triple distribution down, the formation of a descending trendline, the intensity and extension of the 2nd led down, the actual leg count of the hourly cycle (missing one to complete a typical 3 legs move) or intermarket studies (‘true risk off’). What this translates into, is a market likely to lean on the obvious areas of resistance to keep selling unless flows revert. Also note, the breakout of the 110.00 round number is psychologically yet more technical damage inflicted.

AUD/USD: Ascending Trendline Breached, Negative Bias

Intermarket flows transitioned into a sell-side bias in the Aussie since March 22nd in the European session, as per the 2:1 ratio of lower DXY + Yuan (both inverted), accompanied by the collapse in European and US equities. The bullish turnaround in the AU-US bond yield spread plays little role to support this market as long as the rest of crosscurrents in intermarket remain negative. What this means is that any opportunity to sell on strength is expected to payoff in larger rewards vs buying. The breakout of the ascending trendline off March 14th manifests these worsening dynamics. The area highlighted in a black rectangle circa 0.7050 is definitely the next sticky support to challenge. A break below would most likely expose the critical 0.70 round number. On the way up, any shift in technicals hinges and is contingent to the ability of buyers to find acceptance above 0.71 POC.

USD/CAD: DXY + Oil Re-Invigorate The Uptrend

The recovery in the DXY alongside the sudden reversal in Oil prices as a response to the ‘true risk off’ environment has taken its toll on the exchange rate, which looks decisive to target 1.3460 resistance. The bullish momentum has the backing of last Friday’s volume profile double distribution up, an ascending trendline but as mentioned, also the intermarket flows (US-CA bond yield the exception). Any weakness in the rate before meeting the upside target should be considered, conditioned to a spontaneous setback in the constructive flows, a buy-side opportunity at advantageous prices.

Gold: Balance Area Within Bullish Context

Buyers are likely to circumvent the current state of stagnation in prices by pushing further up if we take the intermarket crosscurrents as our reference. Despite the rise in the DXY is attracting offers, the annihilation of US bond bulls via a collapse in US yields in music to the ears of buyers here. Add into the mix the weakness in the S&P 500, with the largest spike in the VIX this year, and we have a recipe for a buy-side bias, especially if the strength in the DXY moderates in the slightest. This prognosis can find its promotion via technicals, with market structure printing higher highs and higher lows since the week-long consolidation phase (accumulation) through the first week of March.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

The Aussie Thrives Along With Risk

To start the week, we have two clear outliers. Firstly, the Canadian Dollar has seen its valuation adjusted significantly higher on the back of a strong Canadian GDP for the month of January.

Date: 4/1/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

As the chart below shows, to start the week, we have two clear outliers. Firstly, the Canadian Dollar has seen its valuation adjusted significantly higher on the back of a strong Canadian GDP for the month of January. The slope of the micro trend, which looks at 24h worth of price action through the 25-HMA, has been steadily bullish. Another currency currently embraced as part of the improved 'risk on' conditions is the Aussie, further boosted by the positive news out of China over the weekend, where the March PMI came upbeat. In today's selection of the best markets to trade, I've focused on the Aussie due to precisely the alignment of these crosscurrents, with the constructive rhetoric around the US-China trade talks the icing on the cake, even if one must be aware that the RBA monetary policy statement tomorrow is a time for a reset of technicals. The Sterling, battered by the Brexit circus, alongside the Japanese Yen, sold after the recovery in risk, are the worst performers. I must state, despite the risk appetite, it looks as though the repatriation flows back into the USD, as I explained last week, are still playing a role to keep the USD at very stable levels.

Looking to create your own Currency Strength Meter via Tradingview? Check out this tutorial.

Key Narratives in Financial Markets

• Commodity currencies, with the Aussie the most benefited, have been boosted on the back of a strong read in China’s March PMI, which signals emerging signs of a recovery in economic activity after the government-backed pro-growth policies in Q1 2019. It’s important to note that part of the reason for the rise can be explained as a response to the post Lunar new year, while caution is still warranted given that new export orders remain in contraction, even if ticking up.
  
  
• Following the resumption of trade talks between the US and China in Beijing last week, a convoy of Chinese trade representative, headed by China’s Vice Premier, is headed to Washington this week, aimed at making further progress. White House Economic Advisor Larry Kudlow gave a speech last week warning that the talks are no longer time-dependent, but policy-dependent, which raises the prospects of delays in a final agreement.
  
  
• The Canadian GDP MoM came much better than expected, helping to boost the currency to head the leaderboard on Friday. The 'risk on' tone at the start of the new week is yet another reason to stay constructive the CAD even if one must be aware of the overstretched nature of Friday's move.
  
  
• Last Friday’s US data continues to support the case that the Fed has time to re-think the best course in its policy setting after the underwhelming US consumer inflation print (both PCE deflators lower), even if the data was somewhat offset by a pick up in new home sales.
  
  
• RBNZ Governor Orr has made it clear last Friday, as part of a Q&A, that the sharp selloff in the NZD on the back of last week’s dovish RBNZ policy was the outcome they intended to achieve. Orr said he was pleased as “the market has shown that they understand what we are focused on and they are forward-looking.”
  
