The Daily Edge - A Complete Cross Asset Analysis

[IvanGlobalPrime]

Quick Take

The Shadow of Corona Virus Grips The Market

As the coronavirus woes extend, so does the upside in the USD, JPY and CHF. These 3 currencies has expanded the gap versus its main peers in the G8 FX space as market participants take no chances and resort to the safe-haven appeal of classic plays. If you ask me, it is no wonder as the outlook for Chinese growth, and as spillover effect, the global GDP outlook is looking bleaker by the day with more than 50 million people in China on lock-down mode and over 100,00 cases diagnosed in Chin alone. What’s going to be absolutely critical is the rate of reproduction of the disease and whether or not there may be tentative signs that China is able to contain it. While one may take slight comfort from the fact that China seems to be doing all it can, one wonders if it’s too late to mitigate the spreading as it’s thought that more than 5 million Chinese from ground 0 where the virus originated from left the city of Wuhan before the ban on travelling. It definitely looks like the market may be on tenterhooks for another week or two until there is more clarity on the true outreach of this disease. A currency that depicts like no other the worsened outlook towards China near term remains the Aussie and to a lesser extend the Kiwi, taken to the woodshed as the favorite short play to express the dire view on the Chinese economy to start 2020. There is a third camp of currencies (EUR, GBP, CAD) that found rather stable dynamics notwithstanding the pick up in risk aversion. This is important to note, because this is a week with higher than average trading opportunities for the avid trader to capitalize on the increase in volatility that we are seeing in financial markets, so making a distinction of the most one-sided flows is critical to catch the strongest trends at play. This is a healthy improvement in volatility, even if sadly, once again, for the wrong reasons. Remember, while you definitely must be accounting for the FOMC or Aussie CPI this week, make no mistake, there is a thematic overriding it all, and that’s the coronavirus propagation. The markets are in clear risk-off mode as also reflected by the largest one-day fall in the S&P 500 since October.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

The USD Stays Immune To Shift In Risk Dynamics

The financial markets finally took a bit of a breather after the disproportionate one-sided movements in instruments the likes of the Yen, the Aussie, the Yuan, bonds, gold, equities. The fact that there was no new alarming developments in the number one driver of the market since last week, that is, the coronavirus outbreak, acted on its own right as the trigger to justify what’s seen as a correction very much technical in nature, not yet enjoying the fundamental backing of a complete disregard by market forces to the virus news, far from it. It is still a real possibility that the coronavirus saga keeps getting worse before it gets better. Amid this more sanguine environment, the Yen succumbed to the improved bid tone in risk, as did the allure towards the Swiss Franc, even if both remain top performing currencies in January, alongside a USD that keeps charging higher as the US economic news keep shining. As a result of the recovery in risk appetite, the Aussie and Kiwi moved higher in locksteps. Meanwhile, two currencies also enjoying buy-side flows, even if it may not last (spoiler: watch for shorts) judging by the technical stance conducted include the EUR and CAD. In my objective technical analysis of the G8 FX indices, I make a case as to why you want to be on the alert for these currencies to be, sooner or later, engulfed by renewed sell-side pressure. Lastly, the GBP traded on a soft note as it got hit by news that the U.K. will allow Huawei to build parts of the 5G network, in a move that defies Trump, and potentially the future trade relationships with the US.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

The Corona Virus Keeps Risk Tone Suppressed

The USD kept advancing further ground up until the point when a dovish tilt by Fed’s Powell on inflation during Wednesday’s FOMC press conference led to a change of heart by the market. The currency ended softer after the remarks by Powell as the market now prices about one and a half cuts by the Fed by the end of 2020 vs 1.2 cuts pre-FOMC. The EUR, which continues its recovery, finds little technical grounds to expect the current run higher to last.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

