Global Prime: Volume, Correlations, Technicals

EUR/USD Setting Up for a Rotational Day, 1.1570 & 1.1630 Extremes to Exploit


VOLUMES & CORRELATIONS (H4)

The first test of a macro resistance exhibited bearish dynamics to reverse a 3-day long bounce, and while the rejection was quite commanding for the interest of sellers, buyers were lined up to join the bid, which as noted would be an expected outcome due to the increasing volume sequence seen last Wed. By the end of Thursday though, the volume saw a slight decrease as buyers attempted to retest 1.1630, suggesting that at the bare minimum, we should expect some downward pressures. As per the correlation against bond yields and gold, it provides conflictive signs, as the 10-yr German vs US bond yield spread saw a tick up while the 2-yr came into more intense pressure. As an extra bearish input, the Italian bond yield saw an increase on Wed, which may add to the case of limiting upside potential. As a reminder, on a 3 month correlation of a 3d performance, both spreads remain over 90% correlated to the EUR/USD. Overall, the macro reading does not show sufficiently apparent clues, although if having to pick one side to be most at risk, it seems as though the sell-side may end up exerting a slightly higher dominance today.


INTRADAY CHART (30m)

The failure to extend its corrective bull cycle ahead of a macro resistance level at 1.1630 has resulted in the early stages of a potential distribution phase as both sides fail to exert a clear control of the price action. As a reference for Thursday, the side in control of the PoC (1.1590-1.16) should be best positioned to aim for short-term buy/sell campaigns towards the edges of a tentative range between 1.1570 and 1.1630. The flattening of the 100 and 200-hourly MA reinforces the idea of range-bound market conditions, in which amid no catalysts, we should expect to extend heading into Friday. What this means is that today’s best areas to engage in trading opportunities to exploit short-term moves include the edges of the developing range for a potential rotational market or engaging around the PoC for a test of the extremes. From a volume profile perspective, buyers have been spending the most time above the PoC building value; should this pattern extend into the European hours, watch for an attempt to retest the 1.1630.


GBP/USD: Well Established Dynamics, Profit-Taking Might be in Store


VOLUMES & CORRELATIONS (H4)

An increase of volume on an impulsive move lower is all it should take to remain overall bearish this market, which comes accompanied with the addition of a move being in line with the overall trend dynamics. That said, the hosts of divergences between GBP/USD spot and a lower DXY and higher UK vs US 10-yr yield spread in the last 24h, coupled with an absence of new snippets of information on the Brexit front, does suggest some profit-taking might be in store. If enough short-term impulse is gathered, a retest of old support-turned-resistance near 1.2920 is possible.

INTRADAY CHART (30m)

The bearish expansion of the 100 & 200-hourly MAs as a consequence of new lows printed depicts an overall well-establish bearish trend. The structure of the volume profile, where most of the volume has been accumulated at the bottom of the daily range does communicate ongoing interest to stay short. However, so far the bids circa 1.2850 are holding up prices, with the emergence of a possible double-bottom taking place, a first prerequisite for the onset of a short-term recovery towards 1.29 round number ahead of 1.2920. Even if an over-extension materializes, 1.2940-50, as an untested PoC from Aug 6th should prove a nut too tough to crack, where a reversal should be expected. On the contrary, a break and hold sub 1.2850 should provide a void area worth over 50p until the next maco support circa 1.28.


AUD/USD Poised to Keep Bullish Dynamics Until the RBA SoMP


VOLUMES & CORRELATIONS (H4)

As a premise, a reminder that the correlations between the Aussie and Gold, DXY (opposite) and AU vs US 10-yr bond yield spreads on a 3 month period of 3-day returns remain very strong, which will allow us to unpack some useful interpretations of the latest market moves seen. Right off the bat, we notice firm and stable buy-side volume for the last 2 days, which should at least retain the prospects of further gains. The rise seen is also in agreement with the appreciation in Gold, the widening of the AU vs US yield spread and a decline in the DXY. Notwithstanding the positive narrative, spot AUD/USD is approaching an area that has been well dominated by leverage specs since mid June, and that alone should make the potential of further upside harder to come by, although attempts are expected, tentatively all the way up towards the 0.7480-0.75 macro resistance.

INTRADAY CHART (30m)

The technicals looks certainly bullish. After the accumulation of volume above the 0.74 area on Tues, a sharp correction in European hours led to an equally robust bounce, effectively drawing out a V-type shape bullish pattern. This type of formation, when followed by a continuation of the momentum, which has been confirmed and fueled on upbeat Chinese inflation, is a clear statement by market forces that the short-term bias remains up. The resolution above the 0.7440 double top should pave the way for the market to exhibit an extension of the bullish dynamics, with target seen at 0.7450, ahead of 0.7465 and 0.7480, the latter being the immediate macro resistance. As long as the price keeps the bid above 0.7430 (Wed’s PoC), the upward pressure should be maintained. Upon a loss of the high vol area, expect 0.7415 to become the next support area ahead of bids populating the 0.74 vicinity. Note, some profit-taking end of the day might be expected ahead of the RBA’s SoMP on Friday.



USD/JPY Should Encounter Buying Pressure off Macro Support


VOLUMES & CORRELATIONS (H4)

The buying of Yens has come amid higher trading volumes, with the close near lows of the day which is asserting of the confidence by Yen longs to hold into their positions heading into Thursday. On the flip side, the latest decline in USD/JPY exhibits a disagreement with the latest price movements in the VIX, which is making lower lows; besides, the 2-yr US vs JP bond yield spread is also holding up quite well, which comes in contrast with the long-dated yield spread. Note, the correlation with the 2-yr remains much strong from a 3m correlation standpoint. Putting it all together, and based on the latest bullish engulfing pattern on the 4-h chart, coupled with a retest of 110.70 macro support, we would expect the buyers to put up a stiff fight to recover the upper hand.

INTRADAY CHART (30m)

A tentative bullish response off the macro support at 110.70 has taken place, with the breakout of a descending trendline confirmed. The impulsiveness of the bounce should keep fairly high odds of renewed buying interest on any setback. The next milestone by long-sided business is to sustain the price above 111.00 and build value, in which case pressure into the 111.15 intra resistance looms ahead of a further rise into the 111.30-40 area, where an imbalance of supply is expected to cap the upside corrective attempts for the time being. Note, 111.40 has acted as the area of highest volume accumulation for both Tue and Wed. As in the case of the Sterling, should the correction fail, an opportunity to exploit a 50p void area sub 110.70 may see the rate fall towards the next macro support at 110.20.

“Past performance is not a reliable indicator of future performance“


Important Footnotes:

The only Moving Average to apply in the charts will be the 100-hourly exponential moving average, which will assist us on the overall directional bias of the market.

The green, red, and aqua lines are utilized to represent the latest Cycles. Markets tend to move in cycles of 3 followed by a period of distribution and/or accumulation. To consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range.

