The Daily Edge

CAD & JPY Bought Post Easter

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.

Quick Take

As the long-weekend Easter holidays come to an end, we find the CAD as one of the top performers alongside the Japanese Yen. The former benefited from a spike in the price of Crude Oil after a surprise announcement by US President Trump, flexing his muscle against Iran by ending the waivers for all those nations buying Iranian oil. The Japanese Yen has seen an intraday tsunami of buy orders come through the books in the early hours of Tokyo, taking the currency index to its best level in weeks. The Euro also found steady bids through the stagnant holidays period, even if occurs on the back of an aggressive sell-off last week after yet another raft of EU PMI misses. The Aussie, ahead of Wednesday’s critical Australian CPI release for Q1, is trading on the backfoot, not finding enough buying interest despite higher equities and a stable DXY. The Pound and the Kiwi, meanwhile, have treaded water without any impetus whatsoever ahead of a retu of flows to minimal levels in today’s European session.

Narrative In Financial Markets

  • Markets are slowly retuing back to normality after a long weekend Easter holidays that saw liquidity evaporate from usual standards.
  • The US President Trump has announced an end to waivers for all those nations buying Iranian oil. Effectively, the US will not renew exemptions granted in Nov last year to buyers (China, India, Japan, … ) of Iranian Oil, which is a rather surprise and bullish move for the interest of Oil.
  • A key development weighing on the price action of the Euro late last week was the depressing state of affairs in the series of EU PMIs, just when optimism was starting to build a tad as signs of green shoots in China were starting to become more obvious.
  • The poor PMIs in Europe, especially in Europe, came in contrast with a stellar US retail sales print last week, which when combined with a lower US trade deficit in Q1, analysts have been upgrading the prospects of a higher advance GDP print due this coming Friday.
  • The Australian jobs report was one of the other highlights just ahead of Easter, showing not only a robust headline print of 25.7k, but the break down of part-time vs full-time was a very positive one in favor of the latter. The participation rate also ticked up by 0.1%, which led to the only negative as the jobless rate came at 5% vs 4.9% prior.
  • The UK Parliament retus from holiday on Tuesday, which much to our demise, means Brexit is likely to retu as a focus as reports emerge, via the Telegraph, that the National Conservative Convention, which represents grassroots Conservative Party volunteers, has managed to gather enough support for a vote of no confidence in PM May to be held.
  • The calendar today lacks any major event, with traders having to content with low tier releases. US existing home sales for March will be watched today as the only event with minor interest.

Recent Economic Indicators & Events Ahead

Source: Forexfactory

RORO (Risk On, Risk Off Conditions)

As a cautionary note, one should let intermarket flows in the most heavily traded instruments in equities, fixed-income, currencies, and credit shape up post-Easter before gauging the risk flows. Buyers did regain the upper hand on the S&P 500 pre-Easter as buy-side accounts managed to produce a decent performance to tu the 25-HMA micro slope into positive territory. In terms of flows emanating off US fixed income, the rise on the US 30y bond yield (capped below 3%) is yet another sign that investors were fairly sanguine in their perception of a constructive growth outlook, both in the US, and globally, spearheaded by the green shoots seen in China as of late (not in the EU).

The risk-friendly uplegs in both equities and yields, surprisingly, has not been translated into a lower Yen, which still remains at fairly rich levels if one considers the positive risk dynamics we come from. On the industrial assets space, the spike in Oil/Gold is a fundamentally-driven event, so we won’t read much into it. However, the Copper/Gold ratio has found renewed selling interest, which comes in stark contrast with the rise in US yields as any major selloff in the ratio is suggestive of a poorer global outlook. It makes me think that the upleg in the US 30y bond yield is more of a US-centric play. When it comes to the dynamics in the VIX, it trades just under 12.5, which is a relatively low level that should promote further upside attempts on the S&P 500, while junk bonds have been underperforming relative to investment-grade bonds in the last week.

Overall, I won’t deny there are conflicting signals as part of the RORO model today, which can be perfectly rationalized on the fact that markets have been tued off, so the best advice is to wait until flows retu back to normal levels to start gauging whether what side gives on the risk pendulum, even if one should recognize that by only taking as reference the S&P 500, US30Y and the DXY, the path of least resistance points to be risk-friendly.

Key Technical Levels In FX Majors

Interested about downloading today’s key levels in the major pairs? Find the MT4 templates, updated daily, by clicking the following link.

EUR/USD: Selling Into Hourly Support

The selloff in risk assets through the open of business in Asia this Tuesday has taken the exchange rate to test an area of support in the hourly chart. The micro recovery, which so far has achieved two legs up, occurs in the context of a macro bearish trend, established ever since the poor German PMI last week. That event, plus a series of additional disappointing PMIs out of Europe, were the catalyst that allowed to break the bullish structure of the last 2 weeks.

GBP/USD: Pressure Builds Against Support

The supply in the Sterling has not abated as of late, with the exchange rate finding a temporary bottom at an area of hourly support. However, so far the rejections of the area have been quite limited in nature, with each rebound carrying less and less conviction. What this means is that the stage may be setting up for an eventual breakout to the downside. The bearish trend in the EUR/USD, which leads to broad-based USD buy-side flows won’t be helping the Pound. The fact that acceptance has been found under 1.30 for the last 2 days is not a good omen either. GBP looks set to trade more lively as UK politicians retu to parliament for more Brexit discussions after the Easter holidays.

USD/JPY: Sharp selloff in Asia

The aggressive supply imbalance in the Yen does not make justice to the elevated levels in US equities and US yields. In other words, it looks like the selloff is overdone and a likely retest of the resistance area between 111.85-90 may be brewing as value exist to buy this dip, even if in conflict with technicals in the low timeframes for now.

AUD/USD: Intraday Downtrend Accentuated

The Aussie was sold at a key technical juncture as a descending trendline converged with a horizontal level well visible off the H4 chart, which adds further weight. The level of liquidity at 0.7118 is now under threat of order being filled ahead of 0.7110 and 0.71 round number. Buyers will need to recover the 0.7150-60 level to negate the near term bearish trend currently underway in this exchange rate. Aussie traders await the Aus CPI release as the next key mover for the AUD.

Important Footnotes

  • 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