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.
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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.
Note, this information is breaking news. We initially learned that the White House adviser Navarro said China trade deal is ‘over’ , however, in a perplexing turn of events, he later on walked back his ‘it’s over’ remarks, leaving us back to square one as well represented by the majority of valuations returning back to pre-news.
This is how it all played out. “It’s over,” Navarro told Fox News when asked about the trade agreement. He said the “turning point” came when the US learned about the spreading coronavirus only after a Chinese delegation had left Washington on Jan. 15.
“It was at a time when they had already sent hundreds of thousands of people to this country to spread that virus, and it was just minutes after wheels up when that plane took off that we began to hear about this pandemic,” Navarro said.
Risk-off conditions picked up intensely as the market was caught completely off-guard by the bombshell. The Aussie and the Kiwi were the main victims as proxys of China. On the other hand, the currencies most fragile on Monday (USD, JPY) ended up flying.
I then, through our Discord room, made the point that the market now must awaits to get further validation from the horse’s mouth, that is, Trump himself declaring the trade deal over.
As I told clients, “don’t jump the gun and assume is over until Trump speaks. It baffle me that it is announced so suddenly., which makes it a bit suspicious.. I wonder if the views expressed were rather personal?”
We then learned that Navarro walked back his ‘its over’ remarks! White House Trade Adviser Navarro was quoted via the Wall Street Journal in denial of the comments made about the trade deal with China being over. It was an absolute mess and market re-adjusted valuations.
We even had further confirmation via Trump’s Economic Adviser Kudlow who said the trade deal is not over. Kudlow was quoted via Axos as saying “it’s totally false that China trade talks are off.”
The news broke out minutes before I hit sent on the market analysis I had put together pre-China news. So, even if most of what’s written may be deemed irrelevant at this stage given the vol dynamics have radically changed, I thought I will keep what my views were for those interested, even if done ahead of the China news.
Traders with a propensity to bid up risk assets were back in the saddle as equities recovered the upside across the globe and the US Dollar as well as the Japanese Yen ended up as the weakest links on Monday.
Granted, there was no catalyst that sparked the recovery in risk, it was a rather gradual and steady pick up in the buy-side tone in risk assets that started through mid-Asian session, extended through Europe and culminated in the overlap of London and NY.
The outlook for the S&P 500, up 0.6%, is still not as compelling as the tech-heavy Nasdaq 100, where the daily chart is just simply captivating for the interest of bulls. The S&P 500 must still find a resolution away from its week-long range while the Nasdaq is a whisker away from its all time high once again. It’s the era of digitalization post COVID-19 and the index performance is hands down the perfect poster-child.
Amid the resurgence in equities, one index that still refuses to back down half the magnitude of its recent rise is the VIX (fear index), which looks at the front-month implied vol in stocks. Here we can clearly observe how further follow-through demand in equities may face some serious hindrances based on current vol projections.
Whoever is long vols, you can’t really blame them as the turbulent waters as part of the fundamental stream of news are only getting rougher by the day amid the recent spike in COVID-19 cases in some hot spots in the US such as Texas, Florida, Arizona.
Exposed above is the logical camp where fundamentals are so out whack with the reality on the ground that it baffles anyone to be anything but long vol. Then we have the ‘artificial’ reality as depcited through the charts, where the Fed-induced liquidity excess keeps feeding through the bullish view.
Worst of all, the current rebound off the lows in US equities looks scarily analogous to the type of price action that followed the 2009 GFC crash. We all know what happened after that, right? 10 years of bulls in charge in what marked the longest rally in history.
Before I shift gears to the Forex market, I want to honor the merit by Gold bulls in finally taking out a double top in the daily and mustering enough fortitude to accept beyond by the close of NY. With equities headed higher in the last 24h, this type of price action does reflect loud and clear the fragility of the US Dollar, again under the cosh.
Now, on to currencies, where the script that unfolded as part of the re-emergence in risk dynamics followed the template we have grown accustomed to. In other words, the Aussie and Kiwi faring formidably well. The CAD, however, lagged behind, on par with the EUR performance. Interestingly, GBP also joined the bull party, likely fueled by an aggressive departure of short-held positions after a solid run.
On the other end of the spectrum, the behavioral model based on risk dynamics would suggest the USD, JPY and CHF get to be suppressed, and that’s precisely what transpired. The losses in the Swissy were nonetheless limited relative to the terrible performance by USD, JPY.
Heading into the next European session, especially if one holds EUR inventory, be vigilant as we are likely to see vol pick up in response to the release of the EU/GB PMIs. The EUR, GBP need upbeat data to fuel the upward bias one would think. Elsewhere, Australia is the first to release PMIs, and to end the day, the US will also release theirs.
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It was 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.
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