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
- Narratives in Financial Markets
- Recent Economic Indicators
- Dive Into Pro FX Chart Insights
- Educational Material
The order flow in the FX market continues to shift in favor of EUR longs, as the last 3 days worth of data in the currency indices below demonstrates, while the Swissy, one of the outperformers through the course of last week, has seen its momentum tampered quite abruptly. The Canadian Dollar was the main mover after BOC Senior Deputy Wilkins said “there is still room to maneuver”, which was immediately interpreted as another hint that lower rates may be looming near. The recovery in the Oceanic currencies, with the Aussie shrugging off a clearly dovish RBA minutes, seems to communicate an adjustment to better prospects of the US and China sealing a deal. There have been conflicting reports in this front, with the Global Times outlining clear discrepancies still at play, while Bloomberg keeps a silver lining by reporting that the US is still toying the possibility of a removal in Chinese tariffs as far back as May or even earlier, which would be massive to reinvigorate ‘true risk appetite’. Meanwhile, the US Dollar and the Yen, are off to a rocky start this week, under performing against the majority of G8 FX, excluding the Swissy and the Canadian Dollar.
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.
Narratives In Financial Markets
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
CAD hammered as BOC rate cut odds increase: The Canadian Dollar has experienced strong sell-side pressure as the market keeps discounting the prospects of an ‘insurance’ rate cut by the BOC following the admission by BOC Senior Deputy Wilkins that “there is still room to maneuver”. The market, right off the bat, interpreted the remark as more evidence that the Central Bank is laying the ground for an easing cycle. Besides, the strong decline in Oil exacerbated the pain for CAD longs on Tuesday.
Chatter US-China discrepancies still abound: A report from the Global Times notes that “big gaps remain in China-US trade talks”, even if no official sources were cited, but rather it’s attributed to people who attended a US-China Entrepreneurs Roundtable. “If the business roundtable was any indication, the trade negotiations still face major obstacles to reach a deal,” the report says.
A sliver lining in the US-China trade saga? According to a report by Bloomberg, which carries a more positive spin, the US is still pondering the removal of tariffs as far back as May or even earlier, which if true, would be a major boost for risk sentiment. The discussions now centered around the size and the extension of a possible tariff rollback, with the reference to the preliminary terms set in the deal that failed in May. The article by Bloomberg cites two people familiar with the matter. At the bare minimum, the report notes, a deal would include removing the Sept tariffs and cancelling the planned Dec tariffs.
Trump keeps ambivalent position on China: The most recent headlines on the US-China trade deal conundrum by US President Trump continue rather ambiguous, saying “we will see what happens on China. If there’s no deal, I’ll raise tariffs higher”, which is the type of commentary the market won’t get reassurance from.
UK polls show Conservatives expand the lead: A new UK election poll showed the Conservatives continue to extend the lead vs the Labour party. The poll was commissioned by Kantar and showed Conservatives at 45% and Labour at 27%. What matters though is that the lead of the Conservatives in this series of Kantar poll has now expanded by 8 points, which is a major leap. Despite the positive news, the Sterling acted counter-intuitively by selling off and pairing some of the recent gains.
The calendar remains light: By scanning through today’s calendar, the only event of note comes in the form of the Canadian CPI m/m. Looking at Tuesday’s Canadian data, manufacturing sales came negative at -0.2% even if not as bad as anticipated, while Canada October Teranet house price index popped up to +1.0% vs +0.7% y/y prior.
US housing data off to a good start this month: The US building permits for October came at 1461K vs 1385K estimate. Meanwhile, housing starts stood at 1314K versus 1320K estimate. The next data point that the market will be fixated on includes Thursday’s existing home sales which accounts for about 90% of the US home sales released. So far, the data shows a solid trend in the housing data.
Fed’s Williams sticks to the script: The Fed member, thought to be alongside Powell and Clarida, one of the most influencer policy-makers at the Fed, spoke on Tuesday, failing to reveal new clues. Williams said they are watching more for some of the downsides to the outlook, reinforcing the notion that near term, the Fed is sidelined by noting that “the stance of monetary policy seems appropriate”, adding that “in coming months, the Fed has to make sure it is not overreacting to individual data.”
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Recent Economic Indicators & Events Ahead
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I keep my short-side exposure on the GBP/USD after Monday’s mark-up in price reached my entry level of 1.2980, where I was expecting the price to really struggle. I’ve now moved my position to break even and will be nimble to take profits circa 1.29 as I am well aware that this is a trade that is clearly counter-trend, so I will be mindful of that by not overplaying my luck. The rationale that made me come to that decision has been synthesised below:
- The pair has reached its 100% measured move on the weekly chart, which if one notices, is the level in the chart where the initial explosion in GBP demand came to a halt.
- There is a monthly area of supply right overhead backing the case for short positions to find clusters of offers should the price keep heading higher.
- The weekly market structure remains bearish as the last leg lower in early 2019 is still the primary cycle that anchors the macro bearish outlook. Invalidated above 1.3420.
- The last leg lower off the daily chart saw a successful rotation, which makes the breach of the prior swing high as seen on Monday an area of technical value to engage.
- The psychological level of 1.30 resides right above the entry, which adds to the odds of the market finding interest to revert the momentum around this vicinity.
- The last breakout of a bracketed area in the H4 chart showed a 100% measured move confluent with the area where the weekly 100% measured move comes at.
Another market I am looking to gain short exposure if it can re-tests the 74.50 is the AUD/JPY as I really like the market structure in the H4 chart, which happens to be in alignment with the price action story in higher timeframes. Note, this report will only elaborate on the entry rationale, which is only one component. The management of the trade is even more critical.
- On the weekly chart, the pair is reacting to a weekly area of fresh supply, one that interestingly enough, led to a successful rotation to the downside, which adds weighs.
- The type of velocity in the weekly mark-down phase that confirmed this supply was very aggressive in nature as well, which reinforces my view this is a tough nut to crack.
- On the daily, the move up through October formed what’s referred to as a compression, which is a sign of a market taking profits long/building shorts.
- The latest sell-off on the daily broke the initial low of the compression structure, suggesting a shift in order flow appears to be at play.
- Still on the daily, the market found a response from buyers at an origin of demand, leading to a rebound in the pricing of the pair, expected to terminate at 74.50-75.
- As I drill down into the H4 chart, there are a couple of daily supply areas on the way up, alongside a key horizontal line at the 74.50. The technical backing in this position is reinforced by further supply above the 75.00 round number.
The NZD/USD is a great example of what a level of confluence is like, which as the readership knows, these are the areas I am constantly looking to identify to gain exposure if the context agrees. Below is the deconstruction of my thoughts that led me to place this short limit order.
- The weekly remains in a clear downtrend as the market structure remains one of lower lows and lower highs, with a very sticky horizon resistance circa 0.6480-85.
- The daily has settled into range-bound dynamics between 0.6330 and 0.64860-70, with a break of the prior high a candidate to trigger a head fake as the weekly horizontal line comes right overhead. A potential bullish trap may be the play here.
- This short view at 0.6480-85 is reinforced by the drawing of a 100% measured move from the recently broken bracketed area, aligning perfectly with the weekly resistance.
- Right above this level 0.6480-85 we find a fresh level of supply on the H4 dating back from August 8th, with the major 0.65 psychological number adding further protection.
- Cycles: 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
- 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.
- 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