It’s All About The USD And It Looks Strong…
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It’s All About The USD And It Looks Strong…

23 Apr 2020
Authored by Ivan Delgado

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.

Let’s get started…

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.

We had a better session for Oil prices (June contract), ending just above the $14.00 mark after a 20%+ move up. With implied volatility stratospherically high, it doesn’t take much to cause such springy movements in the instrument. The latest recovery can be hardly rationalized to a single catalyst given the dicey environment.

Amid this backdrop of higher Oil, the S&P 500, which is at the epicenter to gauge risk sentiment, printed a +2.3% rise, even if at best, this positive day simply represents the reinforcement that we are entering a potential range-bound period in the 4h chart. I have my reservations in all honesty, given the recent spike in the VIX.

Be reminded that this is the year of volatility, not only in Oil, but also in equities, and hopefully it returns to Forex soon again. This quote courtesy of @DataTrekMB via Twitter says it all: “There have been 42 days in which the S&P 500 has posted a +1% one-day move this year, closing in on the annual average of 53 days over the last +6 decades, and we’re not even a full 4 months into 2020.”

Helping to stabilize European bond yields (Italy has been a key focus) even if the jury still out as to whether or not it can help to address the worsening equity sentiment, as Bloomberg reports, the ECB announced it will accept sub-investment grade debt as collateral as long as they were rated above BBB- as of April 17. The news has barely budged the Euro, which has traded overall weaker.

Today’s Flash’ Markit PMIs out of Europe and the US will be an anecdote to fill in newspapers, meaning the market is probably going to sit it out given how much negativity has already been priced in. Everyone should ‘guess’ that the data, which now begins to capture the effects of COVID-19, is going to be simply appalling. The latest weekly US jobless claims and UK Retail Sales are also due.

Note, if you are trading the Pound heading into May, the dullness that is to watch the Brexit conundrum unfold will make a comeback with Brexit-related headlines set to steadily pick up. As Reuters explains, “Brexit is set to work its way into the headlines again as a June deadline for extending Britain’s 11-month transition period turns currency traders’ focus back to the Pound.”

With the assessment of the fundamental backdrop and the relatively stable risk dynamics out of the way, let’s now look at the Forex majors. Here, the story is one of positioning for USD long-sided bias at discounts. In the case of the EUR/USD, a topside auction at the high-end of its established range was gratefully sold amid the highlighted divergence it presented with our prop USD index.

The GBP/USD provided another firm declaration of intent by sell-side forces as they re-grouped at the 50% retracement for what looks like a market that may give it another shot at the trend lows. The AUD/USD and USD/JPY, in line with the USD strength thematic, also provided very interesting locations as of late to engage in shorts and longs respectively, as I elaborate in today’s video.

Even if it’s not covered in today’s video, the outlook for Gold has improved as buyers re-take control at a time when ‘real’ US Treasury yields are falling again. It’s a noticeable development to account for when the 5-yr ‘breakevens’ (average inflation expectations) go up, as when that occurs at a faster rate than nominal Treasury yields, then that’s detrimental for those seeking ‘real’ yields, which makes gold and stocks a more attractive investment proposition and move in tandem.

Lastly, an anomaly as part of this new regime where stocks and the US Dollar move in tandem, is the evolving divergence that I am observing between the behavior in equities (lower this week) yet the USD is putting up a real fight with a very solid performance. If you were to ask me, I’d say that’s an admission by Mr. Market that the 2nd wave of USD buying is soon if not already upon us as I argue in this USD long analog update where I draw parallels on how it played out in 2008/09.

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Insights Into Market Flows

This analysis complements one’s view by accounting for multi timeframe biases. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter a position. This analysis 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