  
• In Brexit, the Brexit farce continues with no end in sight after the UK parliament rejected UK PM’s May withdrawal agreement for the third time. The failure to pass the bill, effectively, brings the deadline to leave the EU for April 12th. During the coming week, as part of the indicative votes scheme, the UK parliament will try to agree on the best way forward, while the EU has set scheduled an emergency meeting to discuss the Brexit situation on April 10th. As things stand, a customs union is the most likely scenario to be favored, but still lacking a majority.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

Whatever measures we are looking at, it leads to the same conclusion. The risk appetite tone is back in vogue, as manifested by our prop Yen index, where not only the micro slope has turned negative for the past 24h, but the macro slope, which looks at 1 week worth of price action, has also reverted back down. If we ask ourselves, is the ‘risk on’ tone signal we are getting from the Yen index being supported across other asset classes, the answer is an outright ‘Yes’. From the S&P 500 flying higher past the 2,850.00 mark, the US 30-year bond yield finding further upside, not to mention the ratios of Oil/Gold or Copper/Gold as a barometer of the global demand or supply for industrial/energy assets. Lastly, the VIX (vol index) is down at 13.7 with no bids to be found amid the ‘feel good’ tone across the board, while in the credit market, the picture is analogous, where junk bonds have put on an aggressive rally when compared to the investment grade-bonds. Overall, this is a time to be constructive in commodity-linked currencies, while the DXY and JPY should be pressured. The GBP, EUR, as long as the Brexit circus extends, will show a rhythm of their own.

Key To Watch: Intermarket Flows & Technical Analysis

AUD/USD: Conquers Resistance at 71c.

The upside gap at the open of business in Asia is a clear testament of the bullish sentiment, with the area of resistance-turned-support just above 71c now acting as the first line of defense ahead of last Friday’s POC just 10p sub the round number at 7090. The synchronized move higher in equities and the DXY + Yuan (inverted) is clearly supporting the buy-side bias, effectively canceling the potential negative flows that may arise from the bearish trend in the AU-US bond yield spread for the time being. There is a vacuum area buyers may capitalize on until the next resistance at 0.7145-50.

USD/JPY: En-Route Towards 111.20 Resistance

With a stubborn DXY still bid despite the dual recovery in the S&P 500 and the US 30-yr bond yields, both showing bullish micro slopes, the clear path is for the upside pressure to keep building up. To start the week, technicals are promoting this narrative after the breakout of a sticky area of resistance in the hourly circa 110.85, which has allowed a test of the next area of resistance around 111.00, while opening the doors towards what’s expected to be a stronger wall of offers at 111.20 approximately, which is the breakout point of the major selloff seen last March 20. There is no reason to shift to an intraday sell-side bias while the intermarket flows remain so supportive.

AUD/JPY: Buy On Weakness Favored

The recent news of China’s March PMI, coupled with encouraging signs of progress in the US-China trade talks, alongside a full-blown micro ‘true risk on’ environment, this is a market that has the traits of buying weakness this Monday written all over the wall. The breakout of the previous swing high through 79.00 is the last declaration of intentions by a market that is setting up to see higher valuations, likely to thrive under the current intermarket flows. That said, the RBA monetary policy statement due on Tuesday is a clear risk for the pair, so remain nimble on your approach.

EUR/AUD: Lower Valuations Well Justified

Anyway you slice it, the exchange rate looks set to stay under pressure this Monday, unless a fundamental-driven event disallows it. The intermarket flows are unambiguously supportive of the downside as the micro bearish slopes in the Yuan (inverted), equities (inverted) and the German vs Australian 10y yield spread demonstrate. Moreover, the technicals are in favor of the downside, with the breakout of the previous swing low at 1.5785-90 creating a successful rotation lower, which is likely to attract further sell-side momentum-led flows to capitalize on this ongoing supply imbalance.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Risk & DXY Solidify Post US, China PMIs

The Canadian Dollar, still fueled by the impressive Canadian growth figures from last Friday, and backed up by 'risk on' and the rise in Oil, keeps finding the most demand. Following at a certain distance is the US Dollar, making solid gains across the board except vs the CAD as noted.


Date: 4/2/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The Canadian Dollar, still fueled by the impressive Canadian growth figures from last Friday, and backed up by 'risk on' and the rise in Oil, keeps finding the most demand. Following at a certain distance is the US Dollar, making solid gains across the board except vs the CAD as noted. A strong US ISM is the reason behind the surge in USD demand, with the upthrust day in US yields, no longer in negative yield curve (10y-3m), underpinning the move. The Japanese Yen was the clear underperformer in a day where the promising US ISM came combined with back-to-back positive Chinese PMI readings (official and Caixin). The S&P 500 broke its previous swing high, and it's looking increasingly likely that the record high from last year will, at some point in Q2, be retested again, in what would be one of the fastest recoveries from an officialized bear market (after a 20% down last year) in the history of the S&P 500. The V-shape type of bounce is a very rare occurrence. A currency that is trading at the beat of its own drummers is the Sterling, with moves currently 100% dependable on the Brexit saga, as we navigate through the peak noise stages. The Euro remains under pressure on the back of yet more disappointing data out of Germany (PMI) and low inflation readings in the EU. Lastly, the Aussie awaits the RBA...