The magenta rectangles in the chart represent the areas of most interest by trading volume, referred as POC - Point of Control - and should act as walls of bids/offers that may result in price reversals. The rectangles will be drawn as long as the area is not absorbed. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals dominant and/or significant price levels based on volume. This process allows understanding market opacity.

The analysis of Volume activity in the chart provides some great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement.

In the chart we represent Intraday or Macro Support/Resistance levels by drawing them in black colours, via a thinner black line for intraday support/resistance, while the macro levels of support/resistance will be drawn using a thicker black line.

In a thin blue line we will have the most recent Daily Highs and Lows, which play an important role as areas of support and resistance as well.

To reinforce the key area of interest in an attempt to find confluential levels, we will also use Daily Pivot Levels, which include the pivot point (thick orange) and the subsequent 3 levels of support and resistance derived from the pivot calculations.

The analysis will be conducted from a Top-Down Approach by analyzing 2 different timeframes. Firstly, we will look at the H4 chart to analyze the big picture, where attention centers around the price action, macro levels, volume analysis and valuations via yield spread. Secondly, we will break down the analysis from a technical perspective through the 30m chart by studying the most likely directional bias based on all the information gathered as well as the levels of major interest for traders.

The Ultimate Purpose of this report is to equip Global Prime’s existing and future clients with a professional institutional-level daily outlook that can assist one’s trading decisions on a regular basis.

Technical analysis is subject to Fundamental-led News. Any unexpected news may cause the price to behave erratically in the short term, while still respecting the most distant price references given.
As Head of Market Research at Global Prime with over a decade of experience in capital markets, I focus on providing expert market analysis from a technical and fundamental standpoint to Global Prime’s global clients and media outlets, with currencies the area of most expertise and dedication.

My views on the FX market are insightful and actionable, connecting the dots to interpret market dynamics and uncover opportunities. I dive into monetary and fiscal policies, economic data, geopolitics & macro fundamentals. My role also includes oversight of Global Prime’s brand reach globally.

LinkedIn profile: https://www.linkedin.com/in/ivan-delgado-79b770a/
 
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EUR/USD: Sell on Rallies Still Favoured Unless a Turkish U-Turn


Volumes & Correlations (H4)

  • First off, as a reminder, from a 3d return perspective on a 3m correlation, the Euro/US Dollar exchange rate continues to be strongly correlated to the differential in yield spreads between Germany and the US, less so against the Italian bond yields, which nonetheless remains a source of concern for investors, but most importantly, the correlation with the falling Turkish Lira is the highest we’ve seen on record, which substantiates the notion of monitoring these assets for potential diverging clues. The chart below illustrates the described correlations:


  • Drilling down into the H4 chart, there has been a substantial decline in GE-US yields spreads in the last 24h, Italian yields remain at elevated levels, and gold is sliding further, all supporting a lower Euro. On the positive side, the retracement in the Turkish Lira, which has been the key driver for a cheaper Euro,may see today’s downside risk not as prevalent or at least more contained. While the decline in the Euro carries overall decreasing volumes, the pushes lower are still fueled with greater sell-side volumes than the tepid buying interest activity. Overall, the more macro picture in the Euro/US Dollar remains quite negative, with the chart not providing enough reversal hints.


Intraday Chart (30m)

  • Technically, the exchange rate is overwhelmingly bearish, with the consolidation near trend lows the first indication that we are faced with a market where sellers are yet to take profits off the table, as lower value is agreed and value built. The last fall has had a clean breakout of 1.1365-70 support, which suggests that any rebound could represent a decent selling opportunity. I am looking to be a seller if conditions align. The main areas whereI will be looking to engage, barring any new development in the Turkish Lira drama, include 1.1365 up to 1.1380 (the pivot level is found around this area). If the snap back up extends, expect the PoC (Point of Control) circa 1.14 to represent a major wall for the recovery to run out of juice. On the unlikely scenario, as the risk environment stands, that the Euro breaks higher, 1.1430-35 is a major resistance, which would be further reinforced by the intersection of the 100-hourly MA. Note, the anticipated sell-side follow through is likely to target the area around 1.13 (100% fib projection), where the bearish leg should find a tentative bottom.


GBP/USD: Sellers in Full Control w/UK CPI a Risk Event

Volumes & Correlations (H4)

  • Right off the bat, one can clearly see how strongly inversely correlated the Sterling has been to the performance of the DXY, while a significant divergence seems to exist against the 10yr UK-US yield spread, although for the time being, that should not represent the main driver for the Pound as long as the situation in Turkey remains fluid and the increasing odds of a Brexit no-deal prospects are somehow reverted. Judging by the bearish breakout seen, with a close near the daily lows by NY 5pm, one should expect the bearish trend to resume.


Intraday Chart (30m)

  • The decline in the Sterling has led to market participants treating old support as a new resistance at the 1.2725 vicinity, a first hint that the bearish phase is finding increasing sell-side pressure for a continuation lower. From a technical standpoint, sellers are in a position to exploit over 90p of downside void potential, as no significant area of macro support is found until the exchange rate reaches 1.2620-1.26, although with the usual caveats of expecting solid pockets of liquidity at the mid and round numbers as usual. The ultimate target aforementioned aligns with a 100% fib extension from the recent 1c area of consolidation between 1.2820-1.2720. Early in Europe, should a setback in the Pound occur that leads to the rate exchange hands higher – risk exist on UK CPI – the area of resistance between 1.2760-1.2775, where the prior day’s PoC crosses, should be perceived as an area of value for sellers to re-engage in sell-side action. Above, 1.2790 up to 1.2820 sees new layers of resistance as depicted by the horizontal lines in the chart, including the round number 1.28. My preference to be a seller on rallies is firm for the time being.


USD/JPY: The V-Shape Reversal Hints More Upside Ahead

Volumes & Correlations (H4)

  • The steady volume activity throughout Tuesday, along with a close at the absolute highs of the day by NY5pm communicates that the market should remain predominantly bullish. The recovery in the US vs JP 10yr yield spread, together with a significant decrease in the VIX volatility index further anchors the bullish view. It’s worth noting how Monday’s spike in the VIX failed to yield any gains for the JPY against the USD, a hint that the market was clearly failing to find enough sell-side interest.


Intraday Chart (30m)

  • The 2nd leg of the developing bullish phase came amid yet another impulsive push. Value continues to be found at higher prices as per the accumulation of volume above the 111.00 mark. One would expect that after 2 cycles up, bulls would be grouping and ready to take it even higher in the next 24h. The areas of most interest to engage in the intraday bullish tendencies include the PoC of Wed in Asia circa 111.20, followed by the latest swing low at 111.13 and ahead of the round number at 111.00, which aligns with the daily pivot and the crossing of the 200-hourly MA. Even if further setbacks are witnessed, Tuesday’s PoC around 110.80-90 should act as a wall for prices to rebound. At this stage, it’s unlikely to see the bullish structure disrupted before price travels further north and completes at least a 3rd leg up, which should take the price to the first target of 111.50-60, where offers are expected to contain price on its first pass; further rises see 111.85 and 112.00 as the next targets. As the structure stands, I am looking to be a buyer on dips as the strategy to allocate the highest threshold of risk.


