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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 currency that stands out above any other is the Kiwi with the pricing out of rate cuts since the last RBNZ policy meeting having set out the currency for a distinctive short-term trend at a time when the rest of Central Banks have been sounding unambiguously more bearish. The rest of the currency fluctuations make for a more complicated jigsaw to solve, as the USD and the JPY still enjoy macro bullish trends due to the spells of risk aversion from last week, although this week’s abrupt reversal towards appetite to seek out riskier bets has sunk the currencies as the 2nd chart shows. But no currency shows more variable and irregular gyrations than the GBP, taken hostage by the never-ending Brexit quandary. The Canadian Dollar starts to show signs of life again, with the onset of its solid performance originated off last Friday’s back-to-back blockbuster Canadian jobs report. The Aussie has also been faring quite well despite the recent blow in yet another Australian data (consumer confidence). In short, continue to pay much more attention to the developing micro trends to increase the odds of being on the right side of the flows. This is not a time to take much guidance from the macro-developing trends as the irregularity of the risk swings coupled with the absence of central bank policy divergences create an environment where flows remain king vs macro positions.
From a risk perspective, the soothing of fears in equities continues as the marginal gains in the S&P 500 after a midday rebound demonstrates. The 0.4% gains in the benchmark index add to the vigorous rise from Tuesday, resulting in both the micro and macro slopes to tu bullish. A completely different picture can be observed in fixed income, where if we take the US 30Y bond yield as the barometer to take the pulse of the dynamics in global yields, the trend is firmly bearish, with fresh lows printed as the US30Y breaks (marginally) the 3% level amid the seemingly global coordinated patte of tentative easing hints by G10 Central Banks. The rapid appreciation in the pricing of US bonds (lower yields) is also weighing on the appeal towards the US Dollar, as the overall micro risk appetite mood seen in stocks underpins the sell-side bias in the DXY. The latest dynamics, therefore, are best described as ‘broad USD weakness’, which makes the direction of the equity market all the more relevant to determine the susceptibility towards risk. However, with the DXY now retesting the ECB-induced demand area amid a compressive price patte, should the USD regain its mojo, we’d be realigning the macro ‘weak risk off’ environment with that of the micro landscape, which would not be welcoming news for risk amid a clear downtrend in yields. Overall, the dynamics are benign for risk-seeking strategies but pay attention to the next fluctuations of the DXY as they may be key to determine commodity-linked FX and the Yen.
EUR/USD: ECB-Led Liquidity Removal Retested
GBP/USD: Barrage Of Vol, Bears Take Control
USD/JPY: Hostile Intermarket Backdrop To Be Long Committed
AUD/USD: Negative Aus Data Mounts, Knocks Down Yield Spread
USD/CAD: One-Way-Street Bearish Run
Gold: Congruence In Intermarket Flows Leads To 1.3k Breakout
AUD/JPY: Enters Noisier Spell As Equities/Yields Diverge
EUR/AUD: Bond Yield Spread Rules Dynamics