The USD Takes The Front-Seat Again
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The USD Takes The Front-Seat 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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Quick Take
Narratives in Financial Markets
Recent Economic Indicators
Insights Into Forex Flows (Video)
Educational Material

Quick Take

The out sized price swings continue to relax, as clearly seen by the normalization of volatility measures across financial markets, be it via currencies as depicted by implied vol in options and/or simple ATR calculations based on new higher ‘means’, equity indices as expressed by the VIX (reduction of 50% from its peak) or the US money markets (bond yields in the front and long-end of the curve).

One could argue that the expectations building up for a promising outcome out of the emergency OPEC+ meeting later this week (tentatively scheduled for Thursday) are partly to blame, as the price of Crude Oil, while severely marked down at the open of markets in Asia after a delay of the meeting first thought to be today, is still seen as a stepping stone but not a canceler of the hypothetical scenario in which the big players are able to reach a consensus. With Russian/Saudi tensions still flaring up, the bar has been set quite high I must say.

The performance of currencies still portrays that the main play as of late has been to accumulate USD long positions (in today’s video I show how one can look to exploit these trades), with the Canadian Dollar also gathering significant buy side interest driven by the boost in Oil coupled with re-emerging positive correlation with the USD.

The Pound, on the contrary, suffered the most losses as it finally found a resolution from its week-long lengthy range, with the Aussie and Kiwi, also proving quite vulnerable in technical-driven rotations. The Yen also traded on the weak side as sentiment stabilized with moderate movements in equities and a lower VIX, while the Euro and Swissy, are starting to see tentative evidence of greater buy-side interest.

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.

Narratives In Financial Markets

* The Information is gathered after scanning top publications including the FT, WSJ, Reuters, Bloomberg, ForexLive, Twitter, Institutional Bank Research reports.

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US NFP REPORT TREATED AS SECONDARY DATA

The US NFP numbers came much worse-than-anticipated (-701K decline vs estimates of -100k). With economic data taking the backseat and at the mercy of the daily covid-19 developments, and with the recent US jobless claims giving us a taste of how dire the jobs has turned out, the market shrugged off the report with little FX reaction.

RISK SENTIMENT SHOWS VOLATILITY MODERATING

Risk sentiment has found a new leg of stability despite one would be hard-pressed to conclude so by looking at the performance of the US Dollar and the Yen in the last 24h. With a VIX anchored at lower levels of around 40.00 from a peak of 83.00 last month, and equities/bond yields trading in the narrowest ranges in quite some time, it appears as though vol is settling down, which is encouraging. The boost in the prices of Oil, as elaborated below, is providing a helping hand.

HOPES ON OPEC+ MEETING DESPITE DELAY SETBACK

The oil prices kept rising on Friday with Brent up by just under 14% to $34.00 as the market built up a scenario in which the upcoming emergency OPEC+ meeting will yield positive results. However, reports that the meeting planned for Monday has been delayed due to the re-emergence of tensions between Russia and Saudis has seen Oil marked down at the open of markets this Monday. According to the most recent reports, and assisting in the Oil run, big players such as Norway and Canada’s Alberta would be open to consider curtailing production with Iraq also expressing the right soundbites.

MORE CHALLENGING ENVIRONMENT FOR STOCKS

According to Morgan Stanley Cross-Asset Sunday call, the next 2 weeks will be more tactically challenging for equities due to 1. we are past the beneficial flows around month-end re-balancing 2. sees potential for renewed funds outflows cross-asset 3. we are past peak market uncertainty but not past peak macro uncertainty 4. earnings seasons will be downbeat 5. US covid news will continue to get worse; coasts still 1-2 weeks to peak; rest of US >40 days left to peak

AT LEAST A QUARTER OF THE US ECONOMY OFFLINE

In a report by the WSJ, citing a study by Moody’s, the state shutdowns have taken at least a quarter of the US economy offline. It notes that “eight in 10 US counties are under lockdown orders, according to a study, and they represent nearly 96% of national output”, adding that “this is an unprecedented shutdown of commerce that economists say has never occurred on such a wide scale.”

