Strong Shift In Risk Sentiment, ECB Up Next
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Strong Shift In Risk Sentiment, ECB Up Next

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

To see an expanded version, right-click and select ‘open link in new tab‘. The indices show the performance of a currency vs a G8 FX basket. 

There has been a significant rebound in risk sentiment with equities once again surging. The tech heavy Nasdaq index rose by 2.7%, the S&P 500 did so over 2% and this gloomier vibes were also seen in European stocks ahead of today’s ECB policy meeting.

As a result of the improved sentiment, the currencies that did well in the recent stampede of selling pressure (USD, JPY) went downhill on Wednesday. The AUD, CHF, CAD topped the leaders’ board while the GBP, amid renewed Brexit fears, is still going through a rough patch.

A headline that re-ignited the kicking of the ‘risk-on’ into a higher gear came courtesy of Bloomberg early in the US session, reporting that “some governing council members had become more confident in their forecasts for the region’s economic recovery.”

This headline also assisted the Euro to regain fortitude from what had been a poor performance until then. Besides, it was suggested that such council members’ opinions will lead to projections for GDP and inflation to be revised ever so slightly, hence the need for an immediate increase in QE may not be in store for this meeting.

As a reminder, on the lead up to today’s ECB meeting, the expectations had been for the ECB to retain a firmly dovish stance. The comments leaked by Bloomberg, therefore, reduce the chances of a dovish surprise in today’s policy meeting. An increase in stimulus at the December meeting had been an outcome highly anticipated.

The CAD was a clear winner too not just as a result of ‘risk-on’ but on the back of the BoC meeting, which stood pat on rates and refrained from its intentions to take on further QE measures while sounding more constructive about the recovery by noting “the bounce-back in activity in the third quarter looks to be faster than anticipated in July”.

When it comes to the next course of action by the BOC, the prospect for further easing look stronger than for another rate cut after noting. “This QE program will continue until the recovery is well underway and will be calibrated to provide the monetary policy stimulus needed to support the recovery and achieve the inflation objective”.

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Hot Trade Of The Day

To see an expanded version, right-click and select ‘open link in new tab‘. In this section I pick a market or several ones that presented an opportunity to buy on weakness or sell on strength based on the higher timeframes outlook. My video analysis below will further elaborate on the logic behind the trade.   

For traders actively monitoring the London session, several opportunities in risk-linked instruments popped up. In the illustration below, a 15m long trade in CAD/JPY based on what I refer to as a TT pattern (Trapped Traders) was made available. What’s important to highlight here is the pivotal point in the daily chart this pattern occurred at, making it a solid long trade off a key decision point.

Insights Into Market Studies

In this video analysis I dissect the information above. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter and manage a position, hence the video is intended as educational in nature and not financial advice. 

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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 this video. Fractal breakouts is at the epicenter to assist us in the analysis of chart structures.

MARKET MOMENTUM 

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.

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