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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 ebbs and flows in the forex arena have resulted in the Japanese Yen taking a step back late in the day, while the US Dollar makes another one forward. A poor bid to cover in a 7y auction in US bonds managed to mitigate the prevailing risk-off flows, as it implies the bearish momentum in bond yields may be exhausting. Let’s not forget, fixed income has been on the driving seat commanding what’s ultimately permuted into broader risk-off dynamics as global growth expectations are dramatically readjusted amid the hostility in trade relationships between the US and China. The more risk assets sell, the more convinced the market is of a protracted trade war, that’s the bottom line. The Aussie has been holding surprisingly steady even as the 10y Aus bond yield inverts against the official cash rate, implying next week’s RBA rate cut is baked in the cake. Surprisingly, the Kiwi has detached from the valuation of the Aussie as the market tus more dovish on the RBNZ after an underwhelming BNZ business outlook report. Shifting gears to North America, I’d characterize the movements in the Canadian Dollar as ‘uneventful’ as the BOC kept the ‘status quo’, clearly aiming to sound non-committal as the US-China trade situation definitely justifies to stay cautious until further clarity. Lastly, the European currencies kept trading weak on the back of the EU election results.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
The hostile backdrop in trade relationships between the US and China no longer defies logic with markets behaving in congruence with the heightened risks of a global slowdown. The persistent selling in the S&P 500, where waves of impulsive selling are counterbalanced with tepid upside corrections, allows us a clear conclusion, that is, an aggressive re-pricing of the growth outlook, with the US no longer immune as the Fed’s favorite 3m/10y yield curve inversion reflects. Take a look at the chart below, which clearly depicts the sync bearish mode in yield curves across major economies.
While the trend should be your friend after some ruthless selling for over 2 weeks in US yields, the poor bid to cover in Wednesday’s 7y US bond auction has led to a relief rally in yields across all maturities, which as I stated above, it may be an indication that the market may be reaching levels of exhaustion. This is important to monitor because a transition into more balanced flows in yields has a direct impact in how currencies the likes of the Japanese Yen or the US Dollar may trade. But make no mistake, the structures in the Yen index, the DXY, which has put up a great fight in the last 3 days, alongside the valuations in Chinese assets, as well as VIX and junk bonds, all communicates the same message. We are in clear ‘true risk off’ environment likely to keep rallies in risk assets limited.
EUR/USD: Back-to-Back Bearish Double Distributions
GBP/USD: POC Keeps Bears In Control, 100% Target Met
AUD/USD: Breaks Range W/ Value But No Volume
USD/JPY: Structure Shifted to Bullish, Volume Not Supportive