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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 equities crusade northbound, the current market physique appears to be one of ‘hope’ in light of the containment rollback, allowing the S&P 500 to print 1.5% gains on Monday. To put things into perspective, the index has recouped nearly 30% from its March lows.
Any of the negative news out there, which is still plentiful, is being dismissed. From the disparity between stocks valuation vs the real economy, dismal earning projections, a global depression event, millions of jobs lost in the US alone, and the list goes on. Nothing of that has caught up with equities just yet, with the narrative fixated on the loosening of lock-down restrictions across the globe.
Just be aware that once we went past the 50% retracement from peak to trough in the stocks’ conglomerate that the S&P 500 consists of, this is definitely a time to really be on high alert. Why? Because this correctional extension tells us a fair amount of re-balancing in flows may have occurred to gear up for the next leg down.
However, technicals in the S&P 500 are not hinting we are ready to roll-over as it presses against its range resistance at the 2,900.00. As I mentioned in yesterday’s note, this could easily be a rally that if it keeps on going will induce hate, perplexity, you name it, as the disconnect is real. Even some big dogs (Blackrock) have gone as far as to speculate that if the Fed measures cause this inflated valuation bubble to extend, ‘the era of value investment’ is well and truly over.
Even the ongoing collapse in Oil, with WTI down more than 20% and Brent faring much better with a decline of just 7%, did not act as catalyst to cap the upside in the equity market. The announcement of the benchmark US Oil ETF accumulating the most contracts that it will begin to roll its exposure to the June contract was the sell trigger.
Shifting gears to Forex, the Australian Dollar has been thriving. The extend of the gains has been such that makes me think a fundamental catalyst is also playing a key role here as explained below. Technically, be aware that the currency has hit its 100% measured movement against the US Dollar, an area susceptible to see a reversal of flows.
The run in the AUD coincides with some states in Australia (WA, QLD) easing lock-down restrictions. As MNI reports, cited via NAB, “the RBA is increasingly confident that the domestic economy will recover more quickly than initially expected from the coronavirus-driven downturn” and that “Australia’s relative epidemiological successes allowing an earlier return to normal economic activity.”
The main losers of the last 24h include the US Dollar and the Swiss Franc, and to a lesser degree the Japanese Yen. These dynamics are in congruence with the groovy vibes seen in equities. It’s worth noting, as I walk you through in today’s video analysis, that the outlook for the US Dollar has deteriorated as a result of Monday’s ebbs and flows, especially against the commodity-linked currencies, but also on the backfoot near term (4h chart as reference) vs the EUR and GBP.
In the last 24h, it’s worth noting that the Bank of Japan (BoJ) policy decision barely budged the Japanese currency as the Central Bank announced, as previously speculated, that it would make government bond purchases ‘unlimited’ (a mere symbolic action) while it more than doubled its limit on corporate debt purchases. It was also interesting that the BOJ stood away from cutting rates further into negative. It also decided not to increase its equity purchases via ETFs.
But the BoJ just got us rolling and the real focus comes mid this week as the Fed and the ECB re-assess its policy settings. Talk has it that the ECB may be looking to ramp up its QE programme, with the latest we learnt being that the Central Bank has accepted sub-investment bonds as collateral in its operations for the foreseeable future. As per the Fed, it’s unlikely it will make further moves on rates this week, but there are some other things it could do as summarized via CNBC.
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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.
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!
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.
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.
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.
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.
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