US Equity Bounce Within 'Risk-Off' Context

GBP/USD: DXY Strength May Cap Upside, Brexit Dependent

Technically speaking, there is still a case to be made for the Sterling to find buying interest off 1.2925–30 horizontal support. The latest BoE-induced spike breaking above the previous structure high at 1.2970–75 does offer some offer some technical credence that implies demand is re-emerging. Buyers need to hold this critical line at 1.2925–30 from which the rate should be lifted up towards the 1.2970–75 to keep re-calibrating the technical into a more neutral stance. However, be reminded that any rebound would still be trading into negative flows originating from correlated instruments such as the DXY or the UK-US yield spread, both supporting further declines.

USD/JPY: Resolution Away From Range Needed

The market is currently experiencing its most prolonged low vol phase in 2019. The lines of battle have been clearly defined on both sides, with the weekly horizontal resistance in red having acted as an excellent anchor point to define the midpoint of the current phase of consolidation. By analyzing the behaviour in USD/JPY’s most correlated assets, the latest rise in the DXY + SP500 does support the buying on dips mentality for now, while the major divergence with depressed US yields does also suggest that any retest of 110.00 and beyond should find increasing sell-side interest in light of such macro divergence with what’s arguably been, according to the correlation coefficient in the 3rd window (in green), the most correlated asset in recent times. At this point, there are only 3 key areas to be involved from an hourly perspective (110.00–110.10, 109.85–90, 109.55–65).

AUD/USD: Mild Recovery Amid Depressed Yield Spread

The first tentative technical cracks of the bearish trend are starting to be observed, as buy-side flows have resulted in the breakout of a short-term descending trendline. A retest of the area of resistance at 0.7115–20 would allow for the market to transition into a range from 0.7060–65 up to 0.7115–25. As the correlations stand, the weakness in the Australian-US bond yield spread, alongside the bullish momentum in the US Dollar, should keep supply pockets fairly strong as the pair correct higher. The recovery in the S&P 500 in the last 24h has arguably assisted the rebound off lows, but with domestic factors (yield spread) playing a more important role for the Aussie, and as the correlation coefficients suggest, it’s the yield spread and the DXY+Yuan we must pay special attention to.

Important Footnotes

  • Risk model: The fact that financial markets have become so intertwined and dynamic makes it essential to stay constantly in tune with market conditions and adapt to new environments. This prop model will assist you to gauge the context that you are trading so that you can significantly reduce the downside risks. To understand the principles applied in the assessment of this model, refer to the tutorial How to Unpack Risk Sentiment Profiles
  • Cycles: Markets evolve in cycles followed by a period of distribution and/or accumulation. The weekly cycles are highlighted in red, blue refers to the daily, while the black lines represent the hourly cycles. To understand the principles applied in the assessment of cycles, refer to the tutorial How To Read Market Structures In Forex
  • POC: It refers to the point of control. It represents the areas of most interest by trading volume and should act as walls of bids/offers that may result in price reversals. The volume profile analysis tracks trading activity over a specified time period at specified price levels. The study reveals the constant evolution of the market auction process. If you wish to find out more about the importance of the POC, refer to the tutorial How to Read Volume Profile Structures
  • Tick Volume: Price updates activity provides great insights into the actual buy or sell-side commitment to be engaged into a specific directional movement. Studies validate that price updates (tick volume) are highly correlated to actual traded volume, with the correlation being very high, when looking at hourly data. If you wish to find out more about the importance tick volume, refer to the tutorial on Why Is Tick Volume Important To Monitor?
  • Horizontal Support/Resistance: Unlike levels of dynamic support or resistance or more subjective measurements such as Fibonacci retracements, pivot points, trendlines, or other forms of reactive areas, the horizontal lines of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed and relevant to monitor. The Ultimate Guide To Identify Areas Of High Interest In Any Market
  • Trendlines: Besides the horizontal lines, trendlines are helpful as a visual representation of the trend. The trendlines are drawn respecting a series of rules that determine the validation of a new cycle being created. Therefore, these trendline drawn in the chart hinge to a certain interpretation of market structures.
  • Correlations: Each forex pair has a series of highly correlated assets to assess valuations. This type of study is called inter-market analysis and it involves scoping out anomalies in the ever-evolving global interconnectivity between equities, bonds, currencies, and commodities. If you would like to understand more about this concept, refer to the tutorial How Divergence In Correlated Assets Can Help You Add An Edge.
  • Fundamentals: It’s important to highlight that the daily market outlook provided in this report is subject to the impact of the fundamental news. Any unexpected news may cause the price to behave erratically in the short term.
  • Projection Targets: The usefulness of the 100% projection resides in the symmetry and
1 2 3
View single page >> |

The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.