Balanced Flows In The US Dollar
Featured

Balanced Flows In The US Dollar

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.

While airline stocks took a big hit in the US on the back of the revelations that Warren Buffet’s had dumped all his stakes, that decision has not translated in follow through sell-side pressure in the S&P 500. The close, slightly positive, feels like a victory for the bulls, considering the mounting selling pressure from early in Asia/Europe.

In Forex, with subdued activity in stocks, no fundamental catalysts to account for, and the typical slow vol from Monday, the end result has been rather quiet range-bound conditions settling in. Note, we remain in this unclear outlook where the 4h timeframes and the daily are failing to be in alignment with each other, so patient is needed.

A research note by Goldman Sachs Investment clearly shows the dramatic collapse in FX volatility expectations (implied vols) on a 3-month period. In the chart below, which spans 10y, we can clearly see that for vol seekers, commodities, credit and equities is still the place to be, while rates and forex have seen massive adjustments lower.

In the EUR/USD, following the fading of the daily range top, sell-side pressure has been building up steadily even if all this does is to simply unwind the bullish progress as of late, which as a reminder, was mainly a function of month-end re-balancing flows. These moves, at times aggressive, may create wobbles but barely cause a shift in the overall conditions, which let me reiterate, remain range-bound off the daily.

The GBP/USD market has finally validated a range in this same daily timeframe after the criteria that I am always on the lookout for was met (equal daily highs in different time sequences, retracement of the 50%, context of decreasing volatility by the flattening of the bollinger band). And again, what’s transpired in this market as we drill down in the 4h is an unwinding of the longs built through that month-end flows spike.

The AUD/USD must unravel its current contradictory technical stance, one characterized by sellers taking partial control off the 4h as the SMT (Smart Money Tracker) turned bearish, although with no structure shift to be backing up this downtrend. Besides, the daily retains a bullish outlook for an ultimate target of 0.6640 in my book. Sounds an aggressive one but daily structure and momentum still suggests so.

In the USD/JPY front, the daily remains with an active sell-side target of 106.00 after equilibrium was found below a double bottom. The latest month-end re-balancing flows (especially aggressive in JPY) all it did was to retest the backside of that support-turned-resistance before sellers re-took control, which is best seen through the daily action. On the 4h, we’ve gone into an expanded range that needs resolution.

There are a few critical moving pieces in the fundamental domain that I am keeping an eye on as potential volatility enhancer in both equities and currencies. Firstly, the sense that risk aversion may be returning anytime should the US-China diplomatic relationships may soon deteriorate as the Trump administration is now taking aim at China to make them pay for the mismanagement of the COVID-19 crisis. Notice, we also learned is that Trump is ‘turbocharging’ a plan to remove global supply chains from China.

Another critical piece of news with the potential to be affecting the Euro in this case is the ruling by the German constitutional court on the legality of the ECB’s QE programme (it’s been dragged for 5y). An outright rejection of the German Bundesbank’s contribution in the asset purchases would be a catastrophic outcome for the ECB, even if at this stage that is not the base case that markets are pricing in.

UniCredit economist Erik Nielsen was quoted by Reuters as saying: “If this were to happen it would surely bring the existence of the euro zone at risk, thereby sending this most fundamental of European issues back to the lawmakers to clarify. We would see unprecedented political, financial and economic turmoil – in the middle of the pandemic.”

We also have the RBA meeting today, although with most of the policy action by the Central Bank deployed, and with implied vols far from elevated, the market is telling that this event may come and go with little substance that would cause major moves.

If you found this fundamental summary helpful, just click here to share it!

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.

If you found the content valuable, give us a share by just clicking here! Besides, if you have a suggestion on extra instruments for me to cover, reach out to me via Twitter.

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