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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 Ivan and other like-minded traders. Also, find out why Global Prime is the highest rated broker at Forex Peace Army.
As the market goes through a moderate round of deleveraging, the Japanese Yen, recently disjointed from RORO dynamics amid an overstretched cheap valuation, finally put on a decent recovery, one that I had personally been endorsing judging by the rather depressing risk mood present. The USD continues to attract steady flows as trade uncertainties have forced a re-allocation of capital away from emerging market exporters, making its way back into the United States. The Sterling, once again, has been the least favored currency, as the market prices in an imminent resignation of UK PM May and almost null chances of her Brexit Withdrawal Agreement passing its 4th vote through Parliament in early June. Another currency overwhelmed by a late day supply imbalance is the Canadian Dollar, initially boosted on the back of upbeat Canadian retail sales, only to revert all its gains and then some as the Oil price collapsed amid the shocking build-up of Crude and Gasoline inventories. Sandwiched in between we find the Euro, the Aussie, and the Kiwi, even if the Oceanic currencies are the most vulnerable, both suffering from renewed macro tendencies as the market anticipates further easing in Aus/NZ.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
The overall risk sentiment took a tu for the worse on Wednesday, with the suppression in global yields the main culprit behind the strengthening of the Japanese Yen. The US 30y bond yield, as usual, is our global barometers to assess the allure towards fixed-income, and there we see that both the micro and macro slopes (25 & 125HMA) are pointing lower, which is not a good omen for risk dynamics.
In the equity market, with the US-China trade frictions on the increase, I find it fully justified that stocks, especially the IT sector, are finding it hard to build upon Tuesday’s recent gains. The hourly structure in the S&P 500 remains bearish as per lower lows and lower highs, which is a bad omen technically speaking. On a slightly positive note, the VIX has been muted sub 15.00 at the range lows, while junk bonds are still finding some residual demand even if the price action is far from conclusive.
Interestingly, the DXY continues to show stubboly high demand flows as it becomes evident, as Morgan Stanley’s Research Team notes, that “trade uncertainties have shifted capital flows away from EM exporters and into the US.” Remember, either in ‘risk on’ or ‘risk off’ scenarios, the USD has been performing in a very steady manner, suggesting that all else being equal, it remains the place investors are resorting to as safe-haven.
With regards to the USD/CNH, the equilibrium found above 6.93, where a balance area worth over 300 pips has formed, is a clear sign that the market is betting, for now, on a protracted trade standoff between the US and China, something that if following the social media and news rhetoric, appears to be in congruence.
Overall, the environment in risk is such that I am inclined to think that we are on the cusp of another round of ‘risk off’ this Thursday, one that should keep the USD and the JPY well supported, while keeping commodity-linked currencies under pressure. Notice, AUD, and NZD are also suffering from the pricing of further easing, which makes the prospects of exploiting Oceanic currency weakness via USD or JPY an interesting proposition if further ‘risk off’ swings eventuate.
EUR/USD: Range Expansion W/ Sell Side Vol Pressure
GBP/USD: Early Signs Of Potential Buy Side Accumulation?
USD/JPY: Buy Side Structure Still Valid
AUD/USD: Risk To The Downside W/ Well Defined Targets
USD/CAD: Symmetrical Areas Of Interest Respected