Key Narratives in Financial Markets

• US ISM Manufacturing PMI came upbeat at 55.3 vs 54.2 prior, throwing cold water to doomsayers that a recession in the US may be nearing after the buzz around the inversion of the US yield curve, which has reversed to positive on the widely watched 10y-3m.
  
  
• US retail sales for February came significantly lower-than-expected, leading to an initial selloff of USD and risk assets, but the damage was completely unwound after the US ISM PMI. Solid positive revisions to the January numbers helped to add some sweetness to the bitterness.
  
  
• In contrast, Eurozone inflation and German manufacturing data kept disappointing, which is going to keep any residual ECB optimism at bay. The sharp fall in German new orders continues to weight on the manufacturing data series, with Brexit, a reduction in car sales and evidence of a global slowdown the main culprits. The Central Bank is far from being able to justify any shift to its renewed dovish stance for the remainder of 2019 at the very least.
  
  
• The UK government has rejected all the motions as part of the indicative vote scheme a second time. The UK government is now scheduled to gather for an emergency meeting to decide the best course of action, which according to a few bank research reports, is likely to involve a political process amid the struggles to reach any type consensus in Parliament. The deadline by the EU to officially cease to stay a member of the bloc is April 12. The options considered include the proposal of a customs union post-Brexit, a second referendum which would likely be the most incendiary action or calling for an early election.
  
  
• China’s Caixin PMI came stronger-than-expected at 50.8, confirming the improved outlook in the Big Panda (China) after the weekend’s positive official government PMI for the month of March. The green shots in China were instrumental to see risk assets extend its gains.
  
  
• The UK Manufacturing PMI knocked it out of the park at 55.1 vs 51.2 but most of the gains were driven almost in its entirety by stockpiling, which is due to British corporate provisions that have been effectively put in place in case the UK leaves the EU without a deal.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

Whatever residual angst was left from last week’s US yield curve inversion has now truly dissipated. The S&P 500, as a representation of the state of affairs in global equities, continues to charge higher to defy history by breaking this year’s high and in the process, near a milestone in which a V-shape type of recovery after officially entering a bear market following the 20% fall from its peak last year. If it materializes by breaking the previous record high, it will be one of the fastest comebacks ever, taking as a reference any time in history when a 20% drop from the trend highs had preceded. The selling of bonds globally, with the US 30-year bond our guide, is a manifestation of the improved prospects of a pick up in global activity if China’s PMIs or the US ISM acts as our reference. A very strong 5bp rally in the long-dated 30-year bond yield towards 2.9% which has led the DXY to marginally breakout its prior high above the 97.00 mark. The environment, therefore, is dominated by USD strength across the board in a context of rampant equities. If we take a look at the Yen index (equally weighted vs G8 FX), Oil/Gold ratio, the reduction in the VIX, all paint the same positive picture. The only caveat would be credit markets, where investment grade bond yields have fared better compared to junk bonds, an outcome not ideal when risk appetite is truly present. The current dynamics have set up an environment for the USD to stay in a fortified position, likely to attract further bids, especially if a clear breakout in the DXY eventually transpires, which is a big IF, as every time the index tests new highs, a quick rejection prevents clear breakouts, testament of the absorption of offers in pairs such as the EUR/USD, with strong buying interested still concentrated sub 1.1250.

Pairs To Watch: Intermarket Flows & Technical Analysis
EUR/USD: Break Away From Accumulation Area

The sprint higher by the USD across the board has led to a breakout of a 3-day single volume distribution area. Some caution to play short right off the bat is warranted though, as the violation of the lows is yet to find sufficient acceptance below the series of lows that constituted the bottom of the range. Besides, the breakout is headed straight into the round number of 1.12. With these warnings out of the way, fundamentally speaking, and as the German - US bond yield spread is starting to manifest more vividly, capital flows are now added to the equation as yet another reason to stay bearish the exchange rate. Intermarket flows and technical both show us the same direction lower. The fact that most of the volume from Monday is now trapped just under 1.1250 is yet another indication that any rebound should still be perceived as an opportunity to bail by intraday traders. If follow through transpires as part of the bearish trend, I’d expect a break of 1.12 to see a price extension into the 1.1180-85, where the first significant cluster of bids by market-makers at the 100% proj target (1:1 measured move of the range size) should be noted ahead of 1.1150-55.

