Technical Merits To Retain ‘Risk On’ Outlook
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Technical Merits To Retain ‘Risk On’ Outlook

22 May 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.

The underlying risk appetite won’t go away that easy. Even if a setback in risk dynamics hit the market, it is still far from posing a serious technical threat in the daily bullish trends in those markets most sensitive to risk flows, namely the S&P 500 or the Aussie.

As usual, market commentators are massaging the narrative to fit the price action in equities. If on Wednesday it was all about hopes for a vaccine as rollback measures in the US accelerate, to justify the last push lower in equities, media outlets are resorting to the rising tensions between the US and China, nothing we didn’t know at this point.

Also, don’t forget, the US administration and its Central Bank, via recent interventions by Treasury Secretary Mnuchin, Fed’s Chairman Powell or Vice-Chair Clarida, all kept the doors wide open for further stimulus. This has proven to be music to the ears of equity bulls as the Fed floods the economy with new digitally printed money. Mnuchin said on Thursday “I think there is a strong likelihood we will need another bill…”

The S&P 500 is still anchored by the bullish technicals off the daily timeframe with both structure and momentum supportive. As one dives into the 4h chart, more patience is requires as the market went through a modes sell-side campaign that puts us back into a range. Keep watching this space to gauge the risk dynamics affecting FX.

The gold market fell sharply intraday with an important caveat for shorts. Do not jump the gun thinking further follow through will be an easy task as the daily stays outright bullish and a key role reversal level (previous resistance turned support) poses an extra hindrance. The path of least resistance in this market remains north-bound.

In the currency majors, the topside failure in the EUR/USD was a smart play for those spotting the negative divergence with my inverted prop USD index. Remember, the USD has been on the driver’s seat, hence any disparity in structures can provide a real edge. In the case of the EUR/USD, the poke into 1.10 (new highs) was not accompanied by the same breakout in the USD index, ultimately causing a fake out.

The GBP/USD is a market where judging by the lethargic price movements as of late, even at a time of intense sell-side pressure on the USD, suggests this is a market looking to absorb it and build shorts. In today’s video, I explain why through monitoring the USD index beavior vs the GBP/USD it hints considerable stacks of limit orders. A take out of 1.2185 will likely unleash a resumption of the bear trend.

The AUD/USD has transitioned into a period of contraction, even if still largely backed up by the bullish prospects off the daily where a major declaration of intent was accomplished on Wednesday. It is my base scenario that further follow through demand has decent chances of eventually transpiring towards the 100% target of 0.6745-50.

Another market that I typically touch on as part of my daily video includes USD/JPY. Here, the deep retracement off 108.00 round number that manifested was gratefully bought up by value traders. Not only the technicals were still favorable on this last dip sub 107.50, but the positive divergence with the JPY index was unquestionable. Since JPY runs on a correlation of 90%+, it did make a strong buying case.

Lastly, today’s BOJ statement came and went without much fanfare. The JPY appreciated on the back of it. The BoJ maintained its short-term interest rate target at JGB yield target while it decided on details of new loan scheme aimed at boosting lending to small, mid-sized firms hit by coronavirus pandemic. It will set aside 75 trln yen for new loan programme to combat coronavirus impact.

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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