‘Risk On’ Returns With A Vengeance
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‘Risk On’ Returns With A Vengeance

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 combination of vaccine hopes as Moderna published promising results of its phase 1 trial, progress made to fund the rebuilding of the economic fabric in Europe, as well as the predisposition of Fed’s Powell to deploy more momentary ammunition if/when needed, were all contributing factors sending risk through the roof on Monday.

The net effect in the currency market, amid the explosion seen in equities across both sides of the pond (Europe and the US), is an Aussie going full send into higher ground, with the Canadian Dollar, Kiwi and Euro following suit in moves that given the relevance of the fundamental developments, ended up being very punchy in nature.

This new ‘risk on’ environment has been very damaging for the likes of the US Dollar and even worse for the technical stance of the Yen. The persistent one-way street buying in the equity market, with the S&P 500 retesting the upper bound of its daily range, is a red flag for bears. It should make traders re-assess preconceived biases, especially if we end up with an upside resolution beyond the 3,000.00 in the S&P 500.

The fact that risk conditions saw such a marked improvement has, to a certain extend, brought back a sense that a reflation environment is now a scenario being priced in (early stages). At least that’s what one can conclude from the rampant movements seen in the energy sector (Oil, gasoline, natural gas, copper, iron ore), at a time that reports emerge of China’s demand for energy returning to precrisis levels.

A market fueled with renewed buy-side impetus and making an important bullish technical declaration includes the EUR/USD. It finally cleared a huge intraday resistance at 1.0875-80, which leaves wide open the doors for a short-term buying campaign aimed at ~1.10. Here, the structure and momentum agrees in the 4-hour, while the inertia of the daily, still in a range, is to keep the upward dynamics.

A currency that as of late has been under-performing and is yet to make a similar statement of intent as the Euro did is the Pound. By analyzing the GBP/USD, it is clear that the outlook looks way poorer than its often correlated EUR/USD instrument. There is still a high wall to climb for buyers to exert full control in GBP/USD, with neither the daily (outright bearish) nor the 4-hour (structure still bearish but momentum lost) making a case to meaningfully shift the focus north.

The AUD/USD is definitely a market that has come back to life, and as in the case of the S&P 500, this is a market that is too inching closer to an inflection point with significant technical ramifications if 0.6550 gives way to higher auctions. If a close occurs beyond this leve on Tuesday, I am looking at potentially 150+ pips of further upside room until the 0.67 round number is met (100% proj target).

A market I tend to touch regularly is Gold as it appears to have plenty of interest from retailers. The crossroads we find ourselves in, with COVID-19 leading to a suppression of rates and the full reactivation of the fiat printing presses, is a thematic very positive fundamentally wise and one where retailers are keen to express views on.

Technically, gold in the daily and the 4-hour is yet to see pain inflicted from a structural angle, even if some red flags are now showing up in the form of a complete loss in momentum in the last 24h. Still, the daily still communicates to be a buyer on weakness.

Also note, if you are expecting the upcoming event where Powell and Mnuchin are set to testify before the Senate Banking Committee, just be aware that Powell’s speech has already been pre-released. The key message that stands for now, as part of the 60 minutes interview, is that the policy-makers remains “willing to use all available tools.”

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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