USD/JPY: Revisits FOMC-Led Supply Imbalance

A renewed impetus in the exchange rate is well and truly alive after a fundamentally-led adjustment in the price, resulting in a fast auction into 111.45-50, where bids meet the origin of a strong supply imbalance dating back March 20th, time when the FOMC admitted a surprisingly dovish stance. Judging by technicals and intermarket flows, the pressure is definitely building up for the market to find a higher equilibrium as bids into the USD keep gathering in congruence with the renewed bullish dynamics across equities, fixed income and the DXY, all endorsing higher levels. Be aware, in terms of risk reward, if trading intraday, 111.45-50 also represents the 100% proj level from the latest measured move taking as reference the previous swing low through the breakout point. Any strategy looking to capitalize on the ongoing bullish momentum would find better levels to engage starting at 111.15-20 (resistance-turned-support), followed by the 111.00 (POC Monday) ahead of 110.85. Commanding the uptrend traders can now find further comfort in the form of a multiple trendlines. Adding to the bullish case going forward, the latest bull cycle has now extended over 138p, as opposed to the first impulsive move up off the bottom, worth only 98p. What this means is that the market structure is developing with the right traits of magnitude to find draw further buying interest.

USD/CAD: Price Lands At Major Confluence 1.33

Not only the bearish move has stopped in its tracks at 1.33 on the basis of being a round number, but there is mounting evidence that the level is a hot spot where a large cluster of bids rest. Whether we measure the 100% proj target through the swing low breakout of 1.3373 or the mini range resolution through 1.3340, the projected target is the same, 1.33, hence adding further credence for a mean reversal movement, at least to retest the broken range bottom at 1.3340. In terms of intermarket flows, it looks as though the strong Canadian GDP from last Friday, alongside the risk on mood, has so far resulted in the CAD defying and counterbalancing the DXY strength, with Oil and the downward trend in the US-CA bond yield spread adding to the case for the slide to keep its course. In light of the hourly bearish structure firmly in place, with ¾ of the March 21 to March 25 gains all but evaporated, and a volume profile where the POC (highest concentration of volume) is found way above circa 1.3350, the outlook for the market remains technically constructive, even if I wouldn’t place all the conviction as this is a trend developing against the DXY, which has proven to be one of the best leading indicators, alongside the fluctuations in the price of Oil.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

'Risk On' Returns, Aussie Reigns

The AUD has been the kink of the currency market in the last 24h, spurred by a notable beat in Australian retail sales, with the added fuel (demand) via the positive rhetoric in what appears to be the very last stages of negotiations in the US-China trade talks.


Date: 4/4/19

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The AUD has been the kink of the currency market in the last 24h, spurred by a notable beat in Australian retail sales, with the added fuel (demand) via the positive rhetoric in what appears to be the very last stages of negotiations in the US-China trade talks. Risk appetite is still well sustained across the board, even if equities in the US, unlike in Europe, failed to keep the overnight gains. A reflection of the recovery in the desire to join the bid on the risk tone is the fall in the USD or JPY indexes. The Sterling remains steady, keeping most of its Tuesday's gains, as hopes keep building up over the UK averting a hard Brexit. The inflows into European equities and the overall risk-induced swings seems to have finally played a role in the Euro, which has found demand once again after retesting this year's low. The economic agenda is very quiet today, as the market liquidity dries up ahead of Friday's US Non-Farm Payrolls, set to inject the usual volatility at the start of every month.

Key Narratives in Financial Markets

• Risk assets were invigorated overnight after the FT reported that the US and China are getting closer to a final trade agreement, noting that representatives have solved most of the issues standing in the way of a deal. How to implement and enforce the agreement remains the main sticking point, according to the story carried by the Financial Times.
• Australian retail sales almost tripled the street calls at +0.8%, much higher than the +0.3% expected. Besides the Australian trade balance came at a surplus of 4.8bn, which is over 1.1bn above market expectations. The Aussie ended the day as the top performer currency.
• The solid services PMIs in China, Europe, and the US vindicate the notion that fears of a global slowdown may be overstretched. According to a report by HSBC, the relative robustness in global PMIs, particularly on the service side, “suggest recession fears could be overblown.”
• UK PM May and Labour leader Corbyn engage in constructive talks while the prospects of a no-deal Brexit continue to reduce as the UK parliaments prepares to pass a bill that would bloc leaving the EU without some sort of a compromise that prevents a hard Brexit.
• According to a report by Sky, BoE Governor Carney will not stay at the helm of the BoE beyond January 2020. The policy-maker spoke to Sky news on Wednesday, noting that the risk of a no-deal Brexit has become alarmingly high.
• US ISM non-manufacturing PMI falls to 56.1 vs 58.00 expected, with the drop in new orders the red flag even if the index remains at fairly elevated levels by historical standards.
• The US March ADP employment report saw a miss, coming at 129k vs 175k expected, and while the reading was the lowest print in 1 ½ year, the fact that the US runs very tight employment means that high figures will be harder to achieve due to shorter labor supply.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

