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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 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.
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.
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.