Short-Term Flows Primarily USD Negative

Dashboard: Intermarket Flows & Technical Analysis

Chart Insights: Intermarket Flows & Technicals

EUR/USD: Range Establishment Post 1.1250 Demand Imbalance

The absence of liquidity in financial markets during Monday is well expressed through the pair’s narrow 35p range. The most traded pair in the forex universe has validated the first up-cycle structure for weeks, even if from a 4h chart and above, it would still warrant caution as the structure is still a wide a 1 cent range between 1.1340–50 down to 1.1250 with 1.13 the anchoring midpoint to pivot from. At the moment, with back-to-back hourly rejections off this round number and a 25-HMA still exhibiting an upward slope, one could make the case for active interest to buy on dips as the hourly cycle pans out. In terms of intermarket flows, there is an absence of cues to be obtained from yield spreads or even the German yield as a proxy for the EU growth outlook as the moves have been extraordinarily stagnant in the last 24h. Even the 5-day correlation coefficients both show an evident detachment between the performance of yields and the EUR/USD price action, which results in a market that is temporarily technically-driven.

GBP/USD: Testing 3rd Touch Of A Descending Trendline

Technically, the Sterling has reached a crossroads as it finds an expected cluster of offers at the 3rd test of a descending trendline originating from Feb 8th’s supply imbalance. The acceptance just under this dynamic resistance is an encouraging sign as it’s the still pronounced bullish slope of the 25-HMA by NY 5 pm as momentum-based intraday strategies keep a lid on the tepid USD demand seen. The consolidation near the highs has also allowed the slow stock to come out of overbought conditions. Scanning through intermarket flows, and taking last Friday’s upward rotations as our guidance given the low levels of trading activity on Monday, we still can observe positive microflows in the DXY as the 25-HMA slope portrays, while it’s also quite encouraging to see the macro flows based on the 125-HMA slope (5-DMA) to officially turn higher as the thick green slope exhibits. One of the factors that may abate the demand imbalance of Pounds vs US Dollar is derived from capital flows, as both the micro and macroflows still show a bearish divergence (blue lines) with the price. For most of February, the 5-day correlation coefficient of the UK-US yield spread has acted as a reliable barometer to take the pulse on the pair’s valuation, that’s why one must pay attention to the current lagging. Overall, it’s a fairly balanced outlook, with cases to be made for either side. In favor of buy-side action is the current technicals and DXY weakness, while sellers’ thesis to short the market could be predicated on the UK-US yield spread divergence and the crucial trendline tested.

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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 ...

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