AUD/USD:No Reason Not to Remain an Intraday Seller

Volumes & Correlations (H4)

  • The macro chart appears to point out towards an extension of the bearish mode, as both volume activity and Intermarket analysis move in tandem for the interest of sellers. While the overstretched nature of the bearish leg is very obvious by now, there are so far no indications that the tide is turning. The fact that Turkey is imposing fresh tariffs on US imports, and the Chinese Yuan is weakening further against the USD (last above 6.90) are two additional drivers weighing on emerging markets and as a consequence on the Australian Dollar.


Intraday Chart (30m)

  • Strategies aimed at selling on rallies should dominate. The latest breakout of the support at 0.7225 paves the way for a cheaper rate towards the 0.72 round number, ahead of 0.7190 and a major macro support at 0.7165-70 (dates back to Dec 2016). As in the case of the Sterling, sellers are likely to exploit a void area where poor liquidity is expected due to the absence of significant levels of reference. Commercials and market makers sitting on the bid will be looking to exert enough upside pressure for the anticipated slide to play out in an orderly manner nonetheless, as void areas tend to be filled faston order imbalances, as it’s the risk in today’s Aud/Usd price action. Areas of resistance can be found in close proximity to each other, in a sequence of barely 10-15p from 7225 up to 7255-60 (Tuesday’s PoC). At this point, as in the case of the rest of majors analyzed, the price action bodes fairly disastrous for trend contrarians.


“Past performance is not a reliable indicator of future performance“
 
Volumes, Correlations, Price Action for Aug 16th

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EUR/USD: Tentative Bottom as Buy-Side Volume Back


Volume, Correlations, Fundamentals (H4)


The Euro/US Dollar exchange rate exhibits tentative hints of an interim bottom after the print of a bullish outside bar with higher-than-average volumes. The price formation occurs within the context of a well-established downtrend, which suggests that further upside progression is needed to disrupt the current bearish structure. However, the price action and volume to indicate that a potential rotation into higher a higher price equilibrium might be on the cards. When analyzing the correlation with other key drivers of the Euro, long/short-dated German vs US yield spreads are not providing any advantageous clues, neither is gold nor the fresh spike in Italian yields.

The only consolation for Euro bulls is the fact that the Turkish Lira continues to strengthen, which provides a temp circuit breaker. Talking about circuit breakers, the news that China’s Vice Commerce Minister is set to visit the US for trade talks opens up a new venue for investors to rest more at ease, in light of a possible easing of the trade tensions. Overall, price and volume support a temporary recovery in the pair, as does the hopes of a recovery in battered EM, or the counter-intuitive bullish leg to higher-than-expected US retail sales. On the flip side, the structure remains bearish and bond yields are yet to reflect a recovery that may further anchor fresh uplegs in the Euro.



Intraday Chart (30m)

Technically, the ABC-type recovery still looks corrective in nature, with the price still facing some major roadblocks in the form of key resistance areas at 1.1380 (horizontal support), 1.14 (confluence of POC, 100-hourly MA, round number) ahead of 1.1430-35 (macro resistance as per thicker horizontal line). While the latest impulsive leg brightness up the prospects of further buying interest of dips, we are still in a structurally bearish market, despite buyers have won an intraday battle by catching Wed’s sellers wrong-sided. If buyers can find value through the accumulation of volume above the 1.14 area, it will be yet another milestone to reinforce the intraday bullish motion. Should a resumption of the USD buying return, the exchange rate must hold above Wed’s PoC at 1.1325-30 or otherwise an imbalance of offers is expected to take the rate back down to revisit 1.13 ahead of macro support at 1.1290.



GBP/USD:Sterling in a Meritless Recovery Mode

Volume, Correlations, Fundamentals (H4)

Mimicking the Euro, the Sterling has seen a similar price pattern, with the print of a long lower shadow on high volume, which more often than not constitutes a tentative bottom. In the case of the Sterling, with such a firm downtrend in place and the outlook for a Brexit no-deal on the rise, one must be extra cautious not to be caught buying relatively expensive Sterlings. What’s more, and while currently not showing a big deal of correlation from a weekly perspective, the decline in the UK vs US 10-yr and 2-yr yield spread should communicate a limited upside potential. Should the Sterling recover further, it’s likely going to be fueled by the demerits of a deflating USD than GBP strength by default. As illustrated in the chart below, the weekly correlation coefficient with the USD is almost 1:1.



Intraday Chart (30m)

Notwithstanding the failure to print lower levels on Wed, buyers are still to inflict technical damage to what has been so far a rather stable downtrend in place. Unlike in the case of the Euro/US Dollar, the British currency failed to close by NY 5pm at a distance far from its center of equilibrium, in other words, the PoC (Point of Control). The current correction is faced with a major resistance area starting at 1.2720-25, with a break above to face the next obstacle right overhead at 1.2735 (Wed’s high and R1 resistance), with only a breakout above the latter to potentially fuel a 25-30p short squeeze into the 1.2760-70, which will remain absolutely key and is expected to hold (100-hourly MA, PoC, horizontal resist, R3), barring any major surprises originated from today’s UK retail sales. A break above the 1.2760-70 will still face multiple layers of resistance in a fairly close sequence from each other, with 1.2820 a major macro resistance. Remember, to the downside, the exchange rate may still be exposed to a fairly rapid depreciation towards 1.2615-20 as the area carries the risk of being thin in liquidity due to the obvious absence in technical levels of reference.


USD/JPY:Stampede of Sellers But Risk Sentiment Improving

Volume, Correlations, Fundamentals (H4)

The selling wave on Wed came on increasing volume, with the sell-side bars overwhelming those sitting on the bid. The US vs JP 10-yr yield spread saw a retreat near recent lows prior to a mild bounce, while the VIX index rose to the highest since July 5th, communicating that the risk is shifting towards a further setback of price action, notwithstanding the fact that the overall structure continues rather constructive for the interest of buyers given the impulsive recovery seen from the 110.00 round number. One factor that may underpin the bulls today is the report, which is gathering air time and reflected in a higher Yuan and better bid EMs, that China might be ready to go back to the negotiation table with some concessions on trade. The story has enough substance to shift the focus into a more benign risk environment, in which case, the US Dollar/Japanese Yen is expected to perform on an improved bid tone.



Intraday Chart (30m)

The technicals offer a market that is broadly speaking, controlled by the sellers as per the initiation of a first impulsive cycle down following the 1c. slide that completely distorted the previous 2-day up-cycles. Drilling down into the latest price action though, the aforementioned improvement in risk on the Chinese headlines has led to what might be a short-term recovery in the making, with bids so far finding equilibrium after a breakout of intraday resistance at 110.75, paving the way to expose the filling of offers up towards the 110.90-111.00 zone, where the daily pivot acts as resistance backed up by the 100 & 200-hourly MA, as well as the round number 111.00. A resolution above the latter should expose what’s expected to be a tough nut to crack at 111.15, horizontal resistance and origin of Wed’s supply imbalance, ahead of 111.20-25. Shifting gears, if the focus is back to the downside, buyers must defend the 110.60-65 area or else it will suggest that the recent swing lows of 110.45-50 will be targeted, with a breakout aiming to reach 110.10-110.00.