By analyzing the crosscurrents in equities, fixed-income and currencies, it’s undeniable that the environment remains broadly supportive for risk assets, with both the Yen and the DXY indexes, a manifestation of such permutation away from safe havens and into riskier bets. In the case of the currency market, the Aussie managed to capitalize the most on such benign conditions, not only benefited via the ‘true risk on’ profile established but through a fundamentally-adjusted rate. The ratio of industrial metals such as copper vs gold does reflect the same clues as what we can obtain via the selloff in US bonds (higher rates), and that is, investors are betting on higher global growth. The latest raft of positive datasets from China and Europe (PMIs) has caused a short-term re-evaluation that perhaps the fears of a protracted global slowdown are not as terrible as the IMF made it sound this week, after stating that about 70% of countries worldwide will experience significantly slower growth. As the Research Team at Morgan Stanley explains as part of their latest note to clients, “IMF’s Lagarde warning about slowing global growth and the WTO warning that 2019 trade growth will be the weakest in three years stands in sharp contrast with commodity markets breaking higher. While some of the commodity price increase – especially in oil markets – may be due to supply cuts, it seems that demand has strengthened too.” Food for thought as copper vs gold breaking higher is a clear indication that what matters as the number 1 foreteller of economic news is price itself and not a lagging view by a policy-maker. The only ugly reading out of this expanded version of the RORO model, I’d say that the spike higher in the VIX into the 14.00 handle is the only marginal concern at this stage, even if the S&P 500 remains is a rampant run, as the enormous separation between the current pricing of the index and its 125HMA (macro slope) clearly proves.

Markets To Watch: Intermarket & Technical Analysis
EUR/USD: Sellers Lose 2-Week Long Price Control

The red flag emanating from the market structure evolution and dully highlighted in yesterday’s report has acted as a precursor to accurately pinpoint the area in the chart where buyers have made a comeback. The risk of a shift in trend dynamics, following a sequence of lower lows at intervals of decreasing magnitude (170, 108, 63) has now been vindicated after bids gunned through a descending trendline originating from March 26th. The rotation back up has not found acceptance above 1.1250, which puts us at the bare minimum, in a range-bound environment between 1.1180-85 & 1.1245-50. Notice, the run from the lows has marginally surpassed the previous down-leg extension (63p vs 71p), a communication that the change in the cycle pattern is taking effect. Note, with Wednesday’s P-shaped volume profile formation in place, the pressure to break into higher ground is building up. Should the upside continue to hold, the key focal area where buyers and sellers will battle it out to gain control is the midpoint of the range at 1.1215 approximately. Be reminded, it’s US NFP on Friday, what this means is that technicals should be thrown out of the window, while we can anticipate that the incentives to commit towards a specific direction ahead of the event may not be as desirable due to the risk event that exists just ahead of us.

USD/JPY: Upside Target Reached, Breakout Pressure?

Another retest of an ascending trendline has transpired after price failed to break through a cluster of offers following the latest 100% proj target achieved before the slight roll over. Note, the 2nd leg of this ongoing bullish cycle has gone for a total of 152p, an increase of over 50% from the previous leg up (99p). What this means is that even if setbacks occur short-term, the market structure is still suggestive of a broad bullish trend as long as the ascending trendline off sub 110.00 is respected. Be aware, the current ‘true risk on’ environment (DXY down, SP500 & US30Y up) tends to lead to safe haven flows causing extra supply pressure on the JPY. With a P-shaped volume profile structure, and the downside still capped by the trendline, the path of least resistance is still higher. The breakout of the ascending trendline would be a warning sign that 111.15-20 may be revisited next.

AUD/USD: Buy-Side Bias As Intermarket Flows Stand

The trifecta of a bullish slope in equities, DXY+Yuan (inverted) and Aus-US bond yield spread becomes our guidance to anticipate the buying pressure in this market to stay its course. Technically, the market is in a broad range, but with so much value building up at the highs of the day as the volume profile POC reflects, one would expect buyside systems to have another go at the critical area of resistance 0.7130, with a breakout higher exposing an exploitable 20p vacuum area until .07150. Any setbacks on the Aussie should find plenty of demand pockets around the 0.71-7105 support, with a break lower to find further buying interest at 0.7085, even if it looks like a tall order to achieve by sellers as the intermarket crosscurrents stand at the moment.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Yen Bought After US NFP

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

What did we learn after the US NFP? In my opinion, it essentially reinforces existing trends in the market such as a Fed that finds it well justified to stay on the sidelines for the remainder of 2019 and beyond, while it also provides a Goldilocks scenario for equities, as US growth remains relatively high despite little to no inflation. US bond vigilantes came back roaring ahead by joining the bid in bonds last Friday, pushing US yields aggressively down, which can partly explain the rise of the Yen even as equities stay bullish. The Euro is another currency that remains very stable doing its own thing in a very confined range vs the US Dollar. Meanwhile, the antipodean currencies, especially the Kiwi, find no respite on its bearish trend as the market keeps discounting a more dovish RBNZ, while the AUD shows the first signs of weakness after a solid 3day bull run. In the last 2 days, I must say that the movements in the Sterling have resembled a lot to those seen in the Kiwi, both the clear underperformers in the G8 FX space. Somewhere sandwiched in between we find the Canadian Dollar, which remains supported as a commodity currency, in a context of bullish Oil prices.

