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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.
The main take away from the last 24h, even if sadly not translated on a pick up in currency volatility, is the notion that the Fed may be preparing the market for a potential shift in policy. That’s the only sensible conclusion if one listens to what Fed’s Vice Chair Clarida, the most important voice at the helm of the Fed after Chair Powell, had to say. The policymaker opened the door for the Fed tuing more accommodative if certain pre-conditions are met, which on its own, is a strong statement of intentions. The fixed income market was again a sea of healthy buy-side volatility (lower yields), translated in the recovery of the Yen from the lowest levels it’s traded this week. The USD, surprisingly, was rather unperturbed by the dovish remarks from Clarida, and with month-end FX hedge rebalancing skewed towards moderate to strong USD buying due to the underperformance in US equities as the trade war escalates, the price action in the EUR/USD is already acting as a precursor of the combatant stance by the DXY into Friday. Interestingly, even as Crude Oil keeps selling off, the Canadian Dollar has followed in locksteps the USD as the currency managed to navigate quite successfully the BOC test after the Central Bank sounded quite neutral, which by default should be interpreted as rather positive in a world of dovish Central Banks. Along these lines, the next one set to bite the bullet, especially after the latest Capex reading, is the RBA, an outcome the market has fully priced. The Aussie is still putting in a fight. With regards to the European currencies, the Euro enjoyed firmer pockets of demand, while the Sterling is still on selling mode as Germany mulls a veto on extending the Brexit process beyond October.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
Lingering dark clouds for the global growth outlook is the resounding and unambiguous message sent by the hammering of US yields, further intensified by Fed’s Vice Chair Clarida. By stating “downside risk could call for more accommodative policy”, I personally consider IT to be a rather bold ‘off-the-cuff’ hint that the Fed may indeed start preparing the market for a rate cut down the road. The immediate response by market forces has been to depress even further the US yields as larger pools of capital flock off to fixed income as the option of last resort to get paid amid expectations of lower rates. In the equity market, with the S&P 500 our global guidance to take the pulse in sentiment, a shallow bounce has allowed the 25-HMA, which serves as our micro trend cue, to tu mildly positive.
When it comes to crosscurrents in the currency market, the DXY is largely unchanged, benefited by the bearish trend in the Euro since the fragmented European parliamentary election results, while the Yen keeps the firm bullish structure intact. As every day, we also can look at the Chinese assets’ performance to decipher the mood of investors around the trade standoff between the US and China. Price action still suggests pessimism prevails as the USD/CNH consolidations around 6.93, a level that manages to offset the 10% tariffs via a cheaper Yuan exchange rate, while the Shanghai Composite trade within a range at year lows. Lastly, with a VIX (implied vol in the S&P 500) finding a firm footing at elevated levels around the 17.00 mark, and with junk bonds in the US on a clear downtrend, the risk outlook remains as poor as it’s been this week.
EUR/USD: Balanced Flows In Line With Bearish Context
GBP/USD: Sell Strength If Vol Profile As Indication
AUD/USD: FakeOut At The Edges As Single Distributions Persist
USD/JPY: Dubious Uptrend As Volume + Value Unsupportive