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The Daily Edge is authored by Ivan Delgado, Head of Market Research 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, futures and options, in order to determine daily biases and assist one’s decisions on a regular basis. Feel free to follow Ivan on Twitter & Youtube.
By analyzing today’s currency pairs, I am left with the impression that swing/day traders may be able to find some solid opportunities in markets that appear to be overstretched in the short-run such as the Aussie, the Canadian Dollar or Gold. The Aussie has been the main laggard in what appears to be just rumours of a coal import cap to China. If the denials by official continue, the divergence between macro bullish trends in the Yuan, bearish in the DXY, and still an overall benign outlook for equities, makes the Aussie quite cheap for some bottom picking. In terms of the Canadian Dollar, we’ve entered overbought terrain in the hourly even as Oil and the DXY macro trends (5-DMA slopes) suggest this market will find it rally hard to find sufficient flows to sustain the bullish momentum. If you are looking to enter with an established hourly trend, this might be a good selling opportunity if intermarket flow revert back in favor of the Loonie. A very similar picture in Gold, althugh the impulsiveness of the move with US yields exploding suggests it may take longer for flows to level off for an ultimate resumption of the uptrend, even if the trajectory of this market is undeniably bullish.
Short-term flows are tentatively moving towards a more benign environment for the US Dollar, as long-dated US yields go gangbuster even if that’s not being translated in major gains in the DXY. Still, the transition in the 25-HMA upward slopes in both the US 30-yr yield and the DXY tells us micro flows have retued to support the outlook for the US Dollar. It’s precisely this newly found short-term strength in the USD coupled with falling equities that is keeping the risk profile suppressed. We should follow the guidance of equities as the risk barometers whenever USD/US 30-yr move in tandem. Note, the rapid rise in US yields matters to evaluate the present macro outlook (based on the 5-DMA) as the slope of the moving average is now pointing higher, which marries the uptrend in existence in the S&P 500, while the DXY is still far from being out of the woods. This puts us in an interesting situation, as the macro suggests based on the flows from the last 5 days worth of price action, the environment is still constructive for risk even if short-term falling equities are masking the health of the macro trend. Any recovery in equities should suffice to re-ignite supply imbalance in the likes of the Japanese Yen while keeping the downside pressure on the USD.
The charts below are shown in the same order as in the table above. We find ourselves in a range-bound environment in most majors (EURUSD, GBPUSD, USDJPY), while the AUDUSD has been taken lower in what appears to be a movement way out of whack judging by the denial of the coal imports cap ban by both Australia and China. Either way, if we take a look at the macro slope of the DXY + Yuan (both inverted) coupled with equities, it looks to me like this move is way overstretched. With regards to the USDCAD and Gold, both present potential interesting propositions for swing/day traders as USD negative flows have led to a correction which is still occurring within the context of a downtrend in the case of the USDCAD and downtrend on the precious metal. If the short-term flows can re-anchor in the direction of the trend, these two markets have now undergone a correction of enough magnitude to consider reinstating positions in line with the dominant 5-day trend a valid thesis to explore. In the AUDJPY front, with the US yields and the SP500 still showing the 5-DMA slope upwards, buying cheap Aussies vs Yen if a trigger is found has its logic. Similarly, the EUR/AUD has taken off in an impulsive fashion that I personally fail to sustify other than by assuming that the coal imports bank in China is indeed officially confirmed. Lastly, the Kiwi is under pressure, not so much led by the DXY strength but by the double whammy of a lower Aussie and a fall in NZ-US yield spreads.
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