Narrative In Financial Markets

• The March US Non-Farm Payrolls saw a rebound that will appease the critics that believe the Fed is not yet done rising rates. If anything, the +196k headline print, alongside an absence of inflationary pressures via wages, is the ultimate best case scenario for stocks, while it reinforces the idea that the Fed’s rate hiking cycle is a thing of the past.
• The Canadian jobs report, after a stellar run of hefty headline numbers, finally saw a reversal to the mean by printing -7.2k vs a conservative +6k estimate. There was a silver lining though, as the wages ticked higher for the month of March while the jobless rate stood unchanged.
• US President Trump jawbones the Fed to embark on further easing, in yet another dangerous sign of the attempts by the current administration to politicize the Fed. Right from the horse’s mouth, Trump said: “I personally think the Fed should drop rates because they are slowing down the economy and instead of QT it should actually now be QE.”
• The Australian election is now almost certain, according to the press, to be set for May 18th. No immediate impact for the Aussie but worth being aware of such an event as politics have become an integral part of forex market movements, dominated by the Western hemisphere.
• No new clarity gained after the talks between the UK government and the Labour party yield no fruits. Amid this scenario, news broke out last Friday that UK PM May has endorsed, via a formal letter, an extension of the Article 50 until June 30th, 2019. This Wednesday’s EU Summit is the next focal point to achieve a new timeline by which to abide in this messy process.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO - Risk On Risk Off Conditions

The rise in US equities for a 7th straight day in a row masquerades a more negative shift in dynamics than it originally may appear on the surface. Bullish equities is definitely a ‘risk on’ sign, but it fails to be accompanied by congruent swings in fixed income, as US bonds were bought up aggressively once again as the US NFP report relaxes any fears of a pick up in inflation while it continues to show a weakening employment growth trend within still very tight labor conditions. The US NFP does reinforce the state of Goldilocks by equities, as the US growth, while decelerating, still remains very solid by G10 standards, at a time where inflation is still nowhere to be found, which undoubtedly makes companies’ cash flow all the more attractive as real yields fall. Further denting the overall risk appetite, and a clear sign that the conditions are less than ideal, both the DXY and our prop JPY index have shifted the micro trend to bullish since last Friday, with the latter following the move down in yields in locksteps. The dual industrial ratios to help us further gauge risk, such as Oil vs Gold or Copper vs Gold, are booth exhibiting a bearish slope, which is risk negative. In credit markets, junk bonds remain supported vs investment grade bonds, which is a positive for risk, as is the close sub 13.00 in the VIX (volatility index). The last 2 reads are conducive with a rising stock market.

Markets To Watch: Intermarket & Technical Analysis
EUR/USD: In A Consolidation Pattern, Proj Targets Defined

The US NFP outcome has only reinforced the current range profile of this market. We’ve entered a well-defined consolidation with a resolution beyond 1.1245-50 or 1.1205-12 needed to expose the next 100% proj target at 1.1280-85 to the upside or 1.1170-75 to the downside. The midpoint of the range at 1.1230-35 is another critical point that may provide clues of the side in control. The latest volume profile, while price closed sub the POC, it has connotations of a single distribution, with little value built at the bottom of the range to think a breakout is imminent. Remember, from a cycle standpoint, the bearish cycle initiated on March 21st offered enough signs of reaching full maturity judging by the decreasing magnitude of its downward legs. The current range is yet another sign that the sellers have lost control unless they can start filling bids sub 1.12.

USD/JPY: Impulsive Selloff As US Yields Roll Over

The aggressive selling of the exchange rate is about to reach its 100% proj target at 111.30-35, an area that aligns with a sequence of multiple lows from early April. The rollover of the US Dollar occurs in line with the resumption of the bearish trend in US yields even if the DXY is not yet reflecting a bearish microtrend as per the slope of the 25HMA. Moreover, with very bullish equities (7 rising days in a row), one would think the mentioned target of 111.30-35 would see a major cluster of bids as market participants find value in joining the bid at what’s perceived as cheap prices in the current context. The rising trendline from March 25th is another technical backup buyers can resort to as further evidence that any buy on dips strategy is still very much entered in a rather constructive environment.

AUD/USD: Short-Term Sold In A Directionless Context

If one market portrays like no other the lack of volatility in the currency market, that’s this exchange rate, which continues to be trapped in a narrow range for over a month now. It’s a market perfectly suitable for those playing range bound strategies and other methodologies with a reversal to the mean at the core. Look for overextensions to be faded both ways, especially the first part of this week, with very little in the way of stimulus for vol to pick up considerably. The latest bearish initiated on the back of the US NFP has a target of 0.7085, where a rebound is expected. On the upside, buyers need to regain 0.7110 for a retest of the previous highs around 0.7130.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

The Canadian Dollar Boosted As Oil Rallies

The CAD was the star currency as a new week gets underway. There were a limited number of talking points, with the movements more technical in nature. Portraying this dynamic, for example, we saw the EUR accelerate its appreciation as a 4-day long range was finally broken...