AUD/USD: Constructive Price Action on Aus jobs, China trade talk

Volume, Correlations, Fundamentals (H4)

The Australian Dollar is exhibiting bullish tendencies, with the onset of the recovery originated late on Wed and reflected in the chart via a classic textbook bullish engulfing bar followed by low volume sell-side activity retesting the lows. The continuation has then been fueled by solid full-time jobs creation in Australia (despite the headline number was poor) coupled with tentative hopes, – which may be priced in for a few sessions – of a more amicable approach in trade talks between the US and China. The overextension in the Ausie is not backed by Gold or other commodities such as Copper though, trading under immense sell-side pressure this week. On the flip side, the increase in the 10y Aus-US yield spread – poorly correlated on a weekly basis – but most importantly, the retreat in the DXY underpin the ongoing recovery. Note, as a direct proxy to EMs, if we were to see an acceleration of the USD long liquidation, the Aussie is well positioned to muster the most gains in coming days. The early signs of a turnaround in fortunes have certainly appeared.



Intraday Chart (30m)

The ongoing momentum in the Aussie should find an increasing number of offers to at least limit the magnitude of the rise, given the the exchange rate has broken above its ADR14d, now retestgn the 100-hourly MA ahead of a double layer of resistances at 7280 & 7290 respectively, followed by the round number 73. One would expect the initial buy-side target where profits are likely to be taken off the table at the 100% fib proj circa 7280. As the price action stands, any pullback faces the prospects of being bid with more conviction as the market structure is starting to shift from bearish into a potentially bullish transition. The areas where one would expect buyers to re-engage in buy-side activity are found at 7240-50 ahead of 7230 (Wed’s PoC). Failure to hold the latter constitutes a risk to crack recent lows, in which case a target of 7150/71 might be on the cards, although for now this is not the base case scenario one should expect ST.



“Past performance is not a reliable indicator of future performance“

Important Footnotes:

The onlyMoving Averagesto apply in the charts will be the 100 & 200-hourly exponential moving averages, which will assist us on the overall directional bias of the market.

The green, red, and aqua lines are utilized to represent the latestCycles. Markets tend to move in cycles of 3 followed by a period of distribution and/or accumulation. To consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range.

The magenta rectangles in the chart represent the areas of most interest by trading volume, referred asPOC – Point of Control –and should act as walls of bids/offers that may result in price reversals. The rectangles will be drawn as long as the area is not absorbed. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals dominant and/or significant price levels based on volume. This process allows understanding market opacity.

The analysis ofVolumeactivity in the chart provides some great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement.

In the chart we representIntraday or Macro Support/Resistancelevels by drawing them in black colours, via a thinner black line for intraday support/resistance, while the macro levels of support/resistance will be drawn using a thicker black line.

In a thin blue line we will have the most recentDaily Highs and Lows, which play an important role as areas of support and resistance as well.

To reinforce the key area of interest in an attempt to find confluential levels, we will also useDaily Pivot Levels, which include the pivot point (thick orange) and the subsequent 3 levels of support and resistance derived from the pivot calculations.

The analysis will be conducted from a Top-Down approach by analyzing 2 timeframes. Firstly, we will look at the H4 chart to analyze the big picture, where attention centers around the price action, macro levels, volume analysis and valuations via yield spread. Secondly, we will break down the analysis from a technical perspective through the 30m chart by studying the most likely directional bias based on all the information gathered as well as the levels of major interest for traders.

TheUltimate Purposeof this report is to equip Global Prime’s existing and future clients with a professional institutional-level daily outlook that can assist one’s trading decisions on a regular basis.

Technical analysis is subject toFundamental-led News. Any unexpected news may cause the price to behave erratically in the short term, while still respecting the most distant price references given.
 
Volumes, Correlations, Price Action for Aug 17th

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EUR/USD: Market Looks Set to Stay Within Contained Range

Volume, Price Action, Correlations, Fundamentals (H4)

The recovery in the Euro/US Dollar rate was unimpressive to say the least, as bids found a large supply imbalance as 1.14 area got tested. The volumes and price action (shooting star and retest on low volume) are not supporting further climbs in the pair as it stands, especially in the context of a well-established downtrend. The slight uptick in long and short-dated German vs US bond yields may add some upward pressure with the correlation on a 3-month basis of a 3-day return being at the highest this year near 90%. While a source of imminent risk includes the elevated Italian bond yields (negative EUR), a temporary reprieve from highs, together with a higher Turkish Lira, adds to the case for the price to still find decent pockets of buy-side liquidity on dips, hence expecting bids to re-emerge to contain the downside. Overall, price action and volume are skewed to the downside but correlations appear supportive at the margin, therefore, unless new developments in China or Turkey and amid no data releases in Europe or US, range-trading might be on the cards this Friday, with top-bottom edges well defended.



Technicals and Levels (30m)

The corrective nature of the price action came to an abrupt halt at the test of the anticipated wall of offers circa 1.14, which represents the Aug 14th PoC and an area of value for the market. The impulsive move down from the top edge has led into a 5-legs intraday push being negated as the market appears to now enter a phase of consolidation, with the last 2 days failing to create any new cycle as per the magenta lines, which indicate not enough impulse in either direction. Based on the assumption that the contradictory indications between vol/price action and correlations will continue to hold true, and with Thursday’s PoC having found equilibrium in the middle of the range, an initial 0.5c range between 1.14 and 1.1350 might be expected, with the usual caveats of manipulation risks to take pockets of liquidity beyond these levels, which would represent a maximal extension of 1.1410-15 to the upside, while on the downside, 1.1330, which remains an untested PoC from Aug 15 should hold the potential selling tides.



GBP/USD:Sterling Saved by Weak USD, Remains Vulnerable

Volume, Price Action, Correlations, Fundamentals (H4)

The downtrend remains nonvolatile in the H4 timeframe, which continues to develop amid a bearish technical background as per the lower lows and lower highs. The latest price action, with a shooting star followed by a retest of higher levels on tapering volumes, is suggestive of a market prone to test lower levels. However, a weaker USD coupled with higher UK vs US yields spreads pose a risk to be overly short committed. Notwithstanding the pick up in yields, not that as in the case of spot Sterling, yield spreads have also been printing lower lows and lower highs, hence technically speaking there might be added pressure to be sent lower once again, in which case it may add to the bearish case. In terms of fundamentals, the recent UK retail sales is a positive input for the Sterling, with Friday’s calendar vacant.