NCoV Hits AUD Hard As BoE Fuels GBP

With the WHO finally declaring the coronavirus (NCoV) a public health emergency alongside news that the US travel advisory just raised the alert level to its highest by advising nationals not to travel to China, the market, understandably, remains on shaky grounds. Note, I am firmly convinced, as I exposed in yesterday’s Youtube livestream, that the NCoV will remain the number one driver for at least another week or two. As a visual reflection, the chart below depicts the performance of G8 FX ever since the coronavirus (NCoV) news broke out. By now, it’s become visibly obvious what currencies have been affected the most. The Yen, the Swissy and the US Dollar, in this order, are unequivocally the main beneficiaries, while the Aussie and the Kiwi have been hit the hardest as the Chinese growth story is about to face some very bleak times in Q1 and Q2, and as a consequence, the market has been rapid to factor that in via the depreciation of the Oceanic currencies as ‘proxies’ for China. The Canadian Dollar, weighted by the prospects of lower rates in Canada and the recent slide in Oil prices as the NCoV also takes its toll on the projected consumption of the black gold. A currency fueled by its own idiosyncratic driver is the Pound, immune to the NCoV fuss, to instead be marked aggressively higher in the last 24h by a less dovish BoE after a 0.75% rate hold with a 7-2 split. Sandwiched in between, we find the Euro, which had an impressive run on Thursday, with further tentative evidence of a recovery in the Eurozone economic data to blame.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Funding Currencies Surge As Risk-Off Rules

There continues to be no respite to the tightening of financial conditions as depicted by the sharp falls in US equities before the end of business on Friday. The coronavirus-induced risk-off is highly likely to be here to stay for weeks if not months with more research papers indicating that the peak of the disease may still be months away. How it all played out in the currency market was a perfect script of text-book movements to be expected in times of suppressed risk conditions as the prospects of bleak Chinese growth in H1 2020 become an outcome factored-in. So, in forex, the swings were characterized by a surge in the three funding currencies (EUR, JPY, CHF), alongside follow-through demand towards the Pound as the bullish BOE play extended. On the other side of the spectrum, the AUD and the NZD saw another massacre in value, this time also joined by the CAD, which tracked the Oceanic currencies lower in locksteps. The USD, which put on a stellar performance in January in line with seasonals, finally succumbed in what some bank research report appear to attribute to month-end flows redistribution.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

RBA & Brexit Keeps Vol High In Aussie, Pound

The market has gone through a short-term relief rally in risk-sensitive instruments. The modest easing of financial conditions as depicted by the rise in US equities or the pause in the bloodbath of global bond yields, has led to a minor recovery in the likes of the Aussie or Kiwi. Interestingly, the bid in the Yen or the US Dollar puts into question this recovery as one that still communicates further trouble ahead, as does the fact that Oil or industrial metals keep losing ground. The Swiss Franc is also holding up its trend quite well as the index reflects. The resilience of the Euro is also quite impressive as buyers piled into Monday’s dip. The Canadian Dollar saw follow through supply with no particular fundamental catalyst, so my read on the fall is predicated on the fact that the CAD technicals remain very fragile. However, the main loser was the Sterling, with sellers in control of price from the open in Asia until the final hours of US. What appears to be behind the latest sell-off in the currency is the anticipation that the negotiations between the EU and the UK on a trade deal may collapse unless either side stops playing ball and starts to provide a substantial number of concessions, which looks unlikely.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