The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take

The CAD was the star currency as a new week gets underway. There were a limited number of talking points, with the movements more technical in nature. Portraying this dynamic, for example, we saw the EUR accelerate its appreciation as a 4-day long range was finally broken, leading to further selling of the USD across the board. The recovery in risk, as reflected in the pick up of US yields, which moved up in tandem with equities, this time didn't play that much of a role to stimulate demand into the Greenback. The Japanese Yen continues to put up a decent fight post-US NFP, even if the risk rally in equities and the snap back in yields defies its prolonged strength logic. Meanwhile, the Kiwi continues to be the absolute main outlier, still paying the consequences of the dovish RBNZ outcome from earlier this month. The Sterling follows as the second most vulnerable currency not far behind, while the Aussie has managed to attract further demand to turn the micro trend to positive.

Narrative In Financial Markets

• The vigorous rise in Oil prices led to a strong appreciation of the CAD & NOK as fears of further supply disruptions in Lybia built. Throw into the mix the dominant risk appetite dynamics as of late and a weaker USD as other elements influencing the rampant move in Oil.
• No news of any meaningful progress in the talks between the UK government and the Labor party officials. The main sticking point in the ongoing talks appears to be the refusal by the government to accept the UK as part of a Customs Union post-Brexit. UK PM May travels to visit Germany’s Merkel and France’s Macro today ahead of this Wednesday’s critical EU Summit, where a decision to extend Article 50 beyond June may be made.

RoRo (Risk On, Risk Off Conditions)

The fluctuations in risk-sensitive assets overnight exhibited the traits of ‘true risk on’ as the S&P 500 retested its previous trend highs led by energy stocks, US yields were snapped back, while both the Yen and the US Dollar were hit by major supply imbalances. Other asset classes were supportive of risk as well as shown below.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Levels To Watch: Intermarket & Technical Analysis

EUR/USD: Range Breakout Confirms Bullish Trend

The resolution above the top of the range at 1.1245-50 has taken the exchange rate to fill offers at an H4 resistance level as depicted by the orange line. The impulsivity of the rise, the alignment with the micro trend (25HMA) and the story being told by the latest market structure, is all suggesting that the obvious path of least resistance is to the upside. The ‘risk on’ conditions and the reported decrease in USD repatriation flows have likely played a role in the aggressive USD supply seen. The breakout of the range allows now a fresh upside target that resides at 1.1295-1.13 (100% proj extension).

GBP/USD: The 1.30 Remains A Buyers’ Stronghold

The dynamics so far have been to reject the 1.30 round number with sufficient impetus so that the exchange rate finds only brief acceptance every time the area is tested. Last Friday’s decline in the exchange rate shows an analogous pattern, with the Sterling now recovering not only the topside of a steep descending trendline while also anchored by the upward slope of the micro trend (25HMA). Monday’s price action is quite disappointing for the interest of Sterling longs, as it fails to capitalize on the broad-based USD weakness amid the lack of Brexit breakthroughs. We should expect the erratic behavior in the pair to being the norm with spontaneous spikes on a headline-by-headline basis, with a potentially quiet Tuesday ahead of Wednesday’s headlines-charged EU summit. The pair faces a round number and an hourly level of resistance not far overhead.

USD/JPY: Full 100% Target Extension Reached

In concordance with market symmetries, Monday’s selloff in the exchange rate has found a cluster of bids at the 100% projection target of 111.28. Considering that the rise from March 25th came on a vigorous 2nd leg and that we might be missing one final thrust higher, this was a great area to potentially reinstate long positions for a retest of 111.50-55 (broken-support-turned-resistance). There is still some significant room for the exchange rate to fall without altering the uptrend as the ascending trendline off sub 110.00 would have to first be violated. As per intermarket flows, with a ‘true risk on’ environment in the last 24h, pockets of supply towards the JPY could be dominant.

AUD/USD: Pressure Builds Against 0.7130 Resistance But...

More and more bids keep adding pressure against the sticky area of resistance through 0.7130-35, where buyers have been unable to break despite the multiple attempts since early April. The last rejection of the level last week was quite impulsive in nature, achieving new lows, which implies that the current retest of the swing high formed at the time holds sufficient credence to still be perceived as an area where there is technical value to look for shorts from a market structure standpoint. Moreover, the projected target ever since the rise through the 0.7107 breakout point has been hit at exactly the 0.7130, which means the resting of offers circa this level could be considerable. A break to the upside would expose 0.7145-50 as the next obvious target for the bulls.

USD/CAD: Selling Campaign Almost Done Near Term

Judging by the speed of the CAD appreciation, one would think there is still some residual downside, which would be conducive with the view that the 100% proj target of 1.3295-1.33 must still be reached. That said, given the lack of trends in FX and the low vol regime, one would think once this downside target is reached, a time of consolidation should ensue before the next directional move. The rally in Oil and the weakness in the DXY was an obvious recipe for disaster for the buyers, but with such an overstretched run, I doubt enough appetite remains to find any acceptance sub 1.33 near term. The last two attempts at the level were rejected right off the gate with strong conviction.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
• Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection

 

[IvanGlobalPrime]

Find my latest market thoughts

Buckle Up For A Pick Up In Vol

In today’s report, I am shifting gears by focusing on the latest technical developments in the most relevant G8 FX charts to investigate not only the established biases but what are the critical decision points one must pay attention today.


The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.

