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Strong true risk dynamics emboldens financial markets

The overarching theme driving markets, without a doubt, the breaking news that Pfizer, in partnership with BioNTech’s experimental covid-19 vaccine, were able to successfully complete stage three of the COVID-19 vaccine trials with an 'extraordinary' 90% success rate. The immediate reaction was to buy risk assets aggressively.

Let’s get started…

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. 

The overarching theme driving markets, without a doubt, includes the breaking news that Pfizer, in partnership with BioNTech’s experimental COVID-19 vaccine, were able to successfully complete stage three of the vaccine trials with an ‘extraordinary’ 90% success rate. The immediate reaction was to buy risk assets aggressively.

True ‘risk on’ dynamics

The market has been emboldened by a sense of strong risk appetite. This type of environment refers to the appreciation of asset classes considered of riskier nature due to higher yields or linked to the prices of commodities and/or global growth prospects. 

This means the Australian Dollar, the New Zealand Dollar or the Canadian Dollar were all bought in earnest in the last 24 hours. The main loser was the Japanese Yen, which tends to fare poorly in an environment where investors become much more ‘risk hungry’.

The prices of Gold, the Swiss Franc or the Euro were also dragged lower amid the major rebalance of money flows. The market, as an effective discounting mechanism, appears to finally and truly believe that the vaccine news is a real inflection point and as such, it has adjusted its expectations toward a new normal into the future in present time.

The USD finds demand 

While it may come as a shock to many, I wasn’t surprised to see the US Dollar finding strong demand flows. As I pointed out in yesterday’s conversation with Greg Rubin, the structure in the USD index (equally-weighted basis) was hinting at buy-side flows.

As I argued with Greg, the index had not only reached a major level of support in line with my teachings of a 100% projection target, but this level was also in perfect alignment with this year’s low in the index. Therefore, ahead of time, I built a technical narrative that made me way more cautious to keep short exposure in the US Dollar on Monday.

The USD still shows a structurally bearish pattern in the higher time frames. The recovery we’ve seen in the world’s reserve currency still occurs as part of a contrarian and corrective pullback. Should the ‘risk on’ dynamics extend, an outcome I don’t discard, it will not be the most conducive contextual setting for the currency.

In today’s hot trade video I will be walking you through the long-side opportunities in the NZD/USD. Since the US presidential outcome this is the market where a bullish trend has emerged. What I do like about it, is how wonderfully it has respected the discount line. With 0.68 now broken, I can foresee further buying once this level gets retested amid the strong confluence found.

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, further elaborates on the logic behind the trade.   

In this video analysis I dissect the hot trade of the day. A fully-fledged trading course, including lessons on how to trade this pattern, will soon be available via Global Prime Trading Academy website. While the video is intended as educational and not financial advice, it portrays the power of trading the pattern the right way.

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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. The indicator allows you to save time and avoid mistakes.

Important footnotes

Market structure 

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. Watch this video where I go through the layout and all elements of the Discord room in great detail.

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

About the author

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.