Global Prime: Volume, Correlations, Technicals


Price Analysis: European Currencies In A Solid Position vs Weak US Dollar, Aussie

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

Follow me on twitter@delgado_egea

Follow our team’s research via tradingview

EUR/USD: In Distribution, Resolution Past 1610-1660 Needed

On the back of an impulsive recovery on Sept 5th, the value of the exchange rate has adjusted higher, with the market finding equilibrium above 1.16 as the pressure on Italian bonds recently cames off a few notches and the German vs US yield spreads, most notably the short-end, edge higher this week. Today’s resolution of the range will come as a function of the removal of liquidity seen post US NFP, with the purple areas drawn the most evident areas of support/ resistance.

The resilience by the Euro is a reflection of the tentatively more positive tone in the Brexit negotiations, with the market still giving the benefit of the doubt to the latest headlines that Germany and the UK are said to drop key demands to facilitate a post-Brexit transition. Note, positive data surprises in favor of Europe or mere demerits of a weaker USD as the import of capital into the USD slows down, also weigh on a higher exchange rate.

As noted on Thursday, the pair is detaching itself from a proxy for risk, with capital entering surplus currencies like the EUR another reason to think the bid tone may continue even if EM selling continues. This week, we’ve already seen signs of it, with the continued deterioration of the risk-weighted index (black line) not manifested in a lower rate but the opposite.

Overall, as long as the US NFP is not an outlier and remains within 1 standard deviation of its projections (between 180-200k), the pair may continue to see decent buying interest as long as the correlated assets (Italy, yield spreads) anchor the Euro.

GBP/USD: Shorts Flushed Out, Awaiting Next Catalysts

Trading the GBP carries heightened risks of being whipsawed as the erratic and unpredictable ebbs and flows continue, a reflection of the uncertain state of play in the Brexit negotiations. The latest elongated spike on Sept 5 marks the 2nd time in over a week in which an overly short GBP market (as pe CoT positioning) got topsy-turvy running for the exits. The weakness in the DXY as of late has played a key role in supporting the GBPUSD rate too.

At present, sell orders at the 100% fib proj of the latest structure break by contrarians, liquidity providers, act as a line in the sand, capping further rises. On the downside, 1.2875 has become a key area of support, and if one notices, in the first pass post Sept 5 spike, the rejection of the area was fast and furious, as shorts scrambled to the exits, hence taking the opportunity to close their positions to limit the damage as the structure of the market had clearly turned bullish .

On Friday, the US NFP release and possibly comments on Brexit will determine the next direction. As correlations stand, the UK vs US yield spread is not justifying a break through resistance at 1.2960, but similarly, the weakness in the DXY -0.02% is keeping the rate underpinned. One should not ignore the velocity of the move up on Sept 5 and the violation of the bearish structure, making the GBP/USD market more prone to see increased buy on dips interest all things equal.

Out of all the currencies, given the unpredictable nature of the Brexit negotiations and the volatility expressed in GBP, the pair remains very subject to behave on a headline-by-headline basis.

USD/JPY: Velocity of the Fall Can’t Be Ignored, Vol Trapped

The intense deterioration in our prop risk-weighted index, a reflection of the global strains as the full-blown US vs China trade war nears, was fully manifested in the USD/JPY exchange rate. The depressed close of the rate by 5pm NY, and the falling yield spread differentials in the US vs JP 2/10y is also underpinning the price of the yen. The upcoming US NFP release will inject volatility in the pair, although given the risk-off conditions, unless an outlier in the number, the market has been telegraphing this month the jobs report is more of a sideshow as trade rhetoric and EM selling are the main drivers for markets.

The bearish structure in the rate has been exacerbated by the velocity of the move, with a 100% fib proj stretching out from the first leg sold now fully trespassed. The market dynamics continue to favor selling on rallies. with the areas highlighted on purple the most evident levels of support/ resistance. Note, a possible rebound of the oversold conditions may ensue on the slightest sign of an ease in the risk index, but It will take a break and hold above the 111.00 area for even the short-term structure of lower lows and lower highs in the 30m chart presented to be negated, leaving side the bearish connotations of the higher timeframes too.

To summarize, the market is on a clear bearish trend with the accelerations lower and the shallow pullbacks a clear sign that further legs are to be expected, barring surprises in the US NFP, which may cause a sudden spike, but likely to be faded all else being equal. The fact that the majority of the volume got trapped above 111.00 ( POC ) on Thursday is yet another clue that any recovery should be limited in nature.

AUD/USD: An Expression of EM, China Trade Woes

The Australian Dollar remains one of the most vulnerable currencies as a proxy to EM and China. With the latter about to face additional tariffs by the US (it may happen anytime), the vulnerability of the Aussie, notwithstanding the positive Q2 GDP (backward looking), it’s a function of the dominant risk sentiment dynamics.

In the chart, one can observe our prop risk-weighted index making new trend lows, and that’s what driving the oceanic currency lower, for now, dispelling the more constructive stance by other correlated assets such as the offshore Yuan, Gold,DXY (orange, red, green) which argue for buying interest off the lows decent value opportunities. The sudden decline in the Australian vs US yield spread a few hours ago didn’t help (blue line).

