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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 story making the headlines in the currency market is the follow-through weakness in the US Dollar, exacerbated by yet another round of poor US economic data, this time the goods orders series was the culprit behind the sell-off last Friday. Movements in the Forex market are expected to come to a halt for most of the day with the two financial centers injecting the most currency vol closed due to public holidays this Monday. The rest of the currencies, with the exception of the Sterling, attracted tepid flows. Remember, most of the gains seen in majors is a function of the USD weakness we are seeing across the board vs fundamentally-backed bullish moves outside the USD. On the Sterling, the announcement of UK PM May’s resignation schedule came as a bitter/sweet news, initially tanking the Pound before regaining its strength across the board as the market starts to look past May’s era to temporarily open up the door to a wider range of Brexit options on the table, from general elections to another Brexit referendum.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Institutional Bank Research reports.
A short-lived spell of buy-side action hit the S&P 500 after Trump tried to talk up equities, which still look quite grim from an hourly structural view as well as judging by the macro trend (125HMA slope). The reversal of the micro trend based on the 25HMA slope is the one consolidation that buyers can lean on to face this week’s trading with a tad more optimism but far from bullish. When it comes to the other heavyweight to evaluate risk dynamics, the US 30y bond yield stays suppressed circa 2.75% as the market discounts a more dire outlook for global growth, with tentative evidence that it is starting to feed through sectors of the US economy after the soft data in manuf & goods orders. Remember, it’s Memorial Day in the US, so no cues will be obtained from stocks, bonds.
In the currency front, the consolidation near trend highs in the Japanese Yen, especially when cross-checked against a sharply bearish trend momentum in the USD, offers 2 takeaways. Firstly, we remain in a highly uncertain period where the deleveraging dynamics remain dominant based on the lofty pricing of the Yen vs G10 FX. Secondly, the major performance disparity between the JPY and the USD indicates that the market is assigning significantly higher chances of a slowdown in the US economy, as reflected by the slide in US yields and the DXY in tandem (USD weakness across the board). Don’t be misled by the retracement in the USD/CNH, as that’s a function of USD fragility vs RMB strength. If you assess the RMB vs G10 FX, flows still communicate no bets on an eventual US-China trade deal.
Overall, even if the desirability of Trump is to see an increase in equity valuations, his attempts are starting to be quite futile to revert the dominant risk-averse mood in the market. Unless there is some genuine progress for the market to latch on, looks like the risk-off dynamics are prevalent.
EUR/USD: Volume Profile Stays Bullish
GBP/USD: Acceptance At Highs, Range Resolution Found
USD/JPY: Sellers Keep Making Further Headway
AUD/USD: First Upside Target Met, No USD Demand