Short-Term Flows Primarily USD Negative

USD/CAD: Sell Strength While OIL/DXY Move In Tandem

The technical picture has clearly deteriorated and if one buys into the thesis that we are in a 1.3225–30–1.32 range box, the recent trajectory in the pair still suggests another 50 odd pips of downside potential for the pair. The dominant buy-side flows on the Canadian Dollar are conditioned to further weakness in the DXY with Oil being more of a safe bet as even if flows turn against, there is a major divergence with the pricing of the pair, so plenty of catch up to do, especially in a correlated asset that has shown in recent months such a strong relationship. As I mentioned yesterday, as long as the DXY and the inverted Oil prices move down, the aggregate of flows should offset the capital flows derived from the CA-US bond yield spread, currently at the highest since last January. Note, the level of 1.3265 or thereabouts should act as the anchor or midpoint of the range.

NZD/USD: Buy On Dips Preferred As Intermarket Flows Stand

With the technicals undeniably bullish as per the current cycle at play in the hourly chart, the intermarket flows (IMF) are still communicating that this is a market with bullish features as the inverted DXY flows and the recently soaring NZ-US yield spread shows. What’s also interesting is that from a more macro perspective, by accounting for the slope of the 5 — DMA (125-HMA), we are now in a synchronized bullish slope both micro and macro wise, which is a strong buy signal. Unless the inverted DXY slope and or a NZ/US fundamental shocker adjust the yield spread much lower, this market, when aggregating key factors (technicals, intermarket flows), hints at buy dips.

Gold: Breaks Into Fresh Highs, Momentum Behind But…

A stellar 3-day run in gold has taken us to fresh yearly highs. The strength in the price has front run the mild weakness in the DXY (green line). Gold also shows a significant divergence with the US 2-yr yield (blue line), which tracks very closely the Fed funds contract as a proxy to gauge the pricing of the future rate settings by the Fed. Judging by the 5-day correlation coefficient in the DXY (in green), it is this instrument the market has paid the most attention as of late. The US 2-yr yield also agrees. Therefore, it makes me think that the run higher may be getting ahead of itself. If one checks the slow stoch indicator, we remain in overbought territory, which makes buying on such strength a high risk, low reward strategy unless one’s system is based on scalping or short-term momentum basis. If that’s the case, the momentum is certainly very strong, a testament of that is that ever since the onset of the bullish run from 1,307.00 on Feb 14th, the 25-HMA has not been 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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