POUND WORST PERFORMER, UK PM TAKEN TO HOSPITAL

One of the biggest losers on Friday was the GBP after it finally found a resolution of its week-long range following inter-market evidence, via the USD index performance, that the market was going through an accumulation phase. The weak stance by the Pound coincides with reports of UK PM Johnson taken to the hospital as his condition, due to persistent COVID-19 symptoms, deteriorates.

european covid-19 cases peaking out?

There are encouraging signs in Italy, France and Spain, and hopefully the countries can turn a corner in coming weeks. The former, in lockdown for over a month, reported a decreased in the number of patients in ICU for the second consecutive day, while in Spain the number of people dying has also seen an encouraging reduction. How countries in Europe transition out of the lockdown phase will be critical, even if the general sense is that government won’ take any chances and the process is going to be gradual and very slow in lifting restrictions to minimize the risk of a second wave of infections. For a more in-depth analysis on when lockdowns may be lifted on a country-by-country basis, this paper by Bank of America sheds a light.

the us just starting the late accumulation phase

For a more global update on where we are in the COVID-19 curve in countries around the world, this graphic by JP Morgan is handy. It shows that the US is still in the early stages of the ‘late accumulation phase’ as cases and deaths continue to soar, while the light at the end of the tunnel is now visible for countries like Italy, Spain, Germany… One worrying observation is that the giant populations off Brazil, Indonesia and Philippines are only now entering the acceleration phase, meaning that the number of global cases could soar in the coming weeks.

MARKETS WATCHING CLOSELY SITUATION IN WUHAN

Expectations in China have been building up for an official lifting of the containment measures on the city of Wuhan – the epicenter of the COVID-19 outbreak – . Should the government go ahead with the scheduled opening of more sectors of the city by April 8, it may prove to be yet another key factor feeding though positive risk sentiment.  In Wuhan, daily life is gradually returning to normal after several months of confinement, but as this report by France24 shows, China remains worried about the risk of a second wave of the epidemic, with fresh in the memory last week’s setback in the Henan province in central China, where authorities tried to fend off a second coronavirus wave.

PROS & CONS AS SEEN BY GOLDMAN SACHS

Goldman Sachs has listed the main reasons to be optimistic and pessimistic going forward. Let’s start with the positive angle. 1. Monetary stimulus has been swift, targeted, and appears unlimited. 2. Fiscal stimulus is now in place to support individuals who are losing their jobs, incentivize companies to keep people employed, and provide a financial backstop to corporates. 3. China activity has already begun a nascent recovery, providing a lens for US investors on how things may look once the impact of virus mitigation efforts begins to wane. On the negative side, 1. Almost 10 million people filed for unemployment insurance. 2. GDP growth is poised to fall by an unfathomable 34% in 2Q20 (Q/Q, annualized), with the steepest drop expected in April. 3. S&P 500 earnings are forecast to fall to $110/share in 2020 with 2Q20 EPS estimated to be down 123%. GS now forecasts a 25% decline in S&P 500 dividends. 4. Supply chains are intertwined in this world such that even the recovery in China is struggling to maintain a purchase in the most secularly advantaged sector. 5. The US High Yield credit market is poised to potentially have to absorb an additional $555bn in Investment Grade downgrades as a huge swath of BBB-rated companies are re-evaluated in the coronacrisis.

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!

Insights Into Forex Majors

This analysis complements one’s view by accounting for multi timeframe biases. Ultimately, it is the traders’ call, via a set of entries (watch my setups) thoroughly backtested, to decide if a market meets the prerequisites to enter a position. This analysis is mainly intended as a way to educate traders in upping their analytical skills.

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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 the tutorial How To Read Market Structures In Forex.

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