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, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube. The purpose of this content is to taking an in-depth look at market dynamics – fundamentals and technicals – to determine daily biases and assist one’s trading decisions.
Let’s get started…
Shorting the US Dollar has been without a doubt the best play over the last week as the Fed inundated the market with a new level of liquidity/funding capacity. The signing of the $2trn stimulus package by Trump, while not aiding stocks in the last 24h, has nonetheless alleviated the near-term economic stresses in the US. But it’s month-end books’ re-balancing that the Global FX Committee (GFXS) is warning us to be vigilant for the next 2 days, as “FX market participants may execute larger than usual FX volumes during end-of-month benchmark fixings.” The late weakness in the USD out of the blue in the last US session after a promising start shows how it all can turn on a dime in the blink of an eye. The currencies are flows’ driven, especially as Q1 ends, and prove of that is the out-performance of a Pound despite in the UK, PM Boris Johnson and Health Secretary Matt Hancock both tested positive for COVID-19, while at the same time, Fitch downgraded the UK’s credit rating to AA- with the outlook negative. The Oceanic currencies also did well last Friday even as equities and bond yields dropped. The CAD was a big mover last Friday too, as the BOC exhausts its ammunition by announcing an extra 5-bp rate cut and the introduction of QE as part of another emergency meeting. The Yen, Euro and Swiss Franc, the 3 funding currencies and poster children of the now terminated era of ‘long carry structures’ went through balanced flows on Friday.
The indices show the performance of a particular currency vs G8 FX. A video on how to interpret these indices can be found in the Global Prime’s Research section.
* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Twitter, Institutional Bank Research reports.
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Trump signed off $2trn stimulus package: It happened last Friday following the approval by Congress to pass the historic bill to stem the fallout of the US economy. This package is designed to keep the country above water but far from reactivating the economy.
Equities end the week on a soft note: Equities finished the week giving back the majority of Thursday’s gains as the correction lasting 3 days lost steam. Judging by the level of the VIX at 65.00, high volatility is going to stay very elevated and “demand for cash should remain high as large parts of the US economy will remain closed”, an investor quoted by the FT said.
Safe-haven in demand: The lowering of global bond yields on Friday, including in the US, as equities sold off, was a recipe to see instruments with safe-haven attributes (Yen, gold) in high demand on Friday. The rise in these asset classes is supported by the near term USD weakness.
AUD, NZD rallies not aided by Friday’s context: The Oceanic currencies had a bullish run that based on risk metrics looks unsustainable and shows the bearings that month-end rebalancing may have had causing the disjointed moves. It’s hard to justify a sustained AUD, NZD rally when order flow is ‘true risk off’ as seen on Friday.
GBP outperforms: To further make a point that markets don’t make much sense based on the rapid evolution of fundamentals, the GBP was the outperformer during Friday despite in the UK, PM Boris Johnson and Health Secretary Matt Hancock both tested positive for COVID-19, while at the same time, Fitch downgraded the UK’s credit rating to AA- with the outlook negative.
USD under the cosh: Last week, the USD index (I monitor the equally-distributed measure vs G8 FX) suffered the largest weekly fall that I can remember as far as data goes. However, this depreciation in the currency, triggered by the flooding of USD into the system, still occurs in the context of an unfolding structural bullish breakout as underscored in this YT video.
Watch month-end benchmark fixings: The Global FX Committee (GFXS) issued a statement late last week, still applicable for the next 2 days, in which it warns: “Given the intense volatility seen in global financial markets this month, it is possible that FX market participants may execute larger than usual FX volumes during end-of-month benchmark fixings.”
BOC cuts and starts QE: In another emergency meeting by a Central Bank, and I’ve lost count how many we’ve had since the unraveling of the COVID-19 crisis into ‘full blown’ state, the Bank of Canada decided to cut its rates by 50bps to 0.25% and announced QE for the first time.
Oil market in a state of disarray: It trades at a 17-year low as the key players causing the historic price war (Russia & Saudi Arabia) show no interest in returning to the drawing table. Last Friday, I warned traders that the outlook looks grim as the G20 meeting concluded on Thursday made no mention of oil nor energy, in a clear sign that positions are far apart.
Worrying signs of deep political cracks in the EU: The messages of cohesion and solidarity the European Union should project are lacking as Italy gets into murky waters questioning the very existence of the EU amid the lack of camaraderie and financial assistance from the European block. France and Spain also joined forces supporting the idea of a large joint EU effort through ‘corona bonds’, which met the fierce opposition of the Dutch and Germans.
The US focal point for markets: The fluid situation on the COVID-19 numbers continues to be disaportionaly bleak, with the Western Hemisphere going through the darkest times compared to the far east (Italy and Spain numbers show the deadliest days yet). Most of the focus in coming weeks will be in the US as the death toll keeps escalating rapidly. The trend is that an increasing number of countries are going into ‘hibernation’ as economies get paralyzed.
Grim outlook by US expert in the matter: As the U.S. becomes the first country to reach 100k coronavirus cases, the latest projections by Dr. Fauci, the director of the National Institute of Allergy and Infectious Diseases and a member of the White House coronavirus task, suggest the coronavirus will infect millions of Americans and could kill between 100,000 to 200,000.
Must-watch video by South Korean top scientist: The highest-ranked scientist in infectious diseases out of South Korea, a country praised for the successful tackling of COVID19, gave a rare interview with English subtitles. I recommend watching it from minute 30. In it, Professor Kim Woo-joo from the Korea University Guro Hospital, warns that the world must brace itself for 18 months of no prospects for a vaccine and even when available, it’s hard to see how it can be made available for the majority. This video interview is a cruel reality check. His hope in the near term, he mentions, is drug repurposing.
Economic data to play a secondary role: Remember that with economic data so hard to forecast in these unprecedented times, the market will continue to take guidance off COVID-19 count curve with the worst yet to come in countries slow to react like the UK and the US. This means that data will remain on the backseat and is very unlikely to be, in the grand scheme of things, a key driver. It therefore implies that this week’s US ISM PMI and payrolls should have little bearings vs the real data that matters.
If interested in the best ‘free of charge’ News Indicator that displays data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!
This analysis complements one’s view by accounting for multi timeframe biases. Ultimately, it is the traders’ call, via a set of entries (watch my setups) thoroughly backtested, to decide if a market meets the prerequisites to enter a position. This analysis is mainly intended as a way to educate traders in upping their analytical skills.