The Daily Edge

Biden’s Resurrection Boosts ‘Risk On’ Profile


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

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Quick Take

A reversal in sentiment to bullish in the US stocks market saw the need to tap into funding currencies reduced quite significantly. The main culprit behind the rally in equities came as Beie Sanders’ Democratic nomination was decimated in favor of a Presidential race between Trump and Biden after the latter was the big winner of Super Tuesday. This temporary retu of the groovy mood in equities and bond yields kept therefore the EUR, CHF and JPY stable. The other major story was the 50bp rate cut by the Bank of Canada, a move that follows the extraordinary action announced by the Fed the previous day to combat the virus-induced tightening of financial conditions. The decision was too heavy a burden for the CAD, which ended up as the worst performer as the BoC appears not yet done with its easing cycle. On the flip side, the Aussie keeps showing near-term strength as it extends the bounce off its 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} measured movement, an area susceptible to a mean reversal as waed. The Pound joined the Aussie at the top of the leaderboard on Wednesday after buyers made a comeback off a macro level of support judging by where the GBP index bounced off. The USD, on the back of the desperate move by the Fed to ease policy, tread water by consolidating recent losses. Last but not least, the Kiwi remains unloved with very poor interest to get off its depressed levels.

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime’s Research section.

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Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Twitter, Institutional Bank Research reports.

BoC follows Fed’s steps: The Bank of Canada went ahead and followed the Fed’s steps by cutting the rates by 50 basis points. A 25bp rate cut was baked in the cake, with expectations for the actual 50bp at around 60{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} chance. The Canadian dollar was sold in the immediate aftermath.

BoC downgrades outlook as COVID-19 takes its toll: As part of the official statement, the BOC said that they stand ready to adjust monetary policy further if required, and that the outlook is clearly weaker now than it was in January. The coronavirus is a material negative shock to Canadian and global outlook, and as the virus spreads, business and consumer confidence is likely to deteriorate, further depressing activity.

Positive US data ahead of US NFP: In the US, the ADP jobs report showed an improvement by printing 183K vs 170K estimate, although the prior month was lower at 209K vs 291K. Meanwhile, the US ISM non manufacturing index for February came at 57.3 vs 54.9 estimate, with the employment and new orders the strongest areas. The US NFP is the next risk event in the US this Friday, even if one must be reminded that economic data has become a secondary input as COVID-19 still rules. 

Biden resurrected: Democratic nominee Biden was given a significant boost after the Super Tuesday primaries. Biden claimed victory in 9 of the 12 contests, and is now ahead of Beie Sanders in the delegate vote. This development in the political front appears to have contributed to soothe the market’s psyche about the ramification of a Sanders nominee. In four days, Biden’s odds on PredictIt of winning the nomination have gone from 27{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} to 70{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6}.

Bloomberg throws in the towel: Michael Bloomberg, the magnate and co-founder of Bloomberg L.P., officially suspended the Presidential campaign after spending more than $500m of his own money to defeat Trump. In a statement he said: “I’ve always believed that defeating Donald Trump starts with uniting behind the candidate with the best shot to do it. After yesterday’s vote, it is clear that candidate is my friend and a great American, Joe Biden.”

Stocks love a Biden nomination: As a result of Super Tuesday, in which the prospects of a Biden presidential race became real, and keeping in mind the US equity market is grossly oversold, the Dow industrial average led the way by rising over 1000 points on the day. The market was also given a recent impulse via a 50bp rate cut by the Fed on Tuesday, even if the jury is still out on how effective this will be to stimulate the economy. The reaction in stocks (selling) was telling.

Italy’s measures taken to the next level: Italy confirmed schools will close until March 15. It also ordered sporting events without fans until April 3. These are all drastic measures implemented by the 8th largest economy in the world after seeing a dramatic increase in the number of COVID-19 in recent days. A total of 107 people have been killed in Italy to date. Obviously, the fear by market participants is that such measures are replicated in other developed countries, further depressing economic activity. We’ve already seen France ring-fencing certain towns by closing about 120 schools so far.

ECB, BOC, RBNZ up next: The next Central Banks to come into focus next week include the ECB and BoE, while later this month, it will be the tu of the RBNZ toward. Chances are that the RBNZ walks back its neutral stance to potentially cut rates in line with the rest of Central Bank.ECB’s Lagarde has shown less of a rush to act via more stimulus just yet, while incoming BoE Goveor Andrew Bailey said the Bank needs further evidence before deciding on a move.

