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The Daily Edge is authored by Ivan Delgado, Head of Market Research 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, futures and options, in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.
US stocks enjoyed a late-day boost driven by renewed hopes that the US is mulling the possibility of reaching a more protracted compromise with China on trade and further underpin the risk sentiment. The reports still remain a tad unsubstantiated by the absence of key policymakers. What we’ve seen so far is the market buying up in the rumors after a report via the WSJ/DJ.
If we take a look at the risk-weighted index, it’s printed a decisive bullish outside day with the 5-day MA still pointing to further gains ahead The broader spectrum of risk-sensitive assets monitored do offer an analogous sanguine outlook as a result. The ES has rocketed into the cycle highs, breaking and most importantly, closing above the major area of daily resistance at 2,623.00. Industrial goods and conglomerates were the industries leading the charge higher on Thursday.
Even the US fixed income market, which had shown some tentative signs of slowing down, has also found enough buying interest to keep the bullish tone in risk widespread. Meanwhile, the bullish outlook on the DXY is less clear as the index, as shown in the chart above, has entered range bound conditions in the last couple of days. In favor of the US Dollar is the support found at the 96.00, an area of critical resistance that has now tued support. The 5-day MA still suggests the general tendency is for the US Dollar to find further support, although in such a pick up in risk, gains should remain capped by the outperformance, especially from commodity-linked currencies.
The Euro continues to absorb offers along the PoC of its long-held range. Since the impulsive sell-off on Jan 15, the following days have been characterized by what may be set up to constitute a transfer of ownership from weak-handed sellers into value buyers. The divergence between the German vs US yield spread and the pricing of the pair continues to suggest we are in an area that is not technically relevant (POC, bullish structure), but it should also be perceived as discounted.
The Japanese Yen trades on the back foot amid the reinvigoration of the risk trade. The bullish reversal bar with Thursday PoC left behind the bullish close is a positive development. The upward slope in both the 5-day MA as well as the rise in the DXY + US yields is yet further factors that are supporting, for the time being, the bullish dynamics in a market that appears now destined towards more ambitious targets towards the 109.80–110.00 macro resistance.
Boosted by the positive headlines around the expectations for a lift in tariffs by the US to China, the Australian Dollar has managed to regain the upside and trap sellers wrong-footed, as depicted by the where most of the volume transacted in the last 24h stands (0.7165) vs bullish close of 0.7195. The value in the Aussie market keeps pointing towards higher levels if we pay attention to the strongest correlations for the Aussie, which include the Chinese Yuan, DXY and equity performance (ES). That said, 0.7215/20 has been a major sticky obstacle to surpass through the week, hence a close above is still necessary to brighten the outlook for the Aussie, which remains supported by China’s trade hopes as the main driver, even as the domestic economy shows further cracks in its housing market.
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