Quick Take
In today’s report, I am shifting gears by focusing on the latest technical developments in the most relevant G8 FX charts to investigate not only the established biases but what are the critical decision points one must pay attention today. Before I get into the nitty and gritty, be aware that the rise in the Yen index, alongside the sharp selloff in both US equities and a more moderate decline in US30-year bond yields, puts us in a ‘true risk off’ microenvironment as market participants prepare for the EU Summit on Brexit and the ECB policy statement. It’s going to be a busy day ahead, especially for the EUR and the GBP, even if the USD and the JPY are also poised to move quite vividly in light of the fast transition into ‘risk off’ conditions as well as the fact that we get the inflation numbers out of the US at the same time as ECB Draghi takes the stage.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

Latest Key Technical Developments In G8 FX

EUR/USD: Acceptance Above Range, Reset Post ECB

It’s all about the ECB to get the next directional bias. The focal points of attention for today include any clarity around the next round of TLTROs to provide cheap funding to EU banks, while the stance of the Committee on the economic developments will also be closely watched. Back on April 2nd it was highlighted that the risk of a bearish cycle termination was on the rise given the decreasing magnitude of each leg down. Well, the opposite is true in the ongoing bullish structure, where we’ve seen the formation of 2 legs up, each marginally greater than the other. What this suggests, based on the applied market structure principles I teach, is that the credence for this market to stay bullish is technically justified, conditioned to the ascending trendline being respected. I’ve marked in the chart all the levels that you should be paying attention as that’s where the big decision will be made.

GBP/USD: Awaiting Brexit Headlines In A Sea Of Choppy Water

I’ve highlighted in circles the absolute best areas to consider trading positions as that’s where the highest concentration of liquidity is likely to reside. The bias is neutral as the market awaits which way we go in the Brexit process before committing fresh capital. Remember, this is a period of ‘peak noise’ in the whole saga, which is why one can get easily whipsawed in either direction with ease. Note, 1.3060-65 acts as the midpoint of the broad range the pair is confined into, which means it can be used as a reference to analyze which side is taking temporary control of price action.

AUD/USD: Approaching 3rd Test Of A Trendline

There are definitely warning signs for the interest of buyers, even if it’s far from all being lost. The caveats I find for the pair to stay bid come in the form of a 2nd leg up decreasing in magnitude vs the prior initiated move up originated from April 2nd. Secondly, the retracement off a 3-week high has come fast and furious, which is not the ideal speed you want to see if you consider being a buyer off the trendline intersection just a few pips below the current price. Also notice, the breakout of 0.7130 has only achieves a 50% proj target, falling way short of the expected 100% at 0.7172. What’s more, the ‘true risk off’ tone near term makes playing longs trickier as the intermarket flows turn negative.

USD/JPY: Sellers In Short-Term Control

There is no doubt that the market structure has turned negative short-term. However, that must be conveyed with a still benign mid-term structure as the rate is yet to break the ascending trendline coming from March 25th bottom. It won’t materialize without substantial efforts by sellers given the confluence shown, even if any disappointing setback for the USD on the back of the ECB & US CPI may make the job easier for sellers as liquidity temporarily evaporates around these events. Any attempts for a rebound should still find grateful sellers given the ‘true risk off’ microenvironment traders have to navigate, which means the 111.25-30 vicinity ahead of the descending trendline are the clear areas to engage if your view is to keep capitalizing on the Yen strength.

AUD/NZD: Unwinding Of Longs Underway

By the vol standards we’ve come to suffer in the currency market, this pair has seen quite a stellar run, even if the best days to exploit the long bias may have come to an end judging by the back-to-back violation of 2 ascending trend lines one could have drawn. Note, there is a huge level of daily resistance-turned-support where plenty of buying interest should be expected in what could be an ideal intersection to consider adding longs if the market provides enough technical evidence.

NZD/USD: Bearish Cycle Reaches Full Maturity?

The way we’ve come down in the exchange rate resembles the gyration in price action experienced by the EUR/USD in the last week. In the case of the Kiwi, each leg sold has reflected lesser amounts of conviction as the magnitude of each extension demonstrates. In market structures 101, it means once the 3rd leg down has come to an end, we are likely to transition into a period of distribution. It is precisely this permutation into a consolidation pattern that has transpired, with the violation of the descending trendline an obvious sign that the rhythm of this market has now shifted to neutral. I’ve marked in the chart, mainly in blue (hourly levels), the key decision points today.

USD/CAD: Snap Back After Overextended Selloff

The more the rubber stretches, the more it’s going to pull in the opposite direction, which is precisely what we saw in this exchange rate following a marginal breach of the 100% proj target at 1.3295. The failure to find acceptance sub 1.33 is a precursor that this market should be seen from the context of a broad range trading between 1.3280-1.33 and 1.3445-50. Within this box, we can then scale it down into the more granular trends, where the impulsive buying of CADs on Monday makes a retest of the resistance at 1.3350 a key decision point where the market may rotate from. Be aware, we don’t really have a pre-established bias from an hourly and above given the failure below 1.33.

Important Footnotes

• Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
• Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
• POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
• Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
• Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
• Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
• Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
• 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