The Pendulum Swings Back To Risk-Taking
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The Pendulum Swings Back To Risk-Taking

30 Jun 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.

It was a day characterized by the lack of trigger points, and that alone, may have been a dynamic sufficiently convincing for equity bulls to force a gravitation of prices back up, while allowing commodity-linked currencies (AUD, NZD, CAD) to also regain lost ground.

We also remain in that tricky window where month and quarter-end flows may have a large impact in the fluctuation of currencies, hence, making certain movements seen not necessarily backed by a specific catalyst but rather by adjustments in risk parity ratios as the big money reshuffles portfolio exposures in equities, bonds, currencies…

The positivism in stocks, aside from a technical bounce from 3,000.00 round number, one could make the argument that may also be attributed to the reduction in COVID-19 cases in Florida, even if the data is unlikely to paint the reality due to weekend factors.

Besides, in other areas such as Arizona, we just learned that a new order has been imposed to re-close gyms, bars, restaurants, theaters. The LA county also warned that conditions are deteriorating rapidly. Adding to the negative news, we also learned that the WHO said the “worst is yet to come” given the lack of global solidarity.

But nothing of that seemed to matter on Monday to find the follow-through continuation required to define the risk sentiment. In yesterday’s report, I made a point that while equities’ technical profile was getting worse, the market was not treating risk-off associated currencies the likes of the Yen or the Swiss Franc in the same way.

Fast forward 24h, and the under performance of these two currencies (JPY, CHF), alongside the Pound (the weakest link), still suggests lack of conviction to pinpoint a clear risk profile. The compression pattern in the S&P 500 on the way down with every new low immediately rejected is a red flag too that may signal long accumulation.

The convoluted and unclear state of affairs in the market place continues to be a by-product of two contrasting forces acting as the main drivers of the markets since mid MArch. On one hand, fears of a further resurgence in COVID-19 cases and the economic ramifications, on the one hand, the excess liquidity from central banks, most notably the Fed, argues for risk-taking strategies to still thrive.

I find it important to let technicals guide me through these murky waters in risk sentiment. Technicals allow us to evaluate and measure the attractiveness of a trading opportunity. It’s a variable that explains the ‘how’ we get from point A to point B in the charts.

Fundamentals, on the other hand, as fancy as they may sound, and I don’t mean to play it down, give us at times the context to seek out potential re-assurance of a narrative by trying to understand the ‘why’, but more often than not, it can feel too discretionary.

So, technically speaking, what am I seeing? I observe the lingering sluggish behavior of the Japanese Yen and the Swissy, coupled with what appears to be a compression pattern in the S&P 500, which at this stage us far from encouraging to sell risk trades I am afraid. The technical signs are just not there despite the seemingly humongous disconnect between US fundamentals and stock valuations.

An exception to the notion of risk conditions being rather mix is found in Gold, stubbornly firm at its highest point in 7 years. However, this behavior to bid the safe-haven asset is so far occurring in a vacuum and not being manifested through stocks or Forex.

Focusing solely on technicals, I notice decent technical breakouts in EUR-related pairs, especially against the Yen and the Pound. A great market to keep exploiting a healthy trend includes the GBP/USD, although to be frank and fair, the GBP has been a solid currency to short against pretty much all G8 FX in the last few days.

In the video that you will find below, I refrain from further writing and take you on a more interactive tour whereby my views on the technical side of the equation as it’s related to the S&P 500, Gold and Forex get to be expressed. By the end of it, the whole purpose is to provide a compass that help to guide you through the next 24h of trading.

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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