All Aboard The ‘Risk On’ Train
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All Aboard The ‘Risk On’ Train

Authored by Ivan Delgado

Ivan Delgado is a decade-long Forex Trader. Feel free to follow Ivan on Youtube. Join thousands of traders who follow Ivan's insights to increase their profitability rate by learning the ins and outs of how to read and trade financial markets. Ivan has you covered with in-depth technical market analysis to help you turn the corner.

Let’s get started…

Scan Of The Markets

The indices show the performance of a particular currency vs G8 FX. A video on how to interpret these indices can be found in the Global Prime’s Research section.

The underlying risk appetite phase we’ve transitioned into flared up on Monday, this time assisted from the early hours in Asia by the euphoria to keep buying Chinese stocks, where the Shanghai Composite soared over 5% to a 2-year high, driving global risk sentiment higher as financial markets remain oblivious to COVID-19 resurgence.

While the momentum could not be expanded in the S&P 500 through the US, it’s worth noting that a major technical breakout through 3,160.00 was achieved. Besides, once again, new highs were made in the internet-heavy NASDAQ index, led by the two giants Amazon and Tesla. The improvement in risk kept the US Dollar, the Japanese Yen and the Swiss Franc under pressure throughout the day.

On the other side of the spectrum, the groovy mood out of China, benefited disproportionately the likes of the Australian Dollar and to a lesser extend the Kiwi. Interestingly, the Euro, which under-performed last week, saw a notable resurgence in buy-side flows since Asia. Gold had a splendid day as well, printing over 0.6% of gains.

The ASX (-0.7%) index in Australia behaved so out of sync with the rally seen in China, chatter has it that investors were taken aback by the news out of the Victoria state where COVID-19 saw a resurgence as well as the warning by the Australian Government that retaliatory actions by China on trade terms are to be expected in response to the opposition against the new HK security law.

Feeding through the ‘risk on’ vibes was the US non-manufacturing ISM, coming at 57.1 vs 50.2 consensus and 45.2 in May. The print reinforces the notion of a steadfast recovery from the ashes in the services sector of the US, which makes up most of the economy.  New orders (61.6) and Business Activity (66.0) were the main contributors. On the flip side, the employment component stood at 43.1.

On the COVID-19 front, the market continues to be in a state of complete disregard about the worsening stats. The weekly average of new infections in the US keeps making new highs, while there has been a worrying rollback in the opening of certain regions in countries such as Spain, Italy, Germany, India or Australia to name a few. But again, it has had no bearings in the valuations of risky assets.

An article I wanted to highlight today is titled “Markets are just a liquidity meth lab“, as it really dives very elegantly into a point I’ve been making for months. The main take away from the article authored by Sven Henrich via NorthmanTrader.com, states that “markets remain beholden to the greatest monetary expansion in human kind making a mockery of the very basic concept of price discovery.” That’s the force that is eclipsing everything.

The fragility by the USD is very well portrayed by the continuous rise in Gold, at a time when stocks keep surging, which only adds to the negative outlook in the currency as the preferred short, alongside the Yen, in times of ‘risk on’. The breakout higher in pairs like the AUD/JPY, AUD/USD, NZD/USD represents a market voicing loud and clear risk assets ought to be bought in locations most suitable to one’s trading strategy.

To find out how I break down my technical views, my daily video analysis is available below, an opportunity to dissect the context of each market. It is also a great chance by the readership to get to tune in with my mechanical process to scan the charts in order to build a directional premise. The outlook for a market in the higher timeframes (4h + daily) is very powerful to come to terms about the crux of the matter in each time dimension. Is the market ranging or in a healthy trend?

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Insights Into Market Flows

This analysis is conducted on a multi timeframe dimension. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter a position, hence the video is mainly intended as a way to educate traders in upping their analytical skills.

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Recent Economic Indicators & Events Ahead

Source: Forexfactory

If interested in the best ‘free of charge’ News Indicator that displays data on past and future news in the Forex market via MT4, check this YouTube video I produced. The indicator allows you to save time, avoid mistakes. It’s spot on!

Important Footnotes

MARKET STRUCTURES

Markets evolve in cycles followed by a period of distribution and/or accumulation. To understand the principles applied in the assessment of market structures, refer to the tutorial How To Read Market Structures In Forex.

SMART MONEY TRACKER 

In order to assess the market momentum of a particular asset, I’ve promoted for years the idea of using what I call the smart money tracker. The settings and the indicator can be obtained via our Discord room, where traders from all walks of life interact frequently. In this video I lay out the elements I look into to call trend directions.

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, horizontal areas of support and resistance are universal concepts used by the majority of market participants. It, therefore, makes the areas the most widely followed. The Ultimate Guide To Identify Areas Of High Interest.

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. Monitor the event risks via Forexfactory.com & refer to Fundamentals vs Technicals In Forex.

PROJECTION TARGETS

The usefulness of the 100% projection resides in the symmetry and harmonic relationships of market cycles. By drawing a 100% projection, you can anticipate the area in the chart where some type of pause and potential reversals in price is likely to occur, due to 1. The side in control of the cycle takes profits 2. Counter-trend positions are added by contrarian players 3. These are price points where limit orders are set by market-makers. You can find out more by reading the tutorial on The Magical 100% Fibonacci Projection