'True Risk On' As Virus, US Politics Rule

The pick up in risk appetite, in what I call ‘true risk on’, as both equities and bond yields in the US rose strongly in tandem, led to a further reprieve in the Oceanic currencies (AUD, NZD). The currencies were catapulted into higher ground for a second straight day, also aided by an RBA policy meeting and subsequent speech by Lowe today, with both events failing to make a strong case with regards to the RBA ready to ease policy any further in the short-run. The Kiwi found its wings again as the NZ employment report saw a significant reduction in the jobless rate, even if the details were troublesome as the change in employment and participation were down. On the other side of the G8 FX spectrum, the Yen was smashed lower as the ‘risk on’ flows in equities were maintained at a steady pace throughout the three sessions (Asia, Europe, US). The easing measures, aka bazooka, by the Chinese government, of which I provide details in today’s report, have proven to be an effective tool to combat the panic selling on the back of the coronavirus, a crisis that still remains well and alive even if the Chinese government is doing all it can to massage the number of cases and the death toll to avoid the chaos that may emerge. The Swiss Franc also found solid sellers in line with the improved risk profile, even if the currency remains in a steady bullish trade premise since the start of the year. The Pound, after being hammered following the European Commission unveiling of its draft mandate for upcoming negotiations with the UK, which was interpreted as bearish for the future prospects of reaching some mid-ground on trade negotiations, saw strong buying off the lows. Encapsulated in between we find the USD, EUR and CAD, which saw limited flows on Tuesday.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Commodity-Linked Currencies Keep Attracting Demand Flows

Another very strong performance by risk assets, almost analogous to the price action script seen in the prior 24h, with equities flying higher and fixed-income (bonds) dumped. The in-sync reinvigoration in these two asset classes wreaked havoc the Yen or Swissy, even if as I distill in the study of the G8 FX indices, gain further exposure to safe-haven currencies’ short inventory carries a heightened level of risk given the NCoV context we are in. By the same token, it should be troublesome that the market has bought up risk in dubious headlines about a breakthrough in the treatment of the virus, while shrugging off the factual and worsening details of a steady increase in the number of cases and death toll. Whenever the market stops going down in bad news and overplays questionable bullish news, that’s a motive to be worried. A clear winner regardless of the risk dynamics, I must state, is the US Dollar. As the aggregate flows reflect, which I detail in the charts section, it’s finally gunned through a key resistance, which opens the door to fresh bullish dynamics as part of this newly found bullish leg. US data aided the rise. The Euro, despite better EZ services PMIs, has kept the downside pressure, with an intervention by ECB Chief Lagarde failing to stimulate the price action as all she did was to touch on old news that were well telegraphed in the last ECB policy meeting. The Pound remains in a position that lacks technical clarity with swings up and down without a clear bias. It goes without saying that amid this pick up in the risk vibes, the commodity-linked currencies (AUD, NZD, CAD) have fared the best, even if technically speaking, we are far from out of the woods just yet.
READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

NCoV Fears Reignited, USD Buying Persists

A renewed surge on risk aversion reignited the Yen, while the USD, invigorated by a solid US NFP, and backed up by strong technicals, also rose, in tandem with the appreciation seen in the Canadian Dollar as the domestic employment numbers topped expectations. The Swiss Franc managed to firm up its stance amid this risk-off dynamics, but far from amassing the most demand last Friday. The tightening of financial conditions came as the number of deaths caused by the NCoV now exceed SARS (813 v 774), even if the predictions by several epidemiologists of prestige see a peak in the NCoV in Wuhan by mid-late February. As a consequence of the sell-off in risk assets, the Aussie and Kiwi, as the two favorite shorts acting as a proxy for China, got dumped last Friday. The Euro continues to trade in a confined range at an index level amid the lack of clear catalysts, while the Pound is still attracting committed sellers since the highs printed over a week ago as the UK enters a tricky period of trade negotiations with the EU.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

The Kiwi Catapulted After Hawkish RBNZ

The economic calendar was packed with Central Bank events, including Fed’s Powell, ECB’s Lagarde and BOE’s Carney. The net effect, after all said and done, is a sense that these policymakers did a great job at sounding non-committal and sticking to the familiar mantra. What does this mean? It means there was little meat in the bone, a lack of substance or new surprises in the remarks they had prepared. As a consequence, the movement in currencies this week continues to be rather dull in nature, with the US Dollar a touch softer, even if that has not acted as a catalyst to see buying in the Euro, which remains in free-fall. Watch the EUR index closely as it nears a key level where long inventry building is a real possibility.

