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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 CAD was the star currency as a new week gets underway. There were a limited number of talking points, with the movements more technical in nature. Portraying this dynamic, for example, we saw the EUR accelerate its appreciation as a 4-day long range was finally broken, leading to further selling of the USD across the board. The recovery in risk, as reflected in the pick up of US yields, which moved up in tandem with equities, this time didn’t play that much of a role to stimulate demand into the Greenback. The Japanese Yen continues to put up a decent fight post-US NFP, even if the risk rally in equities and the snap back in yields defies its prolonged strength logic. Meanwhile, the Kiwi continues to be the absolute main outlier, still paying the consequences of the dovish RBNZ outcome from earlier this month. The Sterling follows as the second most vulnerable currency not far behind, while the Aussie has managed to attract further demand to tu the micro trend to positive.
The fluctuations in risk-sensitive assets oveight exhibited the traits of ‘true risk on’ as the S&P 500 retested its previous trend highs led by energy stocks, US yields were snapped back, while both the Yen and the US Dollar were hit by major supply imbalances. Other asset classes were supportive of risk as well as shown below.
EUR/USD: Range Breakout Confirms Bullish Trend
The resolution above the top of the range at 1.1245-50 has taken the exchange rate to fill offers at an H4 resistance level as depicted by the orange line. The impulsivity of the rise, the alignment with the micro trend (25HMA) and the story being told by the latest market structure, is all suggesting that the obvious path of least resistance is to the upside. The ‘risk on’ conditions and the reported decrease in USD repatriation flows have likely played a role in the aggressive USD supply seen. The breakout of the range allows now a fresh upside target that resides at 1.1295-1.13 (100% proj extension).
GBP/USD: The 1.30 Remains A Buyers’ Stronghold
The dynamics so far have been to reject the 1.30 round number with sufficient impetus so that the exchange rate finds only brief acceptance every time the area is tested. Last Friday’s decline in the exchange rate shows an analogous patte, with the Sterling now recovering not only the topside of a steep descending trendline while also anchored by the upward slope of the micro trend (25HMA). Monday’s price action is quite disappointing for the interest of Sterling longs, as it fails to capitalize on the broad-based USD weakness amid the lack of Brexit breakthroughs. We should expect the erratic behavior in the pair to being the norm with spontaneous spikes on a headline-by-headline basis, with a potentially quiet Tuesday ahead of Wednesday’s headlines-charged EU summit. The pair faces a round number and an hourly level of resistance not far overhead.
USD/JPY: Full 100% Target Extension Reached
In concordance with market symmetries, Monday’s selloff in the exchange rate has found a cluster of bids at the 100% projection target of 111.28. Considering that the rise from March 25th came on a vigorous 2nd leg and that we might be missing one final thrust higher, this was a great area to potentially reinstate long positions for a retest of 111.50-55 (broken-support-tued-resistance). There is still some significant room for the exchange rate to fall without altering the uptrend as the ascending trendline off sub 110.00 would have to first be violated. As per intermarket flows, with a ‘true risk on’ environment in the last 24h, pockets of supply towards the JPY could be dominant.
AUD/USD: Pressure Builds Against 0.7130 Resistance But…
More and more bids keep adding pressure against the sticky area of resistance through 0.7130-35, where buyers have been unable to break despite the multiple attempts since early April. The last rejection of the level last week was quite impulsive in nature, achieving new lows, which implies that the current retest of the swing high formed at the time holds sufficient credence to still be perceived as an area where there is technical value to look for shorts from a market structure standpoint. Moreover, the projected target ever since the rise through the 0.7107 breakout point has been hit at exactly the 0.7130, which means the resting of offers circa this level could be considerable. A break to the upside would expose 0.7145-50 as the next obvious target for the bulls.
USD/CAD: Selling Campaign Almost Done Near Term
Judging by the speed of the CAD appreciation, one would think there is still some residual downside, which would be conducive with the view that the 100% proj target of 1.3295-1.33 must still be reached. That said, given the lack of trends in FX and the low vol regime, one would think once this downside target is reached, a time of consolidation should ensue before the next directional move. The rally in Oil and the weakness in the DXY was an obvious recipe for disaster for the buyers, but with such an overstretched run, I doubt enough appetite remains to find any acceptance sub 1.33 near term. The last two attempts at the level were rejected right off the gate with strong conviction.