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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 buoyancy in risk appetite continues to be the name of the game. This is well expressed through an Aussie breaking higher against the US Dollar or Japanese Yen with further congruence found via the S&P 500 recording its highest close since March 6th, marginally breaking its multi-week range with the 3,000.00 mark just a whisker away. The price action in WTI, up in the tune of 5%, is also supporting this narrative.
The market has clearly spoken as of late that it cares most about the development of a vaccine that fast-tracks an economic recovery, both in the US and globally. The rollback measures around the world are also a contributing factor providing a cushion for risk to thrive. In the matter of a vaccine, with another company (Inovio Pharmaceuticals) also reporting encouraging findings (Moderna was first), the market is starting to adopt the view that it’s a matter of when not if a vaccine is made available.
The beauty of trading a technically-oriented approach, as I always stress, is the fact that you are not falling victim of being in a position to second-guess whether or not the market is getting ahead of itself. One simply let the price fluctuations to form definable structures, create spells of momentum plays, analyze value plays, and pull the trigger.
Even if it sounds as though headlines of the following caliber (White House issues 20 page broad-scale attack on China) published late on Wednesday could distort the rising valuation in equities, the reality is that the market is fixated in certain narratives. The one it is paying most attention is the timing of a vaccine, whether we like it or not.
The net effect in FX, with ‘risk on’ conditions flourishing, saw commodity-linked currencies (AUD, NZD, CAD) have a field day, alongside an impressive performance by the EUR and CHF. On the opposite side of the spectrum, the US Dollar and Japanese Yen were the clear short-side plays, especially the former, with the Sterling, driven by its own idiosyncrasies (BoE Gov Bailey hinting at negative rates) also pressured.
An important note to understand the under-performance of the Sterling in recent times is the following. The BoE’s stance to shift towards, potentially, a negative-centric rate policy, is unlike the stance promoted by the BoC, RBA and Fed, all ruling out negative rates, hence this creates monetary policy divergence priced into GBP.
One can also start to include with more conviction, as part of the Central Banks against negative rates, the RBNZ. In an interview via Bloomberg by RBNZ Governor Orr on Wednesday, he said that “we don’t want to go negative at this point; we’re prepared to if we have to but not until a lot later. It’s got to jump the hurdles. It’s got to be seen to be necessary. It’s got to be seen to be effective, efficient and operationally capable”.
I was considering to include it or not as the event was largely ignored. Here it goes. The FOMC Minutes was as dull a release as it gets. This is because Powell already front-run, through an appearance in the Senate Banking Committee earlier this week, the latest stance by the Fed. Nonetheless, the key takeaways from the minutes included the news that “forward guidance could be made more explicit by utilising outcome-based forward guidance linked to a certain level of the unemployment rate or inflation”, and that “this forward guidance could be enhanced via yield curve control.”
Back to technicals. It’s worth underscoring how paramount it is to keep reinforcing the sense of broad ‘risk on’ conditions the fact that both the AUD/JPY (2 days ago) and now the AUD/USD gunned through previous swing highs, creating along the way a fresh bullish cycle off the daily timeframe. In my book, and until proven wrong, this price action delivers a crushing blow to risk sellers, in other words, in days and weeks to come, the US Dollar and the Yen face the risk of under-performing in such improved risk dynamics.
What this translates into in terms of fresh technical developments in currency majors is as follows. A potential upside resolution of the EUR/USD multi-month range through 1.10, a break down in the USD/CAD, currently at the lower bound of a daily range. This also means further follow through continuation in the AUD/USD. In the USD/JPY space, the path of least resistance remains bullish but remember that these two currencies tend to behave similarly, so account for slower moves and a rough patch to see springy moves.
All these views that I expose above, with the inclusion of Gold, the S&P 500, or the GBP/USD, which looks like may be the only exception where the underlying weakness int he Pound may limit the upside even on a USD broad-selling environment, are much more accurately articulated via today’s video analysis below.
Note, in the next 24h, there is going to be plenty of news releases that may act as stimulus for a pick up in volatility. Global PMIs in Australia, Japan, Germany, the Eurozone and the US. The Weekly Jobless Claims in the US will also be watched, alongside an appearance by RBA Governor Lowe’s at a financial regulators forum, plus three Fed speakers (Powell, Clarida and Williams) also due to speak.
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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