The Daily Edge is authored by Ivan Delgado, Market Insights Commentator at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth look of market dynamics, factoring in fundamentals, technicals, inter-market in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.
Brexit, Brexit and more Brexit. This week, the dynamics in the currency markets were almost exclusively dominated by the topsy-turvy state of affairs in the Brexit front. After all said and done, the market has found sufficient consolation in the anticipation of a delayed Brexit, which is seen in the market’s playbook as a temporary GBP positive as it removes an immediate tail risk. The ball seems to be moving to the EU courtyard, which means that the European Council meeting next week (21/22 March) should be the platform where an extension is agreed, in theory. As a pre-condition, the UK needs all 27 member states to agree to the delay.
In the USD and JPY markets, sellers have swayed the price dynamics as the delayed Brexit scenario firmed up the notion of ‘risk-seeking’ strategies. Running their own races, the Kiwi and the Canadian Dollar were off to a great start of the week, but only the latter has been able to sustain enough momentum to preserve most of its weekly progress. The Kiwi, as a stronger by-product version of the Aussie, has faltered as US President Trump waed us that there is no rush for the US and China to ink a deal just yet, just as more reports seem to suggest that any meeting between Trump and Xi won’t happen until April, at least. Amid the crossfire of GBP vol, the Euro has found enough buying interest for the market to apparently interpret that the fair value in the exchange rate vs the US Dollar should be back to the pre ECB selloff-led episode.
Dashboard: Intermarket Flows & Technical Analysis
Summary: Intermarket Flows & Technical Analysis
EUR/USD: Breaks Ascending Trendline, Risk Of Range Establishment
- First time since the bottom found post the ECB dovish meeting that the market structure is starting to be disrupted, with the violation of the ascending trendline a red flag.
- Judging by the slope of the German vs US bond yield spread, both micro and macro, pockets of significant demand should still be found at key decision points (green lines).
- The European shared currency has been at the mercy of the UK Brexit developments this week, mostly piggybacking the overall direction in the Sterling market.
- The multiple rejections off the 1.1335-40 vicinity occur on the back of the 100% proj target as the extension of the latest market’s successful rotation from 1.1277 thru 1.1305.
- Thursday’s setback found sufficient demand interest at the intersection of Wednesday’s PoC (Point of Control), that is, where the highest concentration of volume occurred.
GBP/USD: Balanced Flows Despite Another Brexit Bill Passes
- The muted buy-side activity in the Sterling even as the article 50 extension bill won enough endorsement in the UK parliament seems to be a reflection of enough good news priced in.
- Most of the volume concentration (PoC) fell right around the middle of the daily range, suggesting that playing the edge of the range for potential rotations is a scenario to consider.
- The intermarket studies (DXY + bond yield spread) remain unambiguously bullish, supporting the notion of buying on weakness at relevant decision points.
- The key levels where clusters of demand may be found come at roughly 1.1310-1.13, followed by the 3rd touch of an uptrend line and ahead of Wednesday’s POC at 1.1345-50.
- The overall structure of HH & HL coupled with constructive order flow as per the impulsive demand observed vs corrective setback (more 2-way business) supports the bullish bias too.
USD/JPY: Demand Emerges As DXY, US30Y Regain Footing
- The impulsive-type breakout through 111.50 sets a new intraday target for the bulls between 111.90 and the round number of 112.00, where selling should ensue.
- The reasoning why any runaway bullish move is likely to be met by grateful sellers is predicated on the basis that both DXY & US yield exhibit bearish weekly trends.
- The close of the exchange rate above its PoC indicates that any further pullbacks should find decently strong pockets of demand at the test of key levels.
- The latest buy-side action comes amid a retu of the positive dynamics comprised of a higher DXY and US yields, a precursor that is always going to attract solid buying interest.
- The breakout of 111.50 has ignited new momentum with buyers now in need to keep control of this week’s volume cluster circa 111.20-30 to maintain the bullish structure.
AUD/USD: Bullish Structure Violated, Sell-Side Bias Preferred
- The take-out of the previous swing low has disrupted the positive hourly structure on the Aussie while also breaking through the uptrend line.
- The latest supply imbalanced has inflicted sufficient technical damage to worsen the outlook and now expect a more trappy range-bound scenario.
- The micro intermarket backdrop has tued bearish as flows emanating from the currency market, equities and capital flows (bond yield spread) suggest.
- Even from a macro perspective, the bearish structures in the DXY + Yuan (both inverted) alongside the Aus-US bond yield spread should counterbalance positive macro flows in equities and keep the Aussie on the backfoot.
- Since the short-term outlook has reverted to the bearish side, the clearest area to engage in sell-side action can be found on a retest of the broken trendline ahead of 7090-7100 area.
USD/CAD: Descending Trendline Breakout, Back To Bullish Dynamics
- After the overstretched bearish run, a flurry of buy-side activity has transpired amid the recovery in intermarket flows as the bullish run in the DXY and bond yield spreads indicate.
- The price has found an area of supply imbalance at 1.3350 (origin Feb 13 sell-off), with price fizzling out into a period of balanced flows right undeeath.
- The intermarket outlook provides conflicting signals. From a daily view, buy-side strategies are justified, but technicals and weekly intermarket flows paint a gloomier picture.
- Look to avoid trading through the noisy periods such as the one the exchange rate finds itself now and instead engage in decision points (1.3350 to the upside, 1.33-3310 to the downside).
- Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
- Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
- POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
- Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
- Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
- Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
- Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
- Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
- Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection