Risk-Off Conditions Re-Established
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Risk-Off Conditions Re-Established

Authored by 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.

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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.

The hectic action in US equities in a move that was already building up in Europe and Asia has led to a quick transition into an environment that is back to ‘risk off’ dominating proceedings. In hindsight, it definitely felt like the rubber hand was over stretched.

Looking back, not even the admission by the Fed during Wed FOMC that the era of ultra-loose monetary policy is here to stay for the short to mid term through 2020 and 2021 did the the trick in equities this time with well documented dumb money chasing the trend.

The euphoria built up in stocks, not coincidentally, has suddenly come to an abrupt end just as the S&P 500 hit a wall of resistance at the 3,225.00, a level that unless you’ve been living under a rock, I’ve emphasized as pivotal for over a week now.

We are also seeing the rhetoric towards the risks of a re-emergence of a COVID-19 wave in the US (you can’t really call it a second wave when the first never went away) gain more air time among news outlets.

There are a number of states in the US, the likes of Texas, Arizona, Florida, South Carolina, where there has been a marked increase in COVID-related hospitalizations that makes the market worried. Besides, remember that the #blacklivesmatter movement where protests have erupted across the country is not helping at all either.

As the team at NAB notes: “Yesterday’s new infection numbers brought the total number of US COVID19 cases to above two million, with a number of localised hotspots – 18 states are seeing an increase, including Arizona, Florida, Texas and parts of California. And globally, Wednesday’s new case load of 135,000 is the highest daily tally to date.”

Despite the gloomier prospects as a re-peak of COVID-19 may severely alter the return back to normalcy in the States, US Treasury Secretary has reiterated that no further shutdowns will be imposed. A second wave is ‘the’ overarching theme that can seriously undermine the equities outlook ever since the lows printed in March this year.

Anywhere you look in terms of weekly performances, it’s a sea of red, with the behavior in risk-sensitive assets a perfect template of a a market that has swiftly turned to ‘true risk-off’ conditions. When the Swissy, US Dollar, Yen, Gold, US bonds all go up, that’s a recipe for disaster to keep holding exposure in risk assets.

The jury is still out there as to whether the sharp falls we are seeing in equities (largest 1-day decline in the S&P 500 since early March) is just part of a ‘correction’ or something greater is cooking. I can tell you, in healthy trends, we don’t see such one-sided flows erasing 2 weeks worth of gains just like that.

There is definitely an active debate on what gives, the fundamentals on the ground or the floor under risk courtesy of the Fed. They’ve proven capable of being the ultimate circuit breaker by inundating the market with liquidity, but can this humongous disconnect last?

If you are interested in the dissection of my thinking process as it relates to the technical picture in both the equity space taking the S&P 500 as reference, Gold and currency majors, the video analysis below will facilitate a deeper understanding of my views.

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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