The Daily Edge is authored by Ivan Delgado, 10y Forex Trader veteran & Market Insights Commentator at Global Prime. Feel free to follow Ivan on Twitter & Youtube weekly show. You can also subscribe to the mailing list to receive Ivan’s Daily wrap. The purpose of this content is to provide an assessment of the conditions, taking an in-depth look of market dynamics – fundamentals and technicals – determine daily biases and assist one’s trading decisions.
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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 Pound was the main mover as one could have anticipated given the BoE monetary policy meeting, while the Yen and the US Dollar, both outperformed the rest of the FX pack. The disconnect between FX vs Stocks continues to be a notable feature at present.
The sharp fall in GBP came in response to the expansion of the BoE QE program by £ 100bn while keeping rates unchanged. Even if BoE’s Gov Bailey said he didn’t discuss negative rates or yield curve control, the one-sided sell flows in GBP were notable.
The broad tone in the Forex market was once again significantly more negative than in the equity space where the S&P 500 found dip buyers through the US session off the 3,070-75.00 support area to end the day barely changed in % terms.
The ‘narratives’ pendulum the market has paid most attention to as of late swung back and forth between the re-openings of developed economies with the US at the epicenter but also the recognition that the surge in COVID-19 cases warrants prudence.
Thrown into the mix, which explains the disconnect between a jittery Forex market and the stubborn equity space, is the endless stream of liquidity the Fed is pumping into the market as a buyer of corp bonds, ETFs, credit, MBS.
This causes the breaking of the normal channels of price discovery transmission and distorting what once was the essence of capitalism where prices would be determined not by the mass of new liquidity digitally printed but by market forces.
Heading into Friday, be aware, it’s quadruple witching day, so be on high alert as we tend to see more volatility (can be up to 100% above normal) and volumes the 3rd Friday of every end of quarter, so in March, June, September, and December.
Investors are essentially forced, due to expiration, to close out option contracts that are profitable. Why quadruple? Because in a simultaneous fashion we get the expiration of single-stock options, single-stock futures, stock-index options and stock-futures.
The following 5 trading days, in a sample of the last 30 years, in up to 80% of the cases, key US indices (SP, Nasdaq, Dow) tend to see declines, so with FX mood already jittery, doesnt bode well. Another key take away, don’t assign too much of a fundamental reason to the pick in vol in these days as there are structurally-led moves affecting the trading.
The Euro is also a candidate to be injected a fair share of volatility on the EU Summit to discuss the proposed Rescue and Recovery Fund (RRF). Watch the headlines as it’s highly likely to have an impact towards the EUR sentiment.
According to an MNI report, cited by the team at NAB, “EU President Charles Michel pitched the summit on the RRF as an orientation debate, ruling out any agreement this week. “There will be no decisions, no real debate even, but the idea is that it will be a stepping stone to a future debate” Michel said.
Technically speaking, as a round up of the reads I am getting, we have the S&P 500 as a barometer of risk carving out a base through the 3,070.00 prior resistance-turned-support. This price action in equities, nonetheless, is not yet allowing the resurgence of commodity-linked currencies the likes of the Aussie, Kiwi and Canadian Dollar.
Either it is looking back to the last 24h or to the broader weekly performance stats, the fact that the Yen remains by far the top performer is a reason to be worried.
Besides, if this development is followed by the Swissy and the US Dollar staying bid this week, alongside steady flows into Gold, it creates a tricky setting whereby financial instruments outside equities hint at ‘risk off’ sentiment.
For a better understanding of my take in the Forex market, watch the video I’ve prepared below. Today, I take a new approach covering up to 16 different pairs in just over 20m, scooping out and making sense of both the technicals as well as intermarket flows.
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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 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!
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.
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.
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