Risk-Off Currencies Keep Outperforming
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Risk-Off Currencies Keep Outperforming

22 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.

What started as a promising day for US stocks last Friday ended up with a reversal in the buy-side flows that sent the S&P 500 back below a critical support area at 3,070.00. More work needs to be done but tentative signs of a new bearish phase are emanating.

The constant rise in COVID-19 hot spots across the US (Arizona, Texas, Florida to name a few), alongside news that Apple is taking action by closing stores in some of these most adversely affected areas by COVID-19 did certainly not sit well with Mr. Market.

I’ve been warning for a number of weeks now that the out-performance of the Japanese Yen, the Swissy and to a lesser extend the US Dollar was always going to be a major red flag. One that the seemingly broken ‘price discovery’ mechanism in US equities courtesy of the Fed’s liquidity inundation into the system failed to manifest but…

Fortunately for our own sanity, and as the rubber band got overstretched with such a disconnect between currencies and stocks, the market is technically wise, once again re-aligning the recently disjointed moves. The fall back by the S&P 500 into a tentative bearish phase in the 4h chart now resonates more logically with the underlying  trends in risk-off sensitive currencies in the same timeframe.

Another piece of the puzzle that shows a new level of anxiety by Mr. Market is the renewed conviction to add into Gold long exposure as the shinny metal looks to be finally breaking above a sticky resistance level circa the $1,740.00. A break and hold above the $1,750.00 on a closing basis could set us up for a much stronger run to the upside. It would also be the first time in a month that we get full agreement in structure and momentum measures (Fractals+SMT) in over a month.

Amid this context, the currencies most punished by the new wave of deleveraging include the Aussie, the Kiwi and the Pound, the latter being driven by its own set of idiosyncratic elements on the back of last week’s QE expansion by the BoE and Brexit talks at risk of derailing. The Euro and the Canadian Dollar, meanwhile, managed to avoid being in the eye of the selling storm for now with more stable flows.

The Euro was a contender to see a spike in vol last Friday, but the rather uneventful EU virtual Summit to discuss the EC’s EUR750bn Rescue and Recovery Fund, did not justify major moves. The European Council President Michel announced the next summit in mid-July, saying “it is essential to take a decision as soon as possible.”

Expectations would, therefore, be building up for a deal to be finalized sometime in August, with most of the friction points orbiting around the size of the package, the distribution of funds and the grants/loans split. German chancellor Merkel said the road ahead was tricky, once again emphasizing that important compromises were needed.

Shifting gears now to the technical outlook. Since my intention is to properly re-evaluate and articulate the context in a large range of instruments, mainly in the currency space, the video analysis format posted below is best suited to serve this aim. By the end of it, the bottom line for clients and my main takeaway is that the environment is turning quite sour for the interest of risk-seekers.

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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