The Kiwi, however, is the exception, marked up aggressively by algo activity and the unwinding of shorts on the aftermath of a more hawkish-than-expected RBNZ. The Aussie, meanwhile, saw buy-side flows re-emerge but at a much slower pace as the positive groove in equities feeds through. The lower reported rate of new NCoV infections by China (even if numbers manipulated), or expectations of some factories in China to soon re-open are factors supporting equities. Not to forget, the Fed’s balance sheet expansion via money market operations, alongside the boost in Trump ratings to win this year’s presidential race after the Iowa caucus fiasco is also an aid.

This recovery in equities is causing the Yen and Swissy to see sell-side flows dominate this week, but the setback in the currencies is still under a bullish context when analyzing the aggregated daily flow. The Sterling is one of the clear beneficiaries from the current state of affairs, with its recovery more to do with a technically-inspired re-loading of longs at a critical liquidity area than any particular fundamental catalyst, as the EU-UK trade talks still the key driver with the outlook as tricky as it was during the aggressive sell-off in the Pound earlier this month. Lastly, the Canadian Dollar remains firmer but on the daily the currency remains structurally bearish.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Currencies Behave Pricing In Coronavirus Peak

The more days that go by, the more traders are getting a sense that the worst in the NCoV scare may be behind us. This is not a hunch or something I write out of my gut feeling, but as usual, I let price action and the aggregated flows in G8 FX tell the story. We are witnessing, without exception, the three funding currencies (EUR, GBP, CHF) be dumped this week. Whenever speculators show a greater interest to borrow a low-interest rate currency to use it as a funding currency to profit, it suggests the carry trade is ‘back on’, and this would not be happening if the market was still engulfed by elevated levels of uncertainty. As one shifts the focus to equities, the same picture arises, with the S&P 500 making fresh record highs. Chinese equities? The same story, with 7 days of straight gains in the CSI 300 index. The Aussie has clearly benefited from this recovery in risk, at a time when the RBA Governor Lowe is starting to sound more upbeat on the economy judging by the speech given this Thursday. However, the Aussie performance was eclipsed by the aggressive mark-up in the New Zealand Dollar after the RBNZ hints at the end of its easing bias. Shifting gears to the world’s reserve currency, the USD maintains a bullish outlook with a notable dip buying participation noted as Fed’s Powell testimony failed to act as a catalyst to alter the northbound tendency. Its neighboring peer, the Canadian Dollar, had a stellar performance as Oil keeps recovering in line with risk, while the Pound saw very tepid aggregated flows.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

The Pound Spikes As Looser Fiscal Policy Eyed

The British Pound had no rivalry in the Forex land, with the currency finding strong demand after the British Finance Minister Sajid Javid resigned in what was seen as a surprise move. Immediately, the market started to connect the dots, assuming that the successor (Rishi Sunak) will support looser fiscal policy to satisfy UK PM Johnson wishes, and as a result, this may lead to a reduction in the odds for the BOE to cut rates this year. The Yen was the other currency that gained ground with the bulk of the gains seen in Asia as the number of reported coronavirus cases spiked, leading to algo-selling to dominate early doors. The catch, however, is that this spike in numbers won’t be sustained as it was due to change in the standards to measure the disease by the Health Commission for Hubei Province. Nonetheless, it was enough to see the spectacular 7-day bull run in the Chinese market to come to an end and weakness to ensue in the Aussie and the New Zealand Dollar, even if the losses were marginal. The Canadian Dollar was also affected by the selling in carry trades, but the losses were minimal. The USD continues to put up a fight to prevent further downside and as I pointed out when analyzing aggregated flows in the charts section, while the USD valuation is high, the current pullback is the most pronounced seen in 2020, hence counting for further USD weakness is betting on this 2020 pattern to be broken; quite a bold call if you ask me. A currency which just keeps on delivering for the satisfaction of sellers is the Euro, unable to find sufficient buyers to stop the bleeding. Speculation that a dovish shift in rhetoric at the March ECB meeting could be in store amid the slowdown in China’s economic activity is one of the narratives doing the rounds.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Yen & USD Capitalize On The COVID-19 Crisis

