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USD Funding Crunch Eases, Quarter-End Flows Behind Us

Published 03/31/2020, 11:28 PM
Updated 07/09/2023, 06:31 AM

Quick Take

The outperformance of the Pound continues to standout in the forex market, with the Yen joining the party as we leave behind the month/quarter-end rebalancing flows. In contrast, the US Dollar still trades on a rather soft note despite the latest ebbs and flows that kept the currency better bid. A special mention goes to the Canadian $ on Tuesday, as it saw an impressive spell of buy-side pressure as hedges and benchmark fixings kicked in through early hours of US trading.

The launch of yet another Repo Facility by the Fed (read ‘swap lines’) to help support the smooth functioning of financial markets and further ease the USD funding pressures and avoid further liquidation of USD-denominated assets by international actors (Central Banks/Int’ monetary authorities) seems to be working. The USD Libor-OIS spread is progressively adjusting lower, which means the cost of borrowing USD via EUR/USD and USD/JPY FX swaps decreases.

The end of the month was not kind to the Oceanic currencies, with selling flows hitting both the AUD and NZD since the Asian hours without a particular catalyst, unlikely to be found on such a flow-driven day. The peculiarity of the relaxation in the USD liquidity crunch crisis is the significant reduction in volatility, not only in the Forex market overall but especially through the EUR and the CHF flows.


FX Overview



EUR/USD Technical Analysis

Keeping the limited upside potential in mind, as per the multiple failures best visible through the weekly chart, the buy-side commitment is still present in this market as a liquidity grab (green area 4-hour) saw a strong pocket of demand, so far invalidating a bearish structure. Instead, the market is in a potential transition to range-bound conditions even if a resumption of the 4-hour uptrend up to 1.1170-1.12 should not be ruled out if the 1.1070-75 area is re-taken. Daily volatility levels of about 100 pips is the bare minimum to expect.

EUR/USD Chart

GBP/USD Technical Analysis

The base case put forward in yesterday’s report that supported the notion of dip-buying still warranted based on the positive confluence of the 4-hour structure and momentum worked out well. The GBP/USD market is currently sandwiched in a 100 pips box between emerging interest by dip-buyers circa 1.2340-50 and a cluster of offers through 1.2450-80. Once either side is taken out with a 4-hour close above/below, only then we will get further clarity, even if the inertia remains to be a buyer on the lower 4-hour timeframe, a picture that is supported by the momentum of the daily as per the smart money tracker and the fact that there is still ample room until the next key resistance at 1.27+.

GBP/USD Chart

USD/JPY Technical Analysis

To sum up the annotations in the chart below, the sellers have re-taken control of price action in the lower 4-hour timeframe, with a break of Monday’s low through 107.10 to expose a deeper setback. This bleaker picture for the pair is supported by the turn in the smart money tracker to bearish off the daily timeframe too. The rise in the pair on Tuesday, breaking the structure was not backed up by the momentum as the slope was still pointing down, reinforcing the notion that only when both structure and momentum are in alignment, the best directional plays come about as one side truly exercises the most control. Daily volatility in the pair is averaging just over 100 pips.

USD/JPY Chart

{{|AUD/USD}} Technical Analysis

AUD/USD has entered a consolidation period through the 4-hour chart, which means a resolution through one of the extremes is necessary to clear up the outlook to anticipate the next directional play. Based on the daily chart, the momentum is bullish but the structure doesn’t aid this positive backdrop, hence not enough clarity. In terms of levels to target, there remains available leeway to the upside until the next level of horizontal resistance circa 0.6290-0.63 comes into play. As in the case of the USD/JPY, daily volatility to expect a minimum of 100 pips.

AUD/USD Chart


Gold Technical Analysis


The gold market is rolling over with sellers the side in control in the 4-hour chart as I explain in the chart below. This setback originates off a strong supply imbalance marked in a horizontal red box. I see the most compelling case to be positioned for sell-side action on strength into the overhead red box I’ve marked above the current price. This bias is supported by the daily bearish structure (not the momentum). The volatility in the shinny metal has oscillated between $35-$50 last week.

Gold Chart


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