IvanGlobalPrime
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Market Thoughts Aug 24: USD Roars Back in Line w/Bullish Positioning
One can access our daily blog (including all our analysis history in chronological order) via the following link
Also, find out why Global Prime is the highest rated broker by number of reviews via our friends at Forex Peace Army.
The US Dollar came back with a vengeance on Thursday, with the early impulse initiated early in the last Asian session, and while some may be scratching their heads on the catalyst/s that led to the currency’s appreciation, be reminded that the smart money (large specs, lev funds) has been clearly telegraphing to those paying close attention to the CoT (Commitment of Traders) report that the technical breakout in the EUR/USD did carry a trifecta of major increases in volume, open interest, paired with conducive risk-off flows, a sufficient bundle of factors to understand the side in control of the trend. Be reminded, the DXY and the EUR/USD as a proxy came to test the range breakout points this week, an ideal area for the smart money to consider reinstating positions for what appears to be decent risk-reward opportunities.
DXY & EUR/USD re-testing previous breakout zones
The rapid appreciation in the US Dollar not being attributed to a single clear catalyst on Thursday reinforces the bullish view in the currency, as it clearly manifests a market ready to bifurcate its focus and in no need to resort to external catalysts to re-engage into the US Dollar trend. If anything, Thursday’s low-tier US data (housing, manufacturing) came to the softish side, but it didn’t move the needle in the slightest. What’s more, it will be borderline ‘too opportunistic’ to venture into the argument that Wednesday’s FOMC carried enough substance to have acted as a catalyst of USD strength by itself. Again, if anything, it warned us that the Fed is coming into close proximity of a phase of normalized rates, which implies a slowdown in the pace of hikes. The FOMC minutes did, however, remove a risk event out of the way and cleared the path for bulls to re-engage in long-sided business ahead of the Jackson Hole Symposium, which is expected to offer no new policy inputs by Fed’s Chairman Powell. Watch potential commentary over the flattening of the US curve though, as it makes fresh multi-year lows.
A concern for the Fed: The US yield curve heading into negative
By unpacking Thursday’s movements in risk-sensitive assets, Global Prime’s risk-weighted profile remains in a corrective upward trend, although it looks as if a double-top is starting to be carved out with the subsequent perils of violating the short-term bullish structure. The decline in emerging markets (see the MSCI EM index) coupled with the spike in the DXY, CHF strength and the mild decline in the S&P 500 / US junk bonds pressured the index, which is still holding its ground in part due to the weakness in the Yen or the stability seen in the US bonds market, especially in the 30-yr bond . Once the trendline is clearly broken, it runs the risk of re-igniting the bullish trend in risk aversion, which is supported by the macro picture.
If the risk index breaks the trendline, USD strength may accelerate
One focal point of attention that may shift the fortunes for the US Dollar going forward, despite being brushed under the carpet up until now, is the fluid political situation in the US after Trump’s personal lawyer Mr. Cohen testified against the President himself in what could be a real can of worms. In an interview with Fox News on Wed night, Trump even said that the market would crash if he got impeached. There is talk in the street that the latest Cohen scandal makes it a viable case for President Trump to be impeached. Be it as it may, for now, equity traders in the US don’t seem too perturbed about the prospects. Shifting gears, another potential USD mover is likely to be any new developments in the low-key China vs US trade negotiations, with a 25% tariff on Chinese products that just came into effect in the last 24h. The meetings between the 2 parties have so far yielded no public headlines worth noting.
Chinese markets: USD/CNY back up on USD fortitude
On the other side of the spectrum, the Aussie was dumped relentlessly, as current PM Turnbull appears to be heading to the exit with a new leader and government to be formed in coming weeks, so long as he receives a letter with a majority of MP signatures requesting a new leadership vote. In the meantime, the parliament has been adjourned until Sept 10th, causing enormous political instability. To make matters worse, the decision by Australia to ban China’s Huawei from taking part in the country’s 5G network infrastructure, while flying under the radar, it’s probably an equally if not more relevant news, as it runs the risk of infuriating and causing a tick for tack approach from Australia’s main trading partner (AUD negative). The first cracks are coming to the surface, with Chinese commerce minister saying he is very concerned.
G10 FX: USD dominates as the Aussie struggles in the last 24h
Another currency that succumbed to the US Dollar strength was the British Pound, closing at the lows of the day after a depreciation of over 1 full cent, sending the rate back to 1.28. While hardly a fresh input the market wasn’t already aware of, the fact that the UK government published a set of gloomy technical notices on a no-deal Brexit scenario was enough to move the needle and send the Pound spiraling downwards, very much in line with the well-established multi-month downward trend. As highlighted in recent reports, the Brittish currency appeared the most vulnerable out of the G10FX based on the recent price action and CoT data.
The one currency that held the ‘USD show’ with sufficient determination to limit its losses was the Euro, undeterred by the release of a neutral ECB minutes, which reinforced the view that expansionary policies are coming to an end, although it surprisingly failed to flag concerns about the current political and financial instability in Italy. Worth noting is the fragility in the Japanese Yen, which is so far helping to contain the false sense of neutral risk conditions. The strengthening of the USD and the CHF, with the implications that the former will have for EMs the likes of the Turkish Lira or Chinese Renminbi, won’t sit too well, which may soon re-ignite a resumption of the risk off flows theme.
