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It’s a big day for the optimistic-type, as equities in the US, represented through the S&P 500 as the bellwether, broke into higher territory, confirming the first breakout of daily structure to bullish since the whole COVID-19 saga started to unfold out of control (chart below).
Today’s video analysis touches on this equity breakout in detail, so you don’t want to miss it as I also dive into the supportive picture we are seeing through the consistent decline in the VIX index (fear indicator), which has come down over 50% from its peak last month.
There is hope up in the air that some countries the likes of Italy, Spain, Germany, Italy and other mainly European countries are leaving behind the darkest period of the pandemic as cases/deaths peak.
The fact that there is growing talk of containment measures in the European continent phased out added fuel to the rally in equities. Caution is still warranted when looking at the other side of the pond, as the US still appears to be in the early-mid phase of the accumulation phase, even if New York Governor Andrew Cuomo said the state’s virus-related death rate has been flattening out for two days. Trump said wants to try to lift restriction by April 30th (too premature?). Additionally, Trump also kept the momentum anchored by saying “we are seeing things happen which are very good”.
A piece of news that adds another layer of positivism includes the announcement by the Federal Reserve/Treasury of a new facility, in which, in order to further support the economic fallout, term loans to banks backed by small business loans made under the Paycheck Protection Programme will be made available.
Amid this improved sentiment, the Australian Dollar has been the stellar performer in the G8 FX space, alongside the New Zealand Dollar, validating a fresh new cycle in the 4-hour chart with momentum measures aiding the mentality to start thinking of ‘dip buying’ as the path of least resistance on Tuesday. The Canadian Dollar, also doing great, is about to break higher vs the USD too.
Note, trader must navigate the RBA policy meeting. Following the series of emergency interventions to adjust policy last month, it implies that most of the aggressive tools have already been deployed as we enter a period of policy-makers ‘wait and see’ on how these measures will feed through the economy. The RBA is there broadly expected to keep policy – the cash rate, yield curve control and QE – unchanged.
One of the key developments that I do point out in the video analysis is the reduction in buy-side flows towards the USD index. This has serious consequences as bearish breakouts in majors are at risk of starting to fail, as we are already seeing in EUR/USD (chart below), GBP/USD. Similarly, it implies limited upside in USD/JPY near term.
Some of the recent negative flows in the Pound, other than the selling inertia on the back of a bearish resolution away from a lengthy range, it also has to do with the news that Boris Johnson was moved to the ICU (intensive care unit) at St Thomas’ Hospital due to COVID-19 symptoms intensifying as of late. Here is to a prompt recovery.
Oil found dip buyers after a sharp mark down at the open of Asia after news broke out that the OPEC+ meeting got delayed until Thursday. Ahead of the high-stake emergency meeting where production cuts will be discussed, the market continues to see this event as a ‘glass half full’. This optimism has been aided by headlines that Russia is ready to discuss very substantial oil output cuts due to global demand collapse, even if economists suggest that 10 min bpd might not be enough to balance the market amid the massive destruction of demand.
To sum up, the market has shifted to its focus, even if just briefly, to promote the ascent of the risk trades, which should be good news for the interest of equity and commodity-related buyers. In the FX space, this means the JPY and USD may be capped, while the AUD, the NZD, typically riding the Aussie coattail, or CAD are set the benefit.
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.
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!
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.
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.
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.
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.
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