Technicals and Levels (30m)

The chart is starting to exhibit much more choppy conditions, with the erratic non-directional behavior likely to extend as long as the US Dollar stays weak. The area of resistance between 1.2740 and 1.2760-70 (Aug 14th PoC) should see renewed selling interest to keep the overall downtrend dynamics valid, while on the downside, other than the usual pocket of liquidity at 1.27, expect 1.2690 ahead of 1.2670 to act as immediate support. The sterling stands as one of the most fragile currencies to see the downtrend resume, therefore the risk is by and large still to see sellers capping the upside while the downside continues exposed until the next significant macro support around 1.2620 is met.



USD/JPY: ‘Risk On’ Backdrop May Not Be Enough

Volume, Price Action, Correlations, Fundamentals (H4)

The recovery by the US Dollar is not carrying enough volume to challenge the heavy sell-side volume activity seen on Aug 15th, which should constitute a clue that suggests the upside should remain limited. In terms of price action, a strong buy-side bullish engulfing bar has been printed, although the close was far from ideal. The drop in the VIX and the recovery in the US vs JP bond yield spreads represent an anchor to support buy on dips nonetheless (the weekly and 3-month correlations are both very strong). With no economic data of significance in the US, expect rotational market conditions to ensue unless a fundamental catalyst emanating from the fluid situation in emerging markets, with Turkey and China at the epicenter.



Technicals and Levels (30m)

The upward price trajectory is starting to peter out, as price fails to find equilibrium above the critical 111.00 round number, with evidence of the supply imbalance found above clear after 2 failed breakouts. Even if the price were to extend further up, right overhead at 111.15 another important resistance will be encountered in the form of a horizontal line along with Aug 15th PoC (Point of Control), and origin of the supply imbalance seen this week. On top of that, the impulsive nature of the Aug 15th move, followed by the corrective nature of the recovery does not bode well from a price action perspective, as it communicates potential exhaustion. For sellers to regain control, 110.70-75 will have to first be retaken and market agrees on building value below, in which case 110.55 would be the next support ahead of 110.45, with a slide past this latter to expose a void area until the 110.10-100.00 is met.



AUD/USD: Constructive Structure w/Limited Upside

Volume, Price Action, Correlations, Fundamentals (H4)

In terms of price action, the bullish engulfing bar post Aus jobs and China trade news is trying to unsuccessfully gain new traction, with the printing of a shooting star-type candle on high volume a first warning. So far, the retest into higher territory has seen volumes tapering, which is not a hint for a continuation. That said, it’s all about how the US Dollar will perform in the next 24h, as the market remains strongly inversely correlated to the DXY index. If further US weakness materializes, the Aussie looks set to benefit the most among G10 currencies. In the correlations front, it has tepid support from a mild pick up in copper and gold prices, while the Australian vs US 10-yr yield spread wanes, although the latter has failed to provide significant clues on the times it has diverged in recent months, so for now, takes a backseat.



Technicals and Levels (30m)

The technicals are definitely looking much more constructive in the short term, as the market finally finds a higher equilibrium level as per the formation of the PoC at 0.7270 as opposed to 0.7230 the previous day. The current dynamics entail a bullish first cycle up formed, with bids along 0.7250 so far holding the price and the bullish bias. As a caveat, even if the bullish bias extends, unless we see a major liquidation of USD longs heading into the weekend, the Aussie faces a sequence of nearby resistance layers on every 10-15p interval, which will make progress hard to come by. The toughest obstacle will no doubt be 7310, where the Aug 10th PoC intersects with the 200-hourly MA. To recap, to the upside, 7290, 73, 7310 are the three resistance to watch which should keep prices capped, while on the downside, a break of 7250 area exposes a renewed downside bias into 7210-7200 where commercials bids are expected to abound.



“Past performance is not a reliable indicator of future performance“

Important Footnotes:

The onlyMoving Averagesto apply in the charts will be the 100 & 200-hourly exponential moving averages, which will assist us on the overall directional bias of the market.

The green, red, and aqua lines are utilized to represent the latestCycles. Markets tend to move in cycles of 3 followed by a period of distribution and/or accumulation. To consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range.

The magenta rectangles in the chart represent the areas of most interest by trading volume, referred asPOC – Point of Control –and should act as walls of bids/offers that may result in price reversals. The rectangles will be drawn as long as the area is not absorbed. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals dominant and/or significant price levels based on volume. This process allows understanding market opacity.

The analysis ofVolumeactivity in the chart provides some great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement.

In the chart we representIntraday or Macro Support/Resistancelevels by drawing them in black colours, via a thinner black line for intraday support/resistance, while the macro levels of support/resistance will be drawn using a thicker black line.

In a thin blue line we will have the most recentDaily Highs and Lows, which play an important role as areas of support and resistance as well.

To reinforce the key area of interest in an attempt to find confluential levels, we will also useDaily Pivot Levels, which include the pivot point (thick orange) and the subsequent 3 levels of support and resistance derived from the pivot calculations.

The analysis will be conducted from a Top-Down approach by analyzing 2 timeframes. Firstly, we will look at the H4 chart to analyze the big picture, where attention centers around the price action, macro levels, volume analysis and valuations via yield spread. Secondly, we will break down the analysis from a technical perspective through the 30m chart by studying the most likely directional bias based on all the information gathered as well as the levels of major interest for traders.

TheUltimate Purposeof this report is to equip Global Prime’s existing and future clients with a professional institutional-level daily outlook that can assist one’s trading decisions on a regular basis.

Technical analysis is subject toFundamental-led News. Any unexpected news may cause the price to behave erratically in the short term, while still respecting the most distant price references given.
 
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.

EUR/USD: Tapering of Volumes into Macro Resistance


Volume, Price Action, Correlations, Fundamentals (H4)

The elongated impulsive move in the Euro should be running out of steam on Tuesday, as volumes are far from hinting enough substantive commitment to breach a major area of selling interest circa 1.1550. On the bright side for the Euro/US Dollar exchange rate is the spike in German vs US bond yields, which has undoubtedly assisted the run higher, although much of that yield advantage has already been factored into the price judging by the current elevated levels; the lowering of the Italian yields is also a factor that should underpin the Euro, but not at these levels nonetheless. Outweighing the current positive inputs for the Euro should include the decreasing volumes on the last spike, coupled with renewed broad-based weakness in the Turkish Lira, the risk-weighted index not providing any follow through clues ahead of a 1.1550 macro resistance, but most importantly, the smart money firmly long USDs as per the last CoT report.



Technicals and Levels (30m)

The technical picture supports the tentative peak out in prices, as the market structure completes a third upcycle, that just hits its 100% fib extension target at 1.1540. From here, there is an increasing risk that the market may start accumulating shorts for a sell-side campaign. Note, the usual caveats of short-term market manipulations apply, which would imply a series of retests through the aforementioned macro resistance at 1.1540-50, with the intention to manipulate the market before an eventual mark-down in prices. Given the rapid rise in prices, expect momentum-type accounts to join the bid short term. To the downside, the next target is found at 1.1480-85, while 1.1440-50 is the next one in line, which should be ultimately achieved as the USD bull trend resumes its trend and finds fresh uplegs.



