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Exodus Of Flows In The US & Into Europe

Relations between two countries. USA and Europe.
The EUR ended last Friday as the strongest currency alongside CHF, which usually replicates the behavior of the former. These two currencies, alongside a revived Kiwi, also topped the leader board last week. On the other side of the spectrum we find the USD and the CAD, further reinforcing the notion that a marked transition in flows has been seen away from the North American complex into Europe.

Let’s get started…

Scan Of The Markets

To see an expanded version, right-click and select ‘open link in new tab‘. The indices show the performance of a currency vs a G8 FX basket. 

The EUR ended last Friday as the strongest currency alongside CHF, which usually replicates the behavior of the former. These two currencies, alongside a revived Kiwi, also topped the leader board last week. On the other side of the spectrum we find the USD and the CAD, further reinforcing the notion that a marked transition in flows has been seen away from the North American complex into Europe.

Out of Europe we learned that the ‘flash’ PMI data did not worsen this time, which is a relief. Besides, the engine of growth in Europe, Germany, was the outlier with its manufacturing index at 58.0 from 56.4 (highest since April 2018) against an expected fall to 55.0. As NAB notes, “this is testament to the veracity of China’s post pandemic economic recovery and related demand for German exports.”

Even the Pound, which has been quite choppy as of late given the back and forth in the Brexit negotiations, has also recovered its appeal as clearly depicted by the bullish breakout in the GBP index. The currency had been leading the pack in G8 FX last week but a rather sharp sell-off on Friday took the shine away from what was otherwise a positive week for Pound as politicians in the EU/UK kept the hopes of an eventual trade deal alive for a few extra weeks. GBP traders had to content with a poor Friday’s PMI in the UK, even if that was countered by the strong jump in September retail sales.

What’s been certainly interesting is the mass exodus in US assets as depicted by the performance in the USD, US stocks and US bonds, all pushed down in the week that was just 1 week and a half ahead of the US election on November 4th. Having such an outflow of money out of these instruments simultaneously communicates that the real money is interested in parking capital allocations elsewhere until the US election outcome clears up and amid a lack of stimulus deal in the US.

As per the hot trade of the day, along the lines of the thematic highlighted in today’s report, that is, the ongoing transitions in money flows away from North American and into European assets, I am quite keen to stalk for buy-side opportunities in the GBP/CAD. The pair shows a bullish trap pattern on the 8h timeframe, also backed up by the latest order flow as my proprietary script shows. When looking at the daily, the bullish structure is also quite constructive with momentum and structure both pointing bullish.

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Hot Trade Of The Day

To see an expanded version, right-click and select ‘open link in new tab‘. In this section I pick a market or several ones that presented an opportunity to buy on weakness or sell on strength based on the higher timeframes outlook. My video analysis below will further elaborate on the logic behind the trade.   

Insights – Hot Trade Of The Day

In this video analysis I dissect the information above. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter and manage a position, hence the video is intended as educational in nature and not financial advice. 

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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 this video. Fractal breakouts is at the epicenter to assist us in the analysis of chart structures.

MARKET MOMENTUM 

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.

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

About the author

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.