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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.
What did we lea after the US NFP? In my opinion, it essentially reinforces existing trends in the market such as a Fed that will continue to find it well justified to stay on the sidelines for the remainder of 2019 and beyond, while it also provides a Goldilocks scenario for equities, as US growth remains relatively high despite little to no inflation. US bond vigilantes came roaring back by joining the bid in bonds last Friday, pushing US yields aggressively down, which can partly explain the rise of the Yen even as equities stay bullish. The Euro is another currency that remains very stable doing its own thing in a very confined range vs the US Dollar. Meanwhile, the antipodean currencies, especially the Kiwi, find no respite on its bearish trend as the market keeps discounting a more dovish RBNZ, while the AUD shows the first signs of weakness after a solid 3day bull run. In the last 2 days, I must say that the movements in the Sterling have resembled a lot to those seen in the Kiwi, both the clear underperformers in the G8 FX space. Somewhere sandwiched in between we find the Canadian Dollar, which remains supported as a commodity currency, in a context of bullish Oil prices.
The rise in US equities for a 7th straight day in a row masquerades a more negative shift in dynamics than it originally may appear on the surface. Bullish equities is definitely a ‘risk on’ sign, but it fails to be accompanied by congruent swings in fixed income, as US bonds were bought up aggressively once again as the US NFP report relaxes any fears of a pick up in inflation while it continues to show a weakening employment growth trend within still very tight labor conditions. The US NFP does reinforce the state of Goldilocks by equities, as the US growth, while decelerating, still remains very solid by G10 standards, at a time where inflation is still nowhere to be found, which undoubtedly makes companies’ cash flow all the more attractive as real yields fall. Further denting the overall risk appetite, and a clear sign that the conditions are less than ideal, both the DXY and our prop JPY index have shifted the micro trend to bullish since last Friday, with the latter following the move down in yields in locksteps. The dual industrial ratios to help us further gauge risk, such as Oil vs Gold or Copper vs Gold, are booth exhibiting a bearish slope, which is risk negative. In credit markets, junk bonds remain supported vs investment grade bonds, which is a positive for risk, as is the close sub 13.00 in the VIX (volatility index). The last 2 reads are conducive with a rising stock market.
EUR/USD: In A Consolidation Patte, Proj Targets Defined
The US NFP outcome has only reinforced the current range profile of this market. We’ve entered a well-defined consolidation with a resolution beyond 1.1245-50 or 1.1205-12 needed to expose the next 100% proj target at 1.1280-85 to the upside or 1.1170-75 to the downside. The midpoint of the range at 1.1230-35 is another critical point that may provide clues of the side in control. The latest volume profile, while price closed sub the POC, it has connotations of a single distribution, with little value built at the bottom of the range to think a breakout is imminent. Remember, from a cycle standpoint, the bearish cycle initiated on March 21st offered enough signs of reaching full maturity judging by the decreasing magnitude of its downward legs. The current range is yet another sign that the sellers have lost control unless they can start filling bids sub 1.12.
USD/JPY: Impulsive Selloff As US Yields Roll Over
The aggressive selling of the exchange rate is about to reach its 100% proj target at 111.30-35, an area that aligns with a sequence of multiple lows from early April. The rollover of the US Dollar occurs in line with the resumption of the bearish trend in US yields even if the DXY is not yet reflecting a bearish microtrend as per the slope of the 25HMA. Moreover, with very bullish equities (7 rising days in a row), one would think the mentioned target of 111.30-35 would see a major cluster of bids as market participants find value in joining the bid at what’s perceived as cheap prices in the current context. The rising trendline from March 25th is another technical backup buyers can resort to as further evidence that any buy on dips strategy is still very much entered in a rather constructive environment.
AUD/USD: Short-Term Sold In A Directionless Context
If one market portrays like no other the lack of volatility in the currency market, that’s this exchange rate, which continues to be trapped in a narrow range for over a month now. It’s a market perfectly suitable for those playing range bound strategies and other methodologies with a reversal to the mean at the core. Look for overextensions to be faded both ways, especially the first part of this week, with very little in the way of stimulus for vol to pick up considerably. The latest bearish initiated on the back of the US NFP has a target of 0.7085, where a rebound is expected. On the upside, buyers need to regain 0.7110 for a retest of the previous highs around 0.7130.