GBP/USD: Vulnerable to Resume Underlying Bearish Trend

Volume, Price Action, Correlations, Fundamentals (H4)

As in the case of the Euro/US Dollar, while the Sterling is underpinned by a spike in UK vs US bond yield spreads, and a broadly lower US Dollar, the tapering of volume on the major rise in prices should constitute a major red flag that the current rise in prices will be limited in nature, barring any major shocker, be it from a new Brexit development or risk appetite being re-invigorated to a whole new level. After reaching a 100% fib proj target, the current corrective upcycle appears to be seemingly benefiting from a temporary reprieve in USD buying, thinning out liquidity and facilitating the recovery in GBP prices, although all within a firm bearish trend context set to extend.



Intraday Technicals (30m)

The fact that it took 20 days in August for the Sterling to prints its first upcycle – to consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range – speaks loud and clear about the current state of disarray for the interest of buyers in the GBP/USD market. Technicals are suggesting a first upside target of 1.2830 (100% fib proj) before we can expect a potential turnaround; note, between 1.2830 and 1.2850 the 100% fib proj will see further resistance in the form of two concurrent horizontal resistance lines. To the downside, the first target is found at 1.2790-1.28 (also retest of the 200-hourly SMA) ahead of 1.2750, which aligns with a key horizontal support and Aug 20th PoC. Overall, expect the correction to be limited ahead of either a potential distribution or an outright bearish trend resumption.



USD/JPY: Market Conditions & Technicals Point Lower

Volume, Price Action, Correlations, Fundamentals (H4)

The latest fall in the US Dollar/Japanese Yen occurred amid decreasing volumes, although the close at NY 50pm below a major psychological level at 110.00, paired with suppressed US bond yields and a still soggy risk-weighted index, suggests a challenging backdrop for the US Dollar to recover much ground. Also note, the latest 4-h bearish bar formation carried significantly higher volume, which should be perceived as yet another Yen positive input. Adding to the bullish Yen case, the latest commentary by Fed’s Bostic on rates and the economy (refer to our daily digest) along with Trump’s rampant rhetoric against a hawkish Fed or the thin odds he sees on anything good coming out of the China vs US low-level trade talks should act as factors that are likely to cap the upside potential on the pair, as it entails a return in risk-off flows.



Intraday Technicals (30m)

On Monday, the pair initiated and later confirmed the successful formation of a 2nd cycle down, allowing the drawing of a new projected 100% fib extension downside target at 109.50, which should see an emergence of bids and profit-taking if reached. Note, more often than not, the formation of a 2nd cycle is the ideal sequence in a price structure to join the dominant trend, which in this case is to the downside. As long as the bids don’t crack the 110.50 level and build value above, the market is prone to be predominantly controlled by sell-side accounts. The key levels to reinstate shorts include 110.10-15 ahead of 110.30-35 and the aforementioned 110.50 (will see 100 and 200-hourly MA overhead too).



AUD/USD:Retesting Range Breakout on Decreasing Volumes

Volume, Price Action, Correlations, Fundamentals (H4)

The Aussie is approaching a macro resistance on a tapering of volume, and as a result, one should anticipate a potential exhaustion that eventually leads to lower price once again. As a reminder, last week’s CoT showed that the AUD/USD range was broken on a major increase in open interest (highest since early May). For now, the correlation between risk assets and the Aussie suggests that the currency remains well anchored by rising gold prices, lower USD although a reiterated in the above analysis, it doesn’t look, based on the risk-weighted index that the constructive environment is going to last much longer, especially on such an extended upside correction that fails to carry enough volumes.



Intraday Technicals (30m)

Conventional price structure would suggest that the pair runs the risk of peaking out as the third cycle up matures and potentially leads to a period of distribution. There is no denial that bullish are in control of the price short term, but if one steps back, there shouldn’t be any doubt that the market is well controlled by selling forces, hence why the completion of a third leg up within a broader bearish context is a compelling moment to consider adding into USD longs. The price action on Tuesday should be largely dependable on the type of risk that dominates and whether or not the dumping of USD comes to an end. The key levels for a potential market reversal can be found at 0.7350-55, with the origin of a major supply imbalance at 0.7365 ahead of what may mark the next target for buyers at 0.7380-85, as it would constitute a 100% fib extension from the 2nd cycle up on Aug 17th. To the downside, 0.7330-35 and 0.7320 are the immediate downside targets for sellers. Only a consolidation sub 73 will see sellers concurring the short term and long term dominance in price action though.



“Past performance is not a reliable indicator of future performance“

Important Footnotes:

The onlyMoving Averagesto apply in the charts will be the 100 & 200-hourly exponential moving averages, which will assist us on the overall directional bias of the market.

The green, red, and aqua lines are utilized to represent the latestCycles. Markets tend to move in cycles of 3 followed by a period of distribution and/or accumulation. To consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range.

The magenta rectangles in the chart represent the areas of most interest by trading volume, referred asPOC – Point of Control –and should act as walls of bids/offers that may result in price reversals. The rectangles will be drawn as long as the area is not absorbed. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals dominant and/or significant price levels based on volume. This process allows understanding market opacity.

The analysis ofVolumeactivity in the chart provides some great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement.

In the chart we representIntraday or Macro Support/Resistancelevels by drawing them in black colours, via a thinner black line for intraday support/resistance, while the macro levels of support/resistance will be drawn using a thicker black line.

In a thin blue line we will have the most recentDaily Highs and Lows, which play an important role as areas of support and resistance as well.

To reinforce the key area of interest in an attempt to find confluential levels, we will also useDaily Pivot Levels, which include the pivot point (thick orange) and the subsequent 3 levels of support and resistance derived from the pivot calculations.

The analysis will be conducted from a Top-Down approach by analyzing 2 timeframes. Firstly, we will look at the H4 chart to analyze the big picture, where attention centers around the price action, macro levels, volume analysis and valuations via yield spread. Secondly, we will break down the analysis from a technical perspective through the 30m chart by studying the most likely directional bias based on all the information gathered as well as the levels of major interest for traders.

TheUltimate Purposeof this report is to equip Global Prime’s existing and future clients with a professional institutional-level daily outlook that can assist one’s trading decisions on a regular basis.

Technical analysis is subject toFundamental-led News. Any unexpected news may cause the price to behave erratically in the short term, while still respecting the most distant price references given.
 
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.

EUR/USD:Buyers Exploit USD Miseries, Buy Dips Favored

Volume, Price Action, Correlations, Fundamentals (H4)

The quadfecta of events points towards a market that is well controlled by buyers. In the last 24h, volumes have been rising on what’s an unambiguous strong move up, with the close near the highs of the day by NY 5 pm communicating that selling tendencies are fading. Price action is also very bullish, with the highest volume of the day a commanding buy-side candle with a neat high close. Meanwhile, correlations with German vs US yield spreads are screaming that the focus is shifting towards the upside short term, as the Turkish Lira and Italian bond yield cause no concern for now, amid relative stability in valuations. Besides, the risk-weighted index is supportive of the move higher too. The news that Trump’s former lawyer has testified to have violated campaign laws during the Trump run up for President should weigh on the US Dollar. If one factors in the low risk of today’s FOMC event acting as a risk for the market or the Chinese vs US trade talks for that matter, the conclusion is that the path of least resistance for the pair continues to be to the upside.