In terms of price action, the fragility in the Aussie can be interpreted via the behaviour in prices, with the most recent sequences of selling pressure in Sept being impulsive in nature, while the recoveries in the rate are much soggier and slow, which translates into a market where the imbalances of supply are much more accentuated. If the rate breaks sub 7160, a nearby support line at 7150 awaits, with a break lower to most likely exacerbate the pain in the Aussie.

Be mindful of being committed on trades ahead of the US NFP, where we’ve noted that any positive data towards the USD may be faded if this week’s price action and the theme is any indication. The weakness in the USD this week, despite the highest US ISM in 14y, is a clue. In other airs such as EU, UJ, we suggest that a possible fade of a positive headline number may be in store, with the conviction on seeing the same action in the Aussie at lower levels, given the negative sentiment around EM and China vs US trade war woes.


In the following video, I touch on different risk profile scenarios that one can encounter when trading forex. I combine the price behavior of the SP500 , US 30-yr bond yield, US Dollar index, and to a lesser extent, Gold , as it’s become more a function of DXY performance. If you trade jpy or chf crosses, this lesson is one to practice over and over to yield the benefits.



Price Analysis: The Sterling Keeps Yield Advantage, Risk Index Caps Yen Progress

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

Follow me on twitter@delgado_egea

Follow our team’s research via tradingview

EUR/USD: In Consolidation, Bond Yields Negate 1.17+

As the picture stands, the pair has firmed up its current range-bound profile, with well-defined edges between 1.17/1720 and 1.1650. The latest price action is inconclusive, dominated by market makers at the extremes of the range.

The negative brexit headlines in the last 24h, together with rising Italian bond yield premiums vs the German (purple line) and a steepening of the US yield curve (also slightly lower German vs US bond yield as per blue) all argue for the upside to be capped.

At this stage, pressure may be building up for an eventual break lower, although no clues were provided via price action on Wednesday. The soggy pricing of the pair this week is also a reflection of indecision on the back of a steady ECB and rising US yields.

In these type of market conditions, it’s best to be patient and wait for the market to come to your levels rather than engaging in the middle of so much noise.

GBP/USD: Finds A Base Amid Rising UK-US Yield Spread

The Sterling went through a volatile ride on Wednesday, initially boosted on higher-than-expected UK CPI 0.12% numbers, only to lose all its advantage and some more evaporate as a reflection of renewed Brexit pessimism.

The pair ends with most of the volume transacted in an area of 50 pips, with over 30-40pips of upside/downside extensions not finding enough equilibrium to generate value outside the current range of 1.3130-1.3170.

For now, the downside appears to be well supported by a rising UK vs US 10-yr bond yield spread. If one utilizes the UK yield as a proxy of brexit concerns, it discerns an overall sanguine picture, with fixed income players not that concerned.

As long as the bond yield spreads underpin the price, the risk remains skewed towards fading downcycles. A resolution away from 1.3130-70 is necessary, which should materialize on the release of the UK retail sales data today.

Notice the common pattern in GBP/USD 0.03% price action: When the UK vs US yield spread recovers, buy on weakness strategies at key levels tends to pay off. In other words, as it stands, 1.3130 and 1.31 may provide opportunities.

USD/JPY: The Risk-Weighed Index Endorses Dip Buying Strategies

The limited range traded in USD/JPY -0.07% , while it may appear inconclusive on the surface, it reinforces a certain bullish narrative, especially when combined with a rising risk-weighed index.

So, looking at Tues/Wed’s price action, the vast majority of the volume has been transacted near the highs of the week (above 112.00), which implies acceptance by market players as value is built.

Even more important, the risk-weighed index (thick black line), which accounts for the SP500 -0.04% , US 30y bond yield, and the DXY -0.04% , has broken into new highs in an environment of risk appetite as per the rise in equities and yields while the usd remains pressured. Interestingly, the pair has failed to move higher and is testing levels of support near 112.00 in Asia. As the structure in the risk-weighted index stands, in the majority of cases, it should represent value to reinstate longs at key levels as the one currently tested.

Only a sudden return of risk-off flows that leads to a breakout of the RWI structure will put a dent on what’s, for now, a constructive outlook to buy weakness on the pair.

AUD/USD: Correlated Instruments Back Higher Rate

The progressive recovery in the Aussie continues to be a function of a neutral to weak USD, along with higher Gold 0.13% prices.

What’s more, the Australian vs US 10-yr yield spread trades near the highs of the week, in line with global DM 1.69% rising yields, also assisting the reshuffling of portfolios into a more appealing Aussie.

The latest push higher in the US session was quite impulsive in nature vs the current pullback in Asia, much more compressive; it bodes well for a trend continuation.

Looking at Thursday’s action so far renewed buying interest in gold 0.13% , which has broken into new highs, should be seen as a positive input for the Aussie, as the unwinding of shorts continues amid an ease in EM currencies.

Buying on dips is the preferred strategy as the price action and the structure of other correlated assets stand. However, this view collisions with the big picture, where the market is bearish and may soon come under macro pressure as 0.73 comes into focus.