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 unwinding of leveraged bets in markets kept its recent course of action, that is, stocks (down) and gold (up) traveling in opposite directions, while commodity-linked currencies faced mild pressure (GBP joined the bear party too) as the narrative in the US is swiftly transitioning from re-opening to re-closing.
Concerns over the resurgence of COVID-19 cases are starting to reach, if they haven’t already, an inflection point. Drastic decisions by politicians (re-closing) is no longer just some vague chatter and these fears are being now manifested more acutely by markets.
As COVID-19 cases keep surging in Florida, Arizona and Texas, it’s been the head elected official in Dallas county the first to take the plunge by asking the Governor of the state to re-impose stricter measures that may see a return of stay-at-home orders all together. San Francisco also walked back its decision to re-open this Monday.
If one were to account for the share of the US GDP at risk of suffering a big hit based on the most severe COVID-19 hotspots (Florida, Texas, Arizona and California), it’s a dreadful 30% of the total country’s GDP. If there is one theme that can disturb the irrational rise in stocks courtesy of the Fed’s unprecedented QE, that’s COVID-19.
Judging by last week’s performance in stocks and metals, the market is finally starting to express real fears. This dial-down in risk is evident and vindicated by the outperformance of Gold, up 1.56% last week, while on the flip side, the S&P 500 lost 1.67%.
However, in the currency space, ironically, the best performing currency was the Aussie (+0.58%), followed closely by the Kiwi, the Swissy and the Euro, all printing marginal gains for the week. The US Dollar valuation was unaltered for the week, as was the Pound’s, even if you wouldn’t be able to tell by last Friday’s horrid performance. The Canadian Dollar and the Yen were the worst performers.
The disjointed moves in equities and metals, where punchier fluctuations were seen, as opposed to FX may baffle some. Remember though, what we’ve experienced in Forex over the last few weeks is an environment dominated by the contraction of volatility in a major way, with ranges established, which tends to act as a pre-cursor of explosive movements ahead as the market accumulates positions.
The one currency that has finally come to life by breaking away from its consolidation phase is the British Pound, as depicted via GBP/USD, GBP/JPY or EUR/GBP for instance, all in trending mode. Those whose strategies aim to exploit directional biases should now be all over these markets as we get a full alignment of technicals.
Note, the action seen in the Pound on Friday could be interpreted as a front-running of the somber prospects in the EU-UK trade negotiations, set to intensify this week. According to Prime Minister Boris Johnson, “the UK would negotiate constructively but equally would be ready to leave the transition period on Australia terms if agreement could not be reached,” Downing Street office said.
The one-sided flows unfolding in GBP is the type of environment I am watching to play out in the broader FX market the moment we can break of the confinements we are in. Some pairs such as USD/CAD or CAD/CHF are starting to trend nicely too.
Also note, the quarter-end position adjustments are a wildcard that may facilitate renewed stimulus to see ranges broken in FX. I’ve noticed many calls that expect equity selling following the strong rallies in disconnect with fundamentals. Besides, pension and mutual funds may add further selling pressure based on the sizeable gains in equities vs bond benchmarks, which warrants the selling of equities to adjust risk parity ratios.
For an in-depth deconstruction of the markets that have my attention and what are the technical pre-conditions for a transition away from the establishment of ranges and into trends, the video analysis below is where I dissect these views in much more detail.
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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