Technicals and Levels (30m)

At the current rate of appreciation and with another successful leg higher, it looks as though the next potential target for buyers is set circa 1.1630 (around the 100% fib proj). Momentum players have been piling up to exert major pain into wrong-sided USD buyers and the technicals, while overstretched judging by the RSI (starting to signal a divergence), there are no signs of a turnaround in the current bullish tide. 1.1535 down to 1.1520 are the best value levels to reinstate longs, while shorts are likely to await for better price levels starting from 1.1630. It will take a consolidation phase sub 1.1520 for the technicals to start shifting the focus back down, a scenario not expected in the next 24h.



GBP/USD:Improved Bullish Outlook,Plays EUR Catch Up

Volume, Price Action, Correlations, Fundamentals (H4)

A very similar picture in the Pound. Increasing volumes on the way up, bullish price formations on the 4h chart, a boost in the UK vs US 10s and 2s bond yields amid a battered USD and renewed optimism around a Brexit deal after a joint EU/UK press conference on Tuesday, are all elements underpinning the upside. What’s more, there are no risk events that may damage the positive outlook in technicals during European hours, with the exception of potential headlines between the US and China on trade talks kick-starting today and the FOMC minutes late in the US.



Intraday Technicals (30m)

An undeniably bullish technical outlook for the Sterling, which should find plenty of bids on retracements, especially after the slightly more constructive outlook for a Brexit deal later this year. The fib proj targets continue being reached to the upside, suggesting that if buyers were to keep the control of price as it looks set to be, the next target is set just above 1.30. Note, before reaching such hefty levels, a major macro resistance around 1.2950 must be breached. To the downside, buy on dips strategies around 1.2875 ahead of 1.2845-50 area and 1.2830 (PoC Tuesday) are expected. At the current levels, and while the RSI is yet to signal a divergence, it’s getting riskier for the average individual trader or auto system to engage in buy-side action unless being short-term in nature and managing positions on tight stops.



USD/JPY:Muddier Picture w/Sellers Still More Dominant

Volume, Price Action, Correlations, Fundamentals (H4)

An inconclusive picture as volume headed higher tapering off before a pick up in sell-side activity, especially as news of Cohen testifying against Trump were made public, hurting the USD outlook in the process. The clues obtained via a correlation analysis reveals that the pair, despite being weighed down by the domestic political issues, is still likely to find buyers on dips due to a rising risk-weighted index with also a slight tick up in US vs JP bond yields. However, the outlook remains much muddier than the clear bullish signals in EUR/USD or GBP/USD, as the Yen must still combat a dominant ‘risk on’ environment in the near term, which caps flows into the currency. Note, the fluid situation in the US, which has already seen its repercussions on a sharp decline in the SP500, can easily see risk aversion return to the forefront. Following up new developments on the US political landscape, headlines on the US vs China trade talks and the FOMC minutes will be critical to stay in tune with the latest flows in this market today, and will contribute directly to dictate the next bias for the pair. For now though, as said, the daily changes are still not suggesting a clear direction.



Intraday Technicals (30m)

After failing to extend into new lows, combined with the printing of Tuesday’s PoC (Point of Control) below the closing price, it appears as though the market is setting up the stage for a potential short-term consolidation with a narrow range between the latest PoCs at 100.00 and 100.50 respectively, with a wider range expanded into 109.80 and 110.65. The bearish slope in both the 100 and 200-hourly MA, the establishment of a downward channel as denoted by the dash lines drawn in the chart and an undermined risk profile given the worsening US political scene on Cohen revelations should be factors posing increased risk towards an eventual resumption of the bearish trend. To the upside, a breakout will find Aug 17th PoC within close proximity ahead of 111.00 as another key resistance. On the downside, the area of critical support is seen at 109.50 (macro level) should 109.80 be broken.



AUD/USD: Tentative Signs of a Potential Top Nearing

Volume, Price Action, Correlations, Fundamentals (H4)

The rise in the Australian Dollar has seen a slight uptick in total volumes, although gains were far from impressive in the last 24h in an environment meant to be conducive for a better performance. As long as the US Dollar remains pressured, the pair should remain supported, but risks are mounting as Australia faces political turmoil as Prime Minister Malcolm Turnbull could face a second leadership spill Reuters reports. We’ve also seen the printing of an inverted hammer which may be interpreted as a potential exhaustion given the rapid rise in the Aussie. Gold and other commodities such as copper have seen mild gains, while the Australian vs US 10-yr bond yields spread was largely unchanged.



Intraday Technicals (30m)

The upward channel that has commanded prices higher this week has been broken, while offers also managed to penetrate Aug 21st PoC (Point of Control), both event signaling the formation of a potential top being in place, which is reinforced by the bullish extension having reached a 100% fib proj target to the pip, as depicted by the purple line. A follow-through sell-side wave is expected to meet a series of intraday swing lows acting as support lines at 0.7343, ahead of 0.7333 and of 0.7320, the latter being the most relevant nearby support, as it intersects with the 100 and 200-hourly MA. The current bullish structure in the 30m chart, which is starting to see cracks given the break of the upward channel, will be fully negated if the most recent swing low at 0.7343 is broken. On the flip side, should buyers regain the upper hand, expect intraday resistance at 0.7366 ahead of 0.7383 and 0.74 round number.


“Past performance is not a reliable indicator of future performance“

Important Footnotes:

TheonlyMovingAveragestoapply in the charts will be the 100 & 200-hourly exponential moving averages, which will assist us on the overall directional bias of the market.

The green, red, and aqua lines are utilized to represent thelatestCycles. Markets tend to move in cycles of 3 followed by a period of distribution and/or accumulation. To consider a cycle valid, we need to see a daily move greater than 75% of the 14-period average daily range.

The magenta rectangles in the chart represent the areas of most interest by trading volume, referredasPOC- Point of Control –and should act as walls of bids/offers that may result in price reversals. The rectangles will be drawn as long as the area is not absorbed. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals dominant and/or significant price levels based on volume. This process allows understanding market opacity.

The analysisofVolumeactivityin the chart provides some great insights into the actual buy or sell-side commitment to be engagedintoa specific directional movement.

In thechartwe representIntraday or Macro Support/Resistancelevelsby drawing them in blackcolours, via a thinner black line for intraday support/resistance, while the macro levels of support/resistance will be drawn using a thicker black line.

In a thin bluelinewe will have the most recentDaily Highs and Lows, which play an important role as areas of support and resistance as well.

To reinforce the key area of interest in an attempt to findconfluentiallevels, we will alsouseDailyPivot Levels, which include the pivot point (thick orange) and the subsequent 3 levels of support and resistance derived from the pivot calculations.

