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The USD benefits from month-end re-balancing flows

Trading the Forex market in the last 24 hours, especially around the London fix, involved higher-than-usual erratic volatility, on account of month-end re-balancing flows. Although the currency that saw the most aggressive turnaround from its lacklustre performance up until the London fix was the US Dollar.

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Scan of the Forex market

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 Forex basket. Indicators are available to use these measures via Tradingview and MT4.

Trading the Forex market in the last 24 hours, especially around the London fix, involved higher-than-usual erratic volatility, on account of month-end re-balancing flows. The British Pound ended as the top performing currency aided by news that the EU negotiating team announced that will stay on in London for more talks in the coming days.

Remember, we are at a crossroads when it comes to the Brexit trade deal talks. This week appears to be the one that makes it or breaks it, therefore, one must buckle up for spikes in GBP volatility. The latest we know, other than the EU/UK negotiators extending talks, is that according to Reuters,  citing an EU source, “massive divergences” remain on three main areas.

Often, when re-balancing flows are the main attributable source of volatility, fundamentals take a backseat. Aside from the Pound, that’s exactly what eventuated on Monday and the reason why currencies moved the way they did. Remember, usually portfolio managers will either leave or give orders to dealing desks to be transacted at the fixing time and price. Therefore, this results, at times, in moves that don’t necessarily have neither a technical nor fundamental logic but rather is all about tweaks in currency risk exposure by global portfolio managers.

Amid this backdrop, the currency that saw the most aggressive turnaround from its lacklustre performance up until the London fix was the US Dollar. The currency was boosted, especially against the Euro, resulting in the pair retracing sharply away from the 1.20 round number. The buying of Yens late in the day or the selling of Swiss Francs were also notable highlights. Be reminded, these heavy flows rarely change the underlying direction of the market, bullish in the case of the EUR/USD, but as seen, it can definitely cause serious wobbles.

Hot trade of the day

In this section, I pick a market or several ones that presented an opportunity based on the concepts I teach. My video analysis below elaborates on the logic behind the trade.

Economic indicators & events

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.

Source: Forexfactory

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 epicentre 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 the idea of using what I call the smart money tracker. The settings and the indicator can be accessed via our Discord room, where traders from all walks of life interact frequently. In this video, 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.

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