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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.
Ahead of today’s preliminary Q1 GDP in the US, the Greenback failed to hold onto its recent gains, even if its ascendancy this week remains undeniably impressive. The whole FX universe will orbit around today’s US growth data, as a strong number would most likely seal a weekly close above a massive technical level in the DXY. If the scenario materializes, when combined with a EUR/USD closing sub 1.12 critical support and a USD/CNH above its respective 6.74 resistance, it could really send shockwaves across financial markets, as the notion of a period dominated by broad-based USD strength may gather steam quite rapidly as technicals align. In the meantime, as we wait for the US Q1 GDP, and Japanese Yen has been the outperformer, aided by a reported unwinding of elevated Yen short positions ahead of the Japanese 10-day Golden week holidays. The drop in global yields, including the US 30Y as our bellwether, alongside a rejection of levels near the all-time high in the S&P 500 have fueled the Yen momentum. The Euro, on the heels of yet another negative economic release out of Germany (IFO survey), remains on the backfoot. The same applies to the Sterling, with no Brexit breakthroughs. The Aussie has been under follow-through pressure by briefly breaking below the 0.70 level before a decent rejection. Alongside the Yen, the Kiwi was the other outperformer.
The worsening of the risk profile has been manifested in a higher Japanese Yen, bolstered even further as sources report traders are unwinding Yen short exposure ahead of the Japanese Golden week. To make the risk dynamics even less friendly, the DXY has accepted above the 97.60-70 resistance level for the second day in a row. Friday’s US GDP for Q1 takes an even greater degree of relevance, as a weekly close above the 97.60-70 in the DXY could potentially unravel a technically-driven rally in the USD (recent US fundamentals backing the trend) with a target of 99.50-100 as the next logical objective if one draws a 100% proj target.
When it comes to US yields, the aggressive slide away from the 3% mark in the US 30y bond, has anchored even more the sense of risk aversion, a narrative that is aided by the negative price action is US stocks away from all time highs in the last 24h, which has come accompanied with a VIX retesting the 14.00 handle. Friday’s price action is going to be a critical day for the interest of a shift in the low vol regime the Forex market has been trapped into in 2019. A weekly close above a resistance level not only in the DXY, but supported via an analogous weekly bullish picture whereby the USDCNH closes above 6.74 and a bearish one in the EUR/USD by closing sub 1.12, it would shake the grounds as expectations of a higher macro bullish USD trend will start rising, and with it, woes in emerging markets and risk.
Interested about downloading today’s key levels in the major pairs? Find the MT4 templates, updated daily, by clicking the link.
EUR/USD: 200% Proj Target Hit, Firm Bearish Bias
The bearish extension has reached the 200% proj target, measured after the 1.1227-1.1191 breakout, first finding a cluster of bids at 1.1155 only to see the supply imbalance resume to the next target at 1.1120, where once again, market makers and profit taking have allowed a reversal. The market has been consolidating ever since the test of the 200% proj target, although with a descending trendline still guiding the price lower, the main bias remains clearly bearish this Friday ahead of the US Q1 GDP. Only a break above the 1.1163 would violate the bearish structure firmly in place.
GBP/USD: Bearish Cycle Maturity Evident
There are a number of factors that makes me think the exchange rate is reaching a potential technical bottom, even if the ultimate verdict is going to come via the US GDP Q1 release. Not only the selling has completed a set of 3 legs down, but each legs has been decreasing in magnitude. On top of that, the price has respected to the pip its 100% proj target, from where an aggressive buy-side campaign was initiated judging by the impulsiveness of the bullish move. The strong rebound got capped by the 3rd touch of a trendline, with price now finding support at 1.2890. If the exchange rate can hold above this latter level and break the descending trendline, a retest of 1.2915-20 is on the cards. On the contrary, acceptance below 1.2890 exposes a retest of the previous low.
USD/JPY: Bearish structure Emerges
The sharp 100p selloff from highs to lows in the last 24h has damaged the bullish technicals, leading to a new bearish cycle that should find a major cluster of offers around the 50% pullback and ADR limit for the day at 111.90 ahead of the round number at 112.00. Remember, today’s price action is going to be hugely conditioned by the US GDP print later on, with a beat on expectations likely to test the mentioned offers around the round number (depending on the data deviation), while disappointing figures will expose the next level of horizontal support found at the 111.30.
AUD/USD: Breaks 70c. On 3 Legs Tap
As in the case of the GBP/USD, the Aussie exchange rate is starting to show tentative signs that a more meaningful correction may develop, subject to the US Q1 GDP later today. The market has tested and rejected the liquidity-rich area under 70c. with a 3 legs compression on the way down, before transitioning into higher levels after a breakout of the 25MA on the hourly, which has also been accompanied by a change of structure on a micro scale as the pair starts printing higher highs. Finding equilibrium above the 0.7030 will be technically key to gain further momentum in such a much-needed correction after the intense selling seen. Note, the area of 7030, until proven violated, remains a sellers stronghold that will likely be defended for a continuation of the downtrend.
Projection Targets: The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection