Posted on: 04 Apr, 2019
The AUD has been the kink of the currency market in the last 24h, spurred by a notable beat in Australian retail sales, with the added fuel (demand) via the positive rhetoric in what appears to be the very last stages of negotiations in the US-China trade talks.
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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 AUD has been the kink of the currency market in the last 24h, spurred by a notable beat in Australian retail sales, with the added fuel (demand) via the positive rhetoric in what appears to be the very last stages of negotiations in the US-China trade talks. Risk appetite is still well sustained across the board, even if equities in the US, unlike in Europe, failed to keep the overnight gains. A reflection of the recovery in the desire to join the bid on the risk tone is the fall in the USD or JPY indexes. The Sterling remains steady, keeping most of its Tuesday's gains, as hopes keep building up over the UK averting a hard Brexit. The inflows into European equities and the overall risk-induced swings seems to have finally played a role in the Euro, which has found demand once again after retesting this year's low. The economic agenda is very quiet today, as the market liquidity dries up ahead of Friday's US NFP, set to inject the usual volatility at the start of every month.
By analyzing the crosscurrents in equities, fixed-income and currencies, it’s undeniable that the environment remains broadly supportive for risk assets, with both the Yen and the DXY indexes, a manifestation of such permutation away from safe havens and into riskier bets. In the case of the currency market, the Aussie managed to capitalize the most on such benign conditions, not only benefited via the ‘true risk on’ profile established but through a fundamentally-adjusted rate. The ratio of industrial metals such as copper vs gold does reflect the same clues as what we can obtain via the selloff in US bonds (higher rates), and that is, investors are betting on higher global growth. The latest raft of positive datasets from China and Europe (PMIs) has caused a short-term re-evaluation that perhaps the fears of a protracted global slowdown are not as terrible as the IMF made it sound this week, after stating that about 70% of countries worldwide will experience significantly slower growth. As the Research Team at Morgan Stanley explains as part of their latest note to clients, “IMF’s Lagarde warning about slowing global growth and the WTO warning that 2019 trade growth will be the weakest in three years stands in sharp contrast with commodity markets breaking higher. While some of the commodity price increase – especially in oil markets – may be due to supply cuts, it seems that demand has strengthened too.” Food for thought as copper vs gold breaking higher is a clear indication that what matters as the number 1 foreteller of economic news is price itself and not a lagging view by a policy-maker. The only ugly reading out of this expanded version of the RORO model, I’d say that the spike higher in the VIX into the 14.00 handle is the only marginal concern at this stage, even if the S&P 500 remains is a rampant run, as the enormous separation between the current pricing of the index and its 125HMA (macro slope) clearly proves.
EUR/USD: Sellers Lose 2-Week Long Price Control
The red flag emanating from the market structure evolution and dully highlighted in yesterday’s report has acted as a precursor to accurately pinpoint the area in the chart where buyers have made a comeback. The risk of a shift in trend dynamics, following a sequence of lower lows at intervals of decreasing magnitude (170, 108, 63) has now been vindicated after bids gunned through a descending trendline originating from March 26th. The rotation back up has not found acceptance above 1.1250, which puts us at the bare minimum, in a range-bound environment between 1.1180-85 & 1.1245-50. Notice, the run from the lows has marginally surpassed the previous down-leg extension (63p vs 71p), a communication that the change in the cycle pattern is taking effect. Note, with Wednesday’s P-shaped volume profile formation in place, the pressure to break into higher ground is building up. Should the upside continue to hold, the key focal area where buyers and sellers will battle it out to gain control is the midpoint of the range at 1.1215 approximately. Be reminded, it’s US NFP on Friday, what this means is that technicals should be thrown out of the window, while we can anticipate that the incentives to commit towards a specific direction ahead of the event may not be as desirable due to the risk event that exists just ahead of us.
USD/JPY: Upside Target Reached, Breakout Pressure?
Another retest of an ascending trendline has transpired after price failed to break through a cluster of offers following the latest 100% proj target achieved before the slight roll over. Note, the 2nd leg of this ongoing bullish cycle has gone for a total of 152p, an increase of over 50% from the previous leg up (99p). What this means is that even if setbacks occur short-term, the market structure is still suggestive of a broad bullish trend as long as the ascending trendline off sub 110.00 is respected. Be aware, the current ‘true risk on’ environment (DXY down, SP500 & US30Y up) tends to lead to safe haven flows causing extra supply pressure on the JPY. With a P-shaped volume profile structure, and the downside still capped by the trendline, the path of least resistance is still higher. The breakout of the ascending trendline would be a warning sign that 111.15-20 may be revisited next.
AUD/USD: Buy-Side Bias As Intermarket Flows Stand
The trifecta of a bullish slope in equities, DXY+Yuan (inverted) and Aus-US bond yield spread becomes our guidance to anticipate the buying pressure in this market to stay its course. Technically, the market is in a broad range, but with so much value building up at the highs of the day as the volume profile POC reflects, one would expect buyside systems to have another go at the critical area of resistance 0.7130, with a breakout higher exposing an exploitable 20p vacuum area until .07150. Any setbacks on the Aussie should find plenty of demand pockets around the 0.71-7105 support, with a break lower to find further buying interest at 0.7085, even if it looks like a tall order to achieve by sellers as the intermarket crosscurrents stand at the moment.
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