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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.
As the price action in the AUD index illustrates, the market has navigated the first of a multiple of economic-derived tests this week in flying colors. The Chinese data dump was always going to serve as an opportunity to update the market on the state of China, an economy that alone engineered over 50% of the increase in money supply worldwide since the GFC. The market took a sigh of relief after leaing that the dragging trade war is yet to feed through into the Chinese economy in a manner that would worry Mr. Market as domestic-targeted growth policies keep economic activity afloat. The bullish breakouts in the AUD and NZD indices is a clear testament that the market is happy to follow the established trend once risks like Monday’s are out of the way, in those currencies where central banks have taken the gas off the accelerator when it comes to easing (RBA, RBNZ), at least temporarily. Meanwhile, currencies in which rate cuts appear much more imminent by the respective Central Banks (EUR, USD), are struggling to attract capital flows. Of importance will be today’s German Zew that will play an important role to potentially dictate the bias for the Euro as the ECB debates if room exists to hold back further QE until Sept. The same can be said about the US retail sales release in the North American session, as the Fed factors in all pros and cons to determine its aggressiveness in cutting rates by July 31st. Of course, the bullishness in the AUD and NZD also represent the positive risk sentiment as the S&P 500 validates another milestone by finding buyers above the 3k market, while a considerable exodus of bidders in US bonds since last week also underpins the trends. Meanwhile, the JPY, as its index indicates, it’s still trading in no man’s land even if the rise in stocks and bonds are in congruence with the argument of maintaining a constructive bearish outlook. The CAD, which has been by far the best performing currency in the last month, continues to pull back from its 100% projection target area, which was repeatedly outlined last week.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
The NZ CPI is the first economic indicator that will either reinforce or reverse the bullish trend in the NZD (update: came flat), which in the last few days has dethroned the CAD as the darling currency in FX. Next, the RBA will provide more detailed insights into its thinking process via the June minutes. Here, the attention will be in identifying new clues that may cement the temporary neutral outlook by the Central Bank after an aggressive 50bp rate cut action in the last 2 months. Germany’s ZEW economic sentiment is another key data point as a leading indicator of economic health in Europe’s largest economy. The ECB is walking a fine line, debating if the new stimulus program can be held back until most new forecasts and economic data points are out of the way. An upside surprise may provide the ECB extra room to keep the powder dry (EUR positive) till Sept. While a poor release can have the opposite effect, raising expectations that ECB’s Draghi will aim to over deliver on a rate cut by stepping ahead of the curve. Hence, the event is quite relevant. Similarly, today’s US retail sales have the potential to be a market mover, as the Fed, while having connected the dots to confirm the initiation of an ‘insurance rate cut’, to a certain extent, it will be how bad it gets from here on out that may tilt the balance towards a 25 or 50bp cut. Lastly, Fed’s Chair Powell is due to deliver a speech titled “Aspects of Monetary Policy in the Post-Crisis Era” at the French G7 Presidency 2019, in Paris. Powell has essentially cemented the case for a rate cut this month after last week’s appearance in the Senate, so it’s unlikely that his comments will carry new insights into the Fed’s policy thinking, so vol around the event should be limited.
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USD/JPY: Bearish Technicals But Intermarket Flows Offer Buying Opportunities
AUD/USD: Bullish Trend Firms Up, Invigorated By China Data & Fed Outlook