The analysis will be conductedfroma Top-Down approach by analyzing 2 timeframes. Firstly, we will look at the H4 chart to analyze the big picture, where attention centers around the price action, macro levels, volume analysis and valuations via yield spread. Secondly, we will break down the analysis from a technical perspective through the 30m chart by studying the most likely directional bias based on all the information gathered as well as the levels of major interest for traders.

TheUltimatePurposeofthis report is to equip Global Prime’s existing and future clients with a professional institutional-level daily outlook that can assist one’s trading decisions on a regular basis.

Technical analysis issubjecttoFundamental-led News. Any unexpected news may cause the price to behave erratically in the short term, while still respecting the most distant price references given.
 
EUR/USD: Range Breakout Retested, What’s the Outlook?

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 Euro has embarked upon a solid performance in the last week, running a 2018 record 6-day winning streak, which may lead to some misleading conclusions about an overly bullish outlook. What we are seeing in terms of price action and market structure qualifies as classic ‘bearish trend-friendly’ market dynamics as the exchange rate heads back up to retest the origin of the range breakout point. Remember that the resolution away from the 3-month 3c. range in Euro/US Dollar came amid one of the highest open interest increases we’ve seen this year, revealed by the latest CoT data. This piece of information constitutes a key insight that tells us the market runs the risk of remaining strongly short-side committed.



EUR/USD shows the rate revisiting the breakout point

Meanwhile, the daily volume tick data collected also suggests that while the transition lower through the 2nd week of August came on increasing volume (candles Aug 9, 10), the subsequent recovery is starting to taper off, an event that tends to lead towards a market reversal as the exhaustion of bids get overwhelmed by an imbalance of supply. Also note, the current recovery in the pair has been largely fueled by the broad-based long liquidation of US Dollars as bond traders returned in mase to own long-dated US bonds (10s and 30s), resulting on the benchmark yield spread against the German to squeeze rapidly from -2.57% to -2.47% in a matter of days. That appears to have assisted the most in fueling the Euro recovery.

However, the sharp deterioration in the risk-weighted index since Aug 7th cannot be shrugged off and looks set to be what eventually may pull the rug under the EUR feet. Whenever the market resorts to risk-off flows, we’ve seen how the Euro suffers as the inertia is for capital flows to flock back into the safety of the US Dollar. So, is the current risk profile in the market justifying that we are out of the woods and hence expect a further dumping of USDs? From the chart above, one can immediately notice the Euro is far overstretched when compared to the degree in which risk has come back up. Yields spreads, especially the 10-yr, are definitely arguing for an adjustment in the exchange rate, but with risk-off flows having predominantly been the leading short-term predictor on setting-up the tone in markets this August, one should be extremely wary that such dynamics won’t just go away, especially in the current stage of the macro risk profile we are in (stage 3: market distribution).

Should we see a further recovery in the exchange rate, overhead awaits a volume accumulation that has been over 3 months in the making around the 1.1650 area. It’s going to prove extremely hard to break through it with so much outstanding interest gathered to the downside on the latest technical breakout. If one adds into the picture the hefty levels of the Italian bond yields – a worry for the ECB -, together with a volatile economic situation in Turkey, the Lira, and the possible contagion effects in some European banks, the backdrop looks far from ideal. Note, this week’s long holiday in the country appears to have helped exerting a false sense of stability.

Overall, the temporary reprieve in US Dollar buying flows should be seen as limited in nature. While the benchmark yield spread has improved markedly, it is far from being the only predictor to estimate the potential direction. The concurrent biases in the amount of open interest committed to short bets in the Euro via the CoT report, a risk environment that remains fragile, a technical breakout retest structure still in play, and Italy and Turkey still at the epicentre of people’s mind are all elements that keep the risk skewed towards the EUR/USD bear trend to stay its course.
 
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 10y yield spread between Germany and the US remains an obstacle for further progress in the EUR/USD exchange rate, with a source of concern also the Italian and German 2-yr yield premium, exhibiting a major divergence with price action in EUR/USD.

It’s difficult to foresee a break of the macro resistance above 1.1730-50 amid the negative divergence in 3 out of the 4 most correlated assets in the EUR/USD, as highlighted in red boxes.

The more that the EUR/USD continues to appreciate while out of whack with the rest of correlated assets, the higher the risks of topside reversions back to the mean. Should this pattern of lower German vs US yield spreads extend and the Italian yield premium increase further, it’s hard to justify a Euro at these hefty level without a more meaningful pullback.

 
A Fundamental Shift in the US Yield Curve

It’s the first time this year that the US Dollar index is depreciating during a flattening of the curve, represented by a blue rectangle (yellow rectangles show the flattening of the curve not altering USD value), as recently reported by a Morgan Stanley paper.

It implies a slowdown in US capital inflows, and the curve being a more accurate reflection of a decrease in demand for credit and growing signs that higher supply of capital via more savings is underway. If this trend continues, we should expect the flattening of the curve to potentially act as a more accurate indicator of the future direction of the US economy and the USD.

As Morgan Stanley notes: “A flattening US yield curve may still suggest a strong US growth outlook provided that the curveflattening is linked with capital imports, hence a stronger USD. When the USD weakens along with the yield curve flattening further, the message is very different. In this case, the weaker USD signals slowing capital imports, suggesting that the flatter curve must be related to domestic factors such as slowing US demand for capital or increasing domestic savings pushing US bond demand higher. It seems markets have undergone a fundamental shift over the course of the past 13 days.”



Author: Ivan Delgado, Head of Market Research at Global Prime

Follow me on twitter@delgado_egea

Follow our team’s research via tradingview
 
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.

Risk-Weighted Index: Bullish Outlook, Watch Break of Triangle

The risk-weighted index I personally monitor is comprised of the following assets (9 components in total), all equally weighted. SP500, Japanese Yen, Swiss Franc, DAX 30, MSCI EM, US 30-yr Bond Yield, US Corp Bonds (Junk), DXY, Gold.

By studying the market structure of this index, it provides a barometer of the ebbs and flows in risk and it has direct implications on what type of capital flows one may expect. For instance, the index has been an accurate predictor to gauge the direction in a sensitive-risk currency as the Japanese Yen, so it’s no wonder how the rise in the index ever since the bottom on Aug 15th has led to a steady depreciation of the currency, with the pain exacerbated this week, after what I called“the trifecta effect earlier this week.

A break higher in the risk index is set to reignite further weakness in the Japanese Yen crosses. The current formation of a narrowing triangle supports the ‘risk on’ environment heading int Thursday. Note, if a breakout in the triangle occurs, a 100% fib proj offers significant leeway for a runaway in risk on currencies and further pain for the Yen and tentatively the USD.The 100-hourly MA has been accurately commanding the risk appetite rally as depicted by the magenta line, therefore, expect the risk environment to remain constructive short term while above.



Author: Ivan Delgado, Head of Market Research at Global Prime

Follow me on twitter@delgado_egea

Follow our team’s research via tradingview
 
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