The Daily Edge

GBP Vol Through The Roof

Date: 3/14/19

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

JPY and USD supply flows were the common denominator as the environment tued ‘true risk on’ once again. Further diversification into riskier assets, including beta currencies, has clearly transpired, as the micro and macro slopes of the SP500 vindicate. Interestingly, global yields, taking the US 30-yr as a reference, while marginally higher, continue to exhibit a rather sluggish behavior. Short-term, the environment remains very positive for risk trades, especially for the Canadian Dollar, as it takes up the slack from a heavier Aussie, weighted by constant negative fundamentals in Australia (Westpac’s consumer confidence the last disappointment). Meanwhile, the dynamics around the Euro have been relatively benign, while the Sterling is flying as the UK secures, in theory, the rejection of a ‘no deal’ Brexit after Wednesday’s vote in the Commons.

Dashboard: Intermarket Flows & Technical Analysis

Summary: Intermarket Flows & Technical Analysis

EUR/USD: Buy-Side Flows Dominate On Brexit Delay Speculation

  • The Euro follows the bullish directional move in the GBP as the market keeps pricing in the avoidance of a ‘no deal’ to leave the EU, removing temporarily the inherited tail risk of Brexit.
  • The latest upthrust buy-side candle on the hourly guns through a sticky resistance above 1.13 with the supply that came post ECB last week left behind after being absorbed.
  • Technicals and intermarket (German vs US yield spread) continue to be in congruence for an extension to the upside, with the green lines drawn to act as key buy-side zones on retracements.
  • The bullish structure of higher highs and higher lows has allowed up to draw an ascending trendline that serves as a visual representation of the benign buy-side dynamics.

GBP/USD: Huge Volatile Swings The Norm This Week

  • Straight move up in another blockbuster 300 pips + spike as the market perceives as a GBP positive the vote to reject a “no deal” Brexit scenario.
  • The passage of the most recent bills through the UK parliament does not fully eliminate the risk of a so-called “hard Brexit” as the ball is still in the EU’s courtyard to make a final call.
  • Technicals are overextended post the late GBP upthrust which has failed to find acceptance above the 1.3350 but still plenty of demand pockets nearby as the green lines indicate.
  • If you are trading the Pound, it continues to be wise to adjust your normal trade and stop size to accommodate the increasing amount of volatility this week.

USD/JPY: Trapped In A Range As Interest Elsewhere

  • The wax and wane dynamics within a confined 50 pips box remain the norm as none the USD nor the JPY experience enough imbalances as both sold hard on the risk appetite tone.
  • The positive trend in equities acts as a source of demand, but this continues to be counterbalanced by the negative tendencies in the DXY and US yields, hence the range.
  • The majority of technical measures are still negative, while the intermarket flows have tued slightly more constructive as US yields recover as part of the ‘true risk on’ microflows.
  • Amid the lack of clear catalysts, other than a Brexit shocker with broad-based ripple effects, it looks like engaging in buy/sell side activity at the edges for rotations is a sensible strategy.

AUD/USD: ‘Risk On’ Outweighs Aus Bond Yield Debacle

  • The ‘true risk on’ flows has led to a resurgence of the interest to hold Aussie longs in a move that may appear counterintuitive based on the AU-US bond yield spread fall but…
  • …It makes perfect sense as the ‘true risk on’ flows lead to a lower DXY, higher Yuan, spike in equities, which results in AUD positive flows absorbing diminished appeal towards AU yields.
  • The latest swing has created a higher high structure which seems to be falling way short in magnitude compared to the previous buy-side flows originating from March 8th low.
  • With the Aus-US bond yield spread so depressed, any hiccup in the ‘risk on’ environment that leads to a DXY recovery exposes a fragile Aussie to significant supply imbalances.

USD/CAD: Perfect Bearish Storm Sinks The Rate

  • An even more pronounced downward angle can be observed by connecting the latest two peaks, a testament of the strong sell-side activity in the exchange rate.
  • The combination of ‘true risk on’ coupled with strong gains in the Oil prices has encouraged sell-side flows, while rumors of tariff removal by the US to Canada also assists.
  • Unless scalping the market, I see limited risk-reward to play this market short until at least a correction towards the 3rd touch of the most recent trendline at play.
  • As usual, wait for the price to come up to decision areas to then assess the market conditions and whether or not there is an edge to be found via intermarket analysis.
  • As intermarket studies stand, this market has written all over the wall to still sell on strength judging by the alignment of micro/macro slopes in Oil, DXY, yield spreads.

Additional Charts

Gold Resumes Its Bullish Trend As Intermarket Flows Align

AUD/JPY: Finds Decent Demand As ‘True Risk On’ Re-Ignited

EUR/AUD: Recovery In German vs Aus Yield Spread Leads The Way

NZD/USD: Uptrend In Place, Setback Finds Buyers


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