Last Friday was one of those uninspiring days with minimal flows in the G8 FX complex. Buy on dip strategies continue to thrive in the British Pound and US Dollar markets, while the Japanese Yen has firmed up its stance in recent days too, despite fresh record highs in US equities. These currencies are by a large margin the strongest since the unraveling of the coronavirus crisis in China, even if the Pound trades based on factors largely non-related to the drama China is undergoing as Brexit/politics-led stories play the bigger role. Therefore, it is safe to say that the USD and the JPY are by far the fiats drawing the most demand by such an uncertain landscape.

The coronavirus has led, on the contrary, to the Aussie and Kiwi, now joined by the outperformance of the Euro, as the other group of three currencies most punished by this new dynamics in the market. As weeks have rolled by and the market keeps working out the ramifications of the coronavirus, this fall in the Euro to multi-year lows appears to carry a clear message about the impending risks of a more dovish ECB heading into the March meeting. The story here is that when ‘China sneezes, Germany catches a cold (no pun intended)’, so the market is betting on this Chinese drama to re-instill economic sluggishness in Europe, something that the ECB may have to act upon through easier tools.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

GBP & CAD Movers, COVID-19 'Peak' Near?

As Forex traders, volatility is the oxygen we need, and judging by the last 48h, the market has certainly strangled us by missing this critical component. On Monday, with the exceptions of the British Pound and the Canadian Dollar, the rest of the G8 FX complex traded in a rather ‘comatose’ state, even if that should not surprise nobody, as the US equity and bond markets were closed in observance of President’s day. In the first hours of trading in Asia this Tuesday, looks like vol is starting to return though.

The GBP was the weakest currency on Monday, as the UK’s Brexit negotiator David Frost reminded the market once again of the big stumbling blocks that lie ahead in the negotiations for future trading relationships with the EU. Britain said it will not sign up to follow EU standards because it would defeat the point of Brexit, while the EU maintains a hardline stance in ‘the level playing field’ that the UK must respect in accordance with EU laws. A rather bold yet representative statement of where they both stand came from the French foreign minister who warned of the tough EU-UK negotiations ahead by noting “EU-UK will rip each other apart” in trade talks.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Apple Triggers Return Of Risk-Off Markets

The behavior in currencies has re-aligned with the COVID-19 induced risk-off profile, this time kick started after no other than Apple downgraded its revenue guidance, attributing the setback to constrained iPhone supply and suppressed demand in China. This led to a cascade of selling pressure in those currencies most fragile to the Chinese growth story, that is, the Aussie and the Kiwi, while the Euro’s free-fall won’t stop either after a much worse-than-expected German ZEW readings, which reflects the the feared negative effects by German enterprises of the Coronavirus epidemic in China on world trade. However, the story of the day was the strong gains in Gold, surpassing the $1,600.00 mark. The USD continues to be the king of Forex, proven to be extremely resilient since the outbreak of the virus. The Yen has shown more two-way volatility through this same period, but it’s starting to catch a bid tone once again, recently rejected off a key test of support in the JPY index. The Pound, bolstered by healthy employment figures in the UK - the employment rate rose to a record high of 76.5% - has also been a beneficiary of the latest market drivers. Remember, the Pound has been very much immune to the unfolding COVID-19 drama so far, instead, it trades as a function of local economic fundamentals and Brexit/politics. Another currency that keeps displaying a great performance is the Canadian Dollar, so far unfazed by the pick up in risk-off, even if it’s hard to see the BOC retaining a neutral stance if global growth suffers and the price of Oil continues to fall as a result. Lastly, the Swissy is a currency that has been gradually debilitating, yet it finally found pockets of demand as the risk aversion kicked in.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Yen Special: What's Behind The Debacle?

