Broad-Based USD Weakness The Main Play
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Broad-Based USD Weakness The Main Play

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.

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Quick Take
Narratives in Financial Markets
Recent Economic Indicators
Insights Into Forex Flows (Video)
Educational Material

Quick Take

There is no doubt that the flattening of the COVID-19 curve in many countries has been a trending narratives to explain the recovery in equities. This positive dynamics, in turn, have led to the broad-based depreciation of the USD as the relaxation of stress in the system, combined with the ultra accomodative policies by the Fed, lessens the need to tap into the currency as the liquidity strains ease a tad. The Yen suffered the consequences of the groovy vibes for most of the day too.

But the jury is still out there as to whether or not the recovery in equities can find further legs amid the utter destruction of wealth and jobs seen as of late. The fact that the White House is in the ‘early stage’ plan aimed at re-activating of the U.S. economy in certain area, adds to the transient bullish sentiment. Even if the sharp fall in the S&P 500 into the close leaves us an ugly-looking candle as all gains were evaporated, in today’s technical/intermarket analysis argue for sellers in need of more work to be done to turn around the intraday buy bias.

The currency that benefited the most from the combination of a weakening USD and a falling VIX was the Aussie. It was also backed by the surprising comments from the RBA, willing to curtail its QE program in size and frequency if the COVID-led conditions improved. The Pound, the Euro, and Swissy also capitalized on the USD setback, with the CAD and NZD not having as impressive runs. The former will be especially volatile heading into Thursday’s key OPEC+ meeting.

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.

Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Twitter, Institutional Bank Research reports.

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TURNAROUND IN US EQUITIES INTO THE CLOSE

While we had a sharp turnaround into the close in US equities, erasing most of the gains from earlier in the a.m. period, such fall away in the final hours is yet to inflict technical damage in the chart in what still looks like a constructive picture from a structure & momentum angle.  The S&P 500 closed slightly negative after printing gains of up to 3%.

ECONOMIC PAIN IN THE US JUST STARTED?

One of the best daily fundamental analysis about the state of affairs in the equity space, macro-wise, is put out by Roger Hirst, Independent Macro Analyst at Refinitiv. In this hugely insightful video, Roger looks at whether markets are pricing in peak fear or peak economic distress. Roger asks the hard questions such as, has the economic pain only just started? He debunks the notion of the optimists that flattening f the COVID-19 in many nations means the worst is behind us.

SPOTTED DIVERGENCES IN THE USD INDEX PLAY OUT

During Tuesday’s analysis video, I argued not only that we may see further momentum in equities, which indeed transpired for most of the day after a key breakout of structure in the S&P 500, but I also observed a significant divergence starting to re-emerge that made me more constructive in Forex majors (EU, GU, AU…) as the risk sentiment hinted at a pause in the USD buy-side commitment. Fast forward, the USD has been the main loser, with the ability of the market to keep the sell pressure ongoing conditional to risk conditions.

GLOBAL NEW COVID19 CASE GROWTH SLOWS FURTHER

In terms of the COVID-19 curves, these continue to point in the right direction in European countries such as Italy, Spain, France, UK…  The main development has been the stabilization of the infection rate in the countries described above, alongside news that in the US, and New York in particular, continues to see improving new case growth and fatality numbers. Besides, a complete collapse of the health system in New York may have been prevented for now.  An in-depth update on where we stand from a statics angle can be fond via DB Research.

TRUMP PREPS MASTER PLAN TO REOPEN ECONOMY

According to a report published by Bloomberg, the Trump administration is in the works with an ‘early stage’ plan intended to prioritize the re-activation of the U.S. economy. The plan will be centered around a substantial increase of testings, according to sources. Bloomberg notes that “the effort would likely begin in smaller cities and towns in states that haven’t yet been heavily hit by the virus. Cities such as New York, Detroit, New Orleans and other places the president has described as “hot spots” would remain shuttered.”

RBA KEEPS POWDER DRY AFTER BIG GUNS DEPLOYED

On Tuesday, the Reserve Bank of Australia kept its policy intact, which now includes conventional and unconventional monetary tools deployed to combat the economic fall out due to COVID19. The bank kept its benchmark rate at 0.25% as the main target for both the cash rate and the 3-year government bond yield as part of its curve-control. There was a positive input for the Aussie, which saw an immediate spike, after the RBA stated that ‘if conditions improve, smaller and less frequent purchases of bonds will be required’.

THE CONSTANT EUROPEAN NORTH-SOUTH STRUGGLE

A critical video conference of EU Finance Ministers that has gone into the late hours of Tuesday, has so far seen no agreement for the potential creation of what’s been referred as ‘coronabonds’, which would unleash much-needed capital for the battered economies, and the pre-cursor to create a recovery fund. Once again, the division within the bloc are coming to the surface. Germany and the Netherlands has drawn a line in the sand. Therefore, it is the known differences between North and South that keeps jeopardizing the approval of a credit package of more than half a trillion euros.

OIL DOWN AHEAD OF HIGH-STAKES OPEC+ MEETING

The price of Oil fell sharply in the US session, erasing further gains as OPEC+ is mulling a production cut agreement, even if the uncertainty surround the outcome remains very high. Oil prices have recently gone on a steady climb but the technical picture in Oil is starting to revert back in favor of the sell-side forces.  OPEC+ has signaled a willingness to cut if the U.S. join in, according to Reuters. Oil ministers from the G20 will also meet virtually on Friday, which is seen as a positive signal to add more momentum to the global negotiations. Be aware, however, that even if a major deal is agreed upon, gap in oil demand, even a substantial cut on the order of 10 mb/d may not rescue oil prices.

KEEP EYE ON THE POUND AS UK PM REMAINS HOSPITALIZED

In the UK, Downing Street updated the press about the Prime Minister’s condition, noting that while doctors still consider him in “stable” condition, he will spend another night in the ICU. The admission of the UK PM into the ICU is a key factor driving sentiment in the Pound, with the latest news of ruling out a diagnose of ‘pneumonia’, combined with the overall USD weakness, benefiting it. Downing Street spokesman, added that the PM’s condition was considered “stable”. The PM “remains in good spirits,” they added.

ROAD BACK TO NORMALCY UNLIKELY TO BE RAPID

The road back to normalcy in the West, based on what we are seeing in China, may take longer than most expect. This Alphawise survey in China suggests that the bounce unlikely to be rapid. Adding to the case, China Global Times Editor-in-chief Hu Xijin tweeted: “Some European countries are planning to resume economic activity. It’s too early. China is yet to reopen its entertainment sector like cinemas and is working hard to cut off transmission chains of imported cases. Europe is not ready for large-scale work resumption anytime soon.”

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!

Insights Into Forex Flows

This analysis complements one’s view by accounting for multi timeframe biases. Ultimately, it is the traders’ call, via a set of entries (watch my setups) thoroughly backtested, to decide if a market meets the prerequisites to enter a position. This analysis is mainly intended as a way to educate traders in upping their analytical skills.

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Important Footnotes

Market structure

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.

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