One can access our daily blog (including all our analysis history in chronological order) via the following link
Also, find out why Global Prime is the highest rated broker by number of reviews via our friends at Forex Peace Army.
The US Dollar came back with a vengeance on Thursday, with the early impulse initiated early in the last Asian session, and while some may be scratching their heads on the catalyst/s that led to the currency’s appreciation, be reminded that the smart money (large specs, lev funds) has been clearly telegraphing to those paying close attention to the CoT (Commitment of Traders) report that the technical breakout in the EUR/USD did carry a trifecta of major increases in volume, open interest, paired with conducive risk-off flows, a sufficient bundle of factors to understand the side in control of the trend. Be reminded, the DXY and the EUR/USD as a proxy came to test the range breakout points this week, an ideal area for the smart money to consider reinstating positions for what appears to be decent risk-reward opportunities.
DXY & EUR/USD re-testing previous breakout zones
The rapid appreciation in the US Dollar not being attributed to a single clear catalyst on Thursday reinforces the bullish view in the currency, as it clearly manifests a market ready to bifurcate its focus and in no need to resort to external catalysts to re-engage into the US Dollar trend. If anything, Thursday’s low-tier US data (housing, manufacturing) came to the softish side, but it didn’t move the needle in the slightest. What’s more, it will be borderline ‘too opportunistic’ to venture into the argument that Wednesday’s FOMC carried enough substance to have acted as a catalyst of USD strength by itself. Again, if anything, it warned us that the Fed is coming into close proximity of a phase of normalized rates, which implies a slowdown in the pace of hikes. The FOMC minutes did, however, remove a risk event out of the way and cleared the path for bulls to re-engage in long-sided business ahead of the Jackson Hole Symposium, which is expected to offer no new policy inputs by Fed’s Chairman Powell. Watch potential commentary over the flattening of the US curve though, as it makes fresh multi-year lows.
A concern for the Fed: The US yield curve heading into negative
By unpacking Thursday’s movements in risk-sensitive assets, Global Prime’s risk-weighted profile remains in a corrective upward trend, although it looks as if a double-top is starting to be carved out with the subsequent perils of violating the short-term bullish structure. The decline in emerging markets (see the MSCI EM index) coupled with the spike in the DXY, CHF strength and the mild decline in the S&P 500 / US junk bonds pressured the index, which is still holding its ground in part due to the weakness in the Yen or the stability seen in the US bonds market, especially in the 30-yr bond . Once the trendline is clearly broken, it runs the risk of re-igniting the bullish trend in risk aversion, which is supported by the macro picture.
If the risk index breaks the trendline, USD strength may accelerate
One focal point of attention that may shift the fortunes for the US Dollar going forward, despite being brushed under the carpet up until now, is the fluid political situation in the US after Trump’s personal lawyer Mr. Cohen testified against the President himself in what could be a real can of worms. In an interview with Fox News on Wed night, Trump even said that the market would crash if he got impeached. There is talk in the street that the latest Cohen scandal makes it a viable case for President Trump to be impeached. Be it as it may, for now, equity traders in the US don’t seem too perturbed about the prospects. Shifting gears, another potential USD mover is likely to be any new developments in the low-key China vs US trade negotiations, with a 25% tariff on Chinese products that just came into effect in the last 24h. The meetings between the 2 parties have so far yielded no public headlines worth noting.
Chinese markets: USD/CNY back up on USD fortitude
On the other side of the spectrum, the Aussie was dumped relentlessly, as current PM Turnbull appears to be heading to the exit with a new leader and government to be formed in coming weeks, so long as he receives a letter with a majority of MP signatures requesting a new leadership vote. In the meantime, the parliament has been adjourned until Sept 10th, causing enormous political instability. To make matters worse, the decision by Australia to ban China’s Huawei from taking part in the country’s 5G network infrastructure, while flying under the radar, it’s probably an equally if not more relevant news, as it runs the risk of infuriating and causing a tick for tack approach from Australia’s main trading partner (AUD negative). The first cracks are coming to the surface, with Chinese commerce minister saying he is very concerned.
G10 FX: USD dominates as the Aussie struggles in the last 24h
Another currency that succumbed to the US Dollar strength was the British Pound, closing at the lows of the day after a depreciation of over 1 full cent, sending the rate back to 1.28. While hardly a fresh input the market wasn’t already aware of, the fact that the UK government published a set of gloomy technical notices on a no-deal Brexit scenario was enough to move the needle and send the Pound spiraling downwards, very much in line with the well-established multi-month downward trend. As highlighted in recent reports, the Brittish currency appeared the most vulnerable out of the G10FX based on the recent price action and CoT data.
The one currency that held the ‘USD show’ with sufficient determination to limit its losses was the Euro, undeterred by the release of a neutral ECB minutes, which reinforced the view that expansionary policies are coming to an end, although it surprisingly failed to flag concerns about the current political and financial instability in Italy. Worth noting is the fragility in the Japanese Yen, which is so far helping to contain the false sense of neutral risk conditions. The strengthening of the USD and the CHF, with the implications that the former will have for EMs the likes of the Turkish Lira or Chinese Renminbi, won’t sit too well, which may soon re-ignite a resumption of the risk off flows theme.