RBA’s QE not far… RBA’s Deputy Goveor Debelle testified to a Senate committee, saying that “we have capacity to cut rates one more time, beyond that we will have to consider QE.” The market is fully priced in for a final rate cut next month, which means the focus has truly shifted to QE prospects. On GDP, Debelle said that the projections have been downgraded due to the impact of COVID-19 on tourism and education, likely to shave about 0.5{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} off Q1 GDP, which combined with the negative implications from the bushfires, will likely see Q1 GDP negative.

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Recent Economic Indicators & Events Ahead

Source: Forexfactory

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Insights Into Forex Flows

The indices show the performance of a particular currency vs G8 FX. An educational video on how to interpret these indices can be found in the Global Prime’s Research section. The idea of this analysis is to complement one’s daily bias so that traders can make better and smarter decisions by accounting for the aggregation of flows.

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The EUR index shows the first cracks in its impressive uptrend after it broke the bullish structure in the 4-hour chart. Notice, the smart money tracker has also reversed its course to now display a bearish slope. Notwithstanding the unwind of carry trades as FX volatility keeps picking up, the rise in equities in the last 24h has added downward pressure as hedges into EURs are reduced. It remains my view that the EUR is going to face a bumpy road ahead as the reversa back down is occurring off the 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} measured movement that got hit last week, a location in the chart that suggests the Euro valuation got out of whack and a correction was needed.

The GBP index, not only held at the macro level of support, but the patte printed off the 4-hour chart, with a compression off the lows followed by a structure breakout, is a powerful signal that this market could be headed higher in the short-run. Remember, the GBP chart is bouncing off a level proven to be a solid area to initiate buy-side campaigns in the GBP ever since early Nov last year and the land in the sand drawn by the market.

The USD index, as the aggregated flows reveal, shows a deteriorating picture as the market structure and momentum off the 4-hour chart stands. While the index has hit a pocket of demand at a previous swing low, the minor impetus so far to get the price away from this danger zone for buyers is an indication that selling pressure keeps building up. The negative fundamental backdrop as the Fed goes aggressive with a 50bp rate cut is not helping either. Bottom line, there is no technical evidence to support the USD index at this stage off the 4-hour.

The CAD index sold off hard in the immediate aftermath of the BOC 50bp rate cut. The market had already been front-running the decision by the Central Bank the previous day, but the aggressive cut and the bleak outlook, have justified further sales. The impulsive drop in the currency has validated the creation of a new bearish cycle with acceptance found below. Looking for areas of resistance and bullish traps intraday to engage in shorts is the way to go judging by the technical outlook off the 4-hour chart.

The JPY index, amid the appeasing in the risk-off tone, has entered a period of consolidation, with willing buyers still showing up off a key area of support in the chart with multiple interactions, while the upside is capped by an overhead resistance in response to last year’s supply imbalance origin. As a result, the Yen no longer offers the technical clarity it once had through this COVID-19 treacherous environment. A neutral to bullish bias remains my view.

The AUD index kept finding further buy-side flows as the short-term dynamics have tued more favourable after what I suspect to have been a reduction in long-held short positions at the 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} projection target. This unwinding of shorts at this inflection point has fueled an exploit of the upside towards a retest of an old support-tued-resistance, where bigger struggles will come for the brave group of AUD longs. Remember, I’ve encouraged some considerations to look into shorting markets such as EUR/AUD on the basis that the rubber band was overstretched.

The NZD index is a market that shows little signs of life by buyers. It really makes you wonder how much upside potential there is near term if even the retu of risk appetite today sees such limited buy-side flows in the Kiwi. It is as if the market wanted to punish the currency after the Central Bank acted rather impudent and cocky by stating that a neutral bias in policy was to be retained by downplaying the COVID-19 risks, which has proven to backfire for them. But I digress, back to technicals, the NZD is the notorious underperformer in the last month.

When it comes to the CHF index, this is another currency that remains very pricey to consider longs, very much as in the case of the Euro. It’s very hard to justify further buys on this currency unless there is a pullback towards more technically valuable areas. That said, unlike the Euro, the Franc shows a greater level of buy side commitment, as reflected by the fact that the currency has been able to hold marginally above its 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} proj target.

Important Footnotes

  • Market structure: Markets evolve in cycles followed by a period of distribution and/or accumulation. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100{c55dae091e2f4b96c42546a5edb68ce9f701c78980adb8fd55b74e573b5f59f6} Fibonacci Projection


About the author

Ivan Delgado

Ivan Delgado is a decade-long Forex Trader. Feel free to follow Ivan on Youtube. Join thousands of traders who follow Ivan's insights to increase their profitability rate by learning the ins and outs of how to read and trade financial markets. Ivan has you covered with in-depth technical market analysis to help you turn the corner.


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