Few will argue that the hot topic of conversation online is the debacle of the Japanese currency. Some traders at banks are speculating that the correlation breakout of Gold and the Yen represents a paradigm shift in the logic to trade the Japanese currency. I personally disagree and suspect that when a move is so aggressive without apparent justification, there is hot money ‘in the know’ preparing for a potential ramp up of further easing by the BoJ. It might well be, as an alternative, that Japan’s Government Pension Investment Fund has opted to reshuffle its strategy seeking out higher yielding opportunities via USD-denominated instruments. What’s clear is that no one can really pin point at this stage what’s caused such a dramatic fall in the Yen value, but through history and economics, out of the list provided below, some could help you contextualize it.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Asian Currencies Dumped As COVID-19 Plays Out

Geographics are playing a greater role in the adjustment of portfolio positioning as the COVID-19 plays out, with concerns over the spread now in Beijing and outside of China. When officials in China are even weighing the possibility of a “Wuhan-Level” lockdown, you know risk is that the market may go on ‘the defensive’.

The acceleration to buying into the USD portrays a market that is starting to diversify more aggressively away from Asian-based currencies (JPY, CNY, AUD, NZD) and into the allure of the world’s reserve currency. This comes as the seeking of yield continues in a world with excess liquidity and too limited places to park this capital.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Anxiety Rises On COVID-19 International Spread

The market is playing a ‘defensive’ card to start the week as COVID-19 anxiety continues on the rise as the international cases and deaths keep spreading from North Korea, through Iran, all the way to Italy, where over 130 cases are now detected. This has led to extraordinary containment measures by governments to slow down the spreading of cases, while the G20 group, in its weekend meet-up, pledges to be ready to step up to the plate with coordinated fiscal stimulus, stating that it sees heightened “prospects of further downside risk to global growth persisting as the coronavirus raises uncertainty and disrupts supply chains.”

Some authorities in the space of virology, via Twitter, are concluding that while it has taken a while for the spread to take off, we are finally seeing it come to life now. Note, The international spread of the virus means that monitoring of the COVID-19 stats outside China will serve as a more accurate representation of the true evolution of the virus. This, in m opinion, poses downside risks to further episodes of risk-off as these countries hit by the virus have far more robust processes of transparency to report the real situation as opposed to China, which as we know, has been criticized for downplaying the true magnitude of this tragedy.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Proximity Of COVID-19 To The West Spooks Markets

It is fair to say that the market has definitely hit the panic bottom as equities suffer drops to the tune of nearly 4%, while bond yields continue the dramatic falls, all indicative of a market that is pricing in, at this pace, a global recession this year. The culprit? The spreading of COVID-19 to the West.

It is precisely this proximity of the virus to the West that the market is finally picking up, no longer complacent, as we clearly observe a developing and growing correlation between the proximity of the virus to the Western world and fear in market participants as well as government.

READ THE FULL REPORT >>

[IvanGlobalPrime]

Quick Take

Market Keeps Pricing In A 'COVID-19 Pandemic'

Risk-off is certainly back with a vengeance with no mercy for equities, which appear to finally be ‘catching down’ to the reality of a world that faces the prospects of a recession. News that more cases are popping up in European countries (Spain, Italy, Germany…) alongside the state of readiness by some states in the US for a virus outbreak keeps spooking the market. It feels as though the market has finally caved in and now prices convincingly an upcoming announcement by the World’s Health Organization that we are facing a ‘pandemic situation’.

The behavior in the Aussie and the Kiwi keeps playing into this view as the currencies suffer the most its proximity to China and are set to experience the greatest economic pain if the global economy stagnates. The US Dollar, although to a lesser degree, also joined the fragility in the Oceanic currencies, in what still looks like a technical correction in a very well-established uptrend this year. The weakness in the Canadian Dollar is a nascent development to also keep an eye on as the unwinding of the ‘carry trade’ back to old fashion ‘risk-off’ dynamics with Oil flirting with the $50.00 handle is far from the backdrop that would make the currency thrive.

READ THE FULL REPORT >>