Spike In Equities Sends USD Down Again
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Spike In Equities Sends USD Down Again

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.

As Trump continues to make a case for a gradual re-opening of the US economy, noting that “we have to do that” in a press conference, equities in the US, after a range-bound Thursday, had an explosion as represented by the ES futures, taking out the previous trend high.

Trump suggested some states could re-open this month. As the BBC reports, “the guidelines for ‘Opening up America Again’ outline three phases in which states can gradually ease their lockdowns”, adding that “Mr Trump promised governors they would be handling the process themselves, with help from the federal government.”

What looks clear is that the market still sees the narrative playing out as a ‘glass half full’ where hopes of the containment measures lifted at the forefront as opposed to the dire economic data that keeps coming in. The last US jobless claims in the US being a clear example of that, as notwithstanding another appalling print above 5 million, taking the 4 week total of US jobless claims to 13.5% of the labor force, equities were unfazed by it, communicating that’s discounted old news.

Furthermore, a report noting that a Gilead Sciences drug showed effectiveness in treating the coronavirus helped to propel the the stock market higher in the after hours trading on Friday. It’s going to come down to whether these breakthroughs are going to have a meaningful impact in helping the economy to ‘re-open’ quicker than anticipated based on current projections.

I will open up some brackets here because outlining the explosion in the price of Oil is also worth touching on. The black gold instrument trades sub $20.00 levels in a market still dominated by fundamentals. The latest news to be pay attention include a report by Bloomberg that Saudi Arabia and Russia had a phone call, followed by the issuance of a joint statement on readying to take “further measures” if needed.

So, what did this push up in equities mean for the USD? After a promising run to the upside since mid-week, there is real danger that the flows in the Dollar start to revert in a more meaningful way the higher equities go following the newly found strong negative correlation that currently exist between the SP500 & USD index.

I’d be very careful to be chasing equities higher, however, as the mark up in the ES1! through the twin-light Asian session is yet to see the VIX inverted (fear index) portray the same bullish structure. If one throws into the technical mix the weekly resistance faced, it should add weight to expect an initial fading of this move back to forms of ‘mean’.

As I shift the attention to Gold, the round of USD buying we are going through has left us with price still hanging onto gains above the previous trend high from the March 9 week. As I argue in today’s video analysis, with up to 4 days of acceptance beyond this technical level that converted into support, and with all the USD buying absorbed by committed gold longs, this market looks bright.

In the EUR/USD front, the structure and momentum point lower, which typically results in selling on strength to eventually ensue. But as we know, market are not ‘black and white’, and with the USD index showing potential cracks again (to the bear-side) and 1.0815-30 a key support area hit a sticky wall to break, I can also picture an environment where the bear trend terminates here.

The outlook for GBP/USD looks even more encouraging if we see the market re-taking the 1.25-2510 prior swing high. Until that occurs, the market might soon transition into a range even if this is unlikely to last given the pick up in volatility this week and the fairly narrow range that would ensue, delimitated by barely 100 pips from top to bottom.

In the AUD/USD, I’d be wary, as in the case of equities, to be chasing up this market as the current pricing shows a very substantial negative divergence with the USD index as 0.6370-80 resistance is retested. My above expression of markets are not always ‘black or white’ could not be truer in this market, as a case to be a buyer on weakness and seller on strength finds technical backings.

Lastly, the USD/JPY is trending up as it reverts from the 107.00 support in line with rising equities. This market looks like it be be settling into a 80-100 pips range until a resolution beyond 107.00/108.00. Trading the USD/JPY in a risk appetite environment will provide the most volatile, one-sided moves when equities and the USD index move in the same direction, which as we know, it has not been the case since the liquidity crunch episode from last month.

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Insights Into Market Flows

This analysis complements one’s view by accounting for multi timeframe biases. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter a position. This analysis 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