The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics – fundamentals and technicals – determine daily biases and assist one’s trading decisions.
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 title of today’s report embodies the exceedingly random and trendless dynamics in currency markets amid a multi-year low FX volatility regime. As a consequence of the extremely short-term flow-driven movements, courtesy of a decade low QE experiment where Central Banks have become the ultimate liquidity providers with no monetary policy divergences to take note of, and where politics is at the epicenter of the European FX moves, it’s not surprising that we see a Sterling transitioning from the absolute dominant attracting the most buying flows into the most depressed in a matter of days.
It’s the reality of the markets, which is precisely why under the current lay of the land in FX, understanding the constant fluctuation of flows through intermarket analysis gives us an advantageous front row ‘VIP’ seat to not miss the market’s pulse. Don’t forget that. Not accepting this reality would essentially negate the regular findings I report day in and day out on strongly correlated instruments that I always emphasize and serve at your doorstep to follow the ever-evolving market’s narratives.
In today’s report, I break down the anatomy of the latest market movements as usual, which are mainly characterized by the continuous dominance of the JPY and USD as macro ‘true risk off’ prevails, while the EUR and the GBP suffer the consequences of the relinquishment of the ECB’s attempt to exit QE and the Brexit unknowns. We then have the commodity-linked currencies staring at the FX show from its relatively low vol confinements.
The Sterling is the worst performing currency as a new week gets underway and the Brexit plot thickens without any breakthrough this far in the game of chicken. One can clearly observe through the 2nd chart below how the tendency towards the British currency has deteriorated dramatically, resulting on both micro and macro bearish trend now firmly in place. Another clear macro bearish trend since last week’s ECB catalyst is the Euro, even if the elongated nature of last Thursday’s extension has now led to a micro bull trend based on the slope of the 25-HMA.
On the opposite side, we find the Japanese Yen, emboldened not only by the intensity of ‘true risk off’ flows but also as a result of absorbing a larger share of demand on the back of a very low US NFP number last Friday. We should not ditch the USD as a more unattractive proposition for the market to diversify into but rather, at this stage, amid the lack of clear alteatives, as a firm contender to keep catching bids for the current mild bearish micro trend to re-anchor with its bullish macro trend as the 2nd chart shows.
A familiar theme that hasn’t really changed ever since the ECB-led volatility is the relatively stable performance of commodity-linked currencies, still finding pockets of demand; as the thick lines (red, blue, silver) demonstrate. The only exception, one could argue, is the tentative bullish dynamics developing in the Kiwi. As the chart on monetary policy expectations below indicates, the positive flows towards the Kiwi fall in line with the pricing out of rate cuts by the RBNZ.
In the very short-term, the daily flows as determined by the slope of the 25-HMA indicate a context of USD weakness with balanced flows emanating out of equities as the flat 25-HMA slope shows. However, once we step out of the more noise day-to-day gyrations to instead pay attention to the macro flows determined by the last week worth of price action, the evolving trend remains firmly in place, characterized by a ‘true risk off’ scenario. The order flow, as seen via the impulsive vs corrective movements in cross-asset price action, is also indicative of a market sending ‘risk off’ signals. For instance, the last 24h pullback in the DXY occurs in the context of a move very corrective in nature, most likely led by profit-taking, in what’s otherwise a very strong bullish rally. When it comes to equities and yields, the recent deleveraging has come with downside moves being much more rapid and aggressive as opposed to slower and more two-way sided recoveries. Even the strong spike in Gold has outpaced the weakness in USD terms in the last 24h, yet again a communication that the market is looking to flock back into the appeal of the precious metal. In short, be wary of being overly aggressive towards commodity-linked FX while the Yen and the USD remain well positioned to attract positive flows, especially the former as long as equities stay under pressure.
EUR/USD: Correction Of Overstretched Move Underway
GBP/USD: Brexit Uncertainty Weighs On The Pound
USD/JPY: Macro ‘True Risk Off’ Keeps Supply Imbalances
AUD/USD: Established In A Short-Term Range
USD/CAD: First Signs of Supply Entering The Market