Equities Show Cracks, USD Outlook Improved?
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Equities Show Cracks, USD Outlook Improved?

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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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.

An important update today. As I weigh in the preponderance of evidence through equities, bonds, currencies, it looks as though we might be nearing an inflection point in risk dynamics if my analysis of structures, intermarket, momentum is anything to go by.

Why am I saying this? First of all, the S&P 500, for the first time since the mid-March low was printed, provides us with a validated 4-hour bearish structure as sellers blasted through a key swing low with unquestionable dominance. The daily structure in the S&P 500, however, is still not bearish until 2,830.00 is cleared on a closing basis. Also be aware that the VIX put in the biggest bullish candle since March 18.

This sudden drop in equity valuation, which some find it attributable to the fact that US top health official Fauci is encouraging a slow down in re-opening the US economy. “I feel if that occurs, there is a real risk that you will trigger an outbreak that you might not be able to control. It will set you back – not only leading to some suffering and death that could be avoided but it could even set you back on the road to recovery.”

Chatter also had it that the renewed selling could’ve emanated from the new China sanctions bill introduced by Republicans, which gives Trump powers to go after China with renewed punitive actions if they fail to provide full disclosure on a COVID-19 investigation.“I’m convinced that without Chinese Communist Party deception the virus would not be here in the United States,” Graham said in a statement.

As the regular readers of my daily notes would know, disseminating all the fundamentals on what ultimately tilted the balance is secondary. What matters is what price did, that’s the best way I know that serves me as a road-map to formulate the next biases. In today’s video, I build a case for equities now to be suffer on strength off the 4h chart, which places the USD and JPY in a good position to outperform near term.

Let’s keep dissecting the latest currency flows. In the case of the EUR/USD, I’d strongly endorse not to get ahead of yourself if your view has shifted to outright bullish as in my book this is a market that is still very much trapped in an expanded range at a time of USD strength again as the ‘leading indicator’ based on weekly correlations.

A market that looks prime to find follow through supply is GBP/USD after sellers exerted its dominance by not only finding a fresh leg lower in the 4h chart, but that push has represented a technical milestone off the daily too as we finally have a market that is accepting as the next end of day value a close below a key daily support. The prospect for an extended lockdown in the UK coupled with BoE Deputy Governor Broadbent hinting at a ramp up in bond purchases soured the mood.

The USD/JPY looks trickier as the structure is unambiguously bullish, both in the 4h and daily timeframes, but with the momentum via the SMT about to be lost in a matter of 1 to 2 candles as Yen strength returns, I can envision further near term sell-side pressure. The bottom line is that at times of a pick up in risk aversion, trading two risk-off sensitive currencies is not where you’ll find the most definable trends.

Another market that appears to go through a bearish stage that may soon compromise the rather constructive structure shown for quite some time is the AUD/USD. However, it’s still too early to call for a full-fledged shift in dynamics to the downside. For that, the first objective is to take out 0.6435 in the 4h, and from there, accomplish a daily close below 0.6375. Only then, the bearish stars will align.

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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