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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. Feel free to follow Ivan on Twitter & Youtube. Make sure you join our discord room if you’d like to interact with our team. Also, find out why Global Prime is the highest rated broker at Forex Peace Army.
With stocks and bond yields in a funk as of late, Fed’s Chair Powell speech managed to strike the right tone for the market to buy back risk as the case for lower rates builds up unless Trump walks back his threats and reverts the tariffs situation with China and Mexico. If that doesn’t happen, Powell hinted that the path of least resistance for the Fed is likely to be a resumption of the accommodative policies, which should be characterized as a historical moment since the last time that happened was during the GFC period. If this century acts as our guidance, whenever the Fed begins a new easing cycle, it tends to last for years (Tech bubble, GFC, Trade wars?).
With 62% priced in for the July FOMC meeting, the market is now considering lower rates as the base scenario. From a timing perspective, it makes sense as the gathering of Fed members will come on the heels of the G20 summit (clarity expected), where slim hopes are placed for the US and China to try to reconcile the current standoff on trade negotiations, even if the level of the Yuan as a true barometer keeps telegraphing the market is not convinced in any capacity. Nonetheless, the microflows have shifted in favor of commodity currencies as risk appetite retus, with the Yen and the US Dollar, driven by RORO flows and a dovish Fed respectively, underperform. One of the highlights from the last 24h includes the AUD, relentlessly bought as the market interpreted the RBA rate cut as a rather neutral one, subject to labor conditions.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
There has been a marked improvement in risk sentiment as Fed’s Powell sends the right message for the market to anticipate lower interest rates down the road conditioned to trade and inflation. Adding to the ebullient mood in equities and bonds, Mexican President’s optimistic remarks alongside a potential vote by Republicans to veto Trump’s tariffs on Mexico, have further soothed the nerves. Equities, driven by expectations of an easing cycle by the Fed, outperformed the advancement in yields, which remain much more subdued on the prospects of poor growth and lower Fed rates. The recovery in risk has fed through the Japanese Yen market by weakening the currency, which joins the US Dollar in its micro bearish flows as reflected by the slope of the 25HMA. At this stage, regardless of the risk regime, the market is in no mood to amass USDs as the yield advantage narrows. By analyzing junk bonds and the VIX, a reinforcement of the risk sentiment is provided, even if such temporary benign environment has to be reconciled, as Chinese assets indicate, with depressed expectations of trade talk progress between the US and China at the G20 summit this month. Overall, the micro dynamics have tued more positive as Powell provides the Put needed for equities, while fundamentally wise, deterioration in global economic data, including the US, paired with no end in sight anytime soon on the US-China trade impasse, create clear headwinds to sustain the risk swing.
EUR/USD: Single Distribution Within Bullish Context
GBP/USD: Compression At Elevated Levels
AUD/USD: Bullish Stepping Formation With Volume, Value Aiding
USD/JPY: Consolidation At Trend Lows, Intermarket Flows Cap Overextensions