Scan Of The Markets

If not enough evidence had been emerging as of late over the unequivocally strong ‘risk on’ environment promoting the appreciation of commodity-linked currencies, the market once again schooled any stubborn contrarians through another impressive run in risk trades, with equities in the US also breaking higher.

As heart-breaking as the images of US civil unrest have become in main news outlets, the reality in the ground is disconnected from what the market is being driven by. In the equity space, it’s all about the gradual re-opening of global economies, the prospects to develop a vaccine against COVID-19, and the groovy vibes left by the admission of Germany that fiscal stimulus might be on the way.

If history is any indication, markets tend to sweep under the carpet these type of protests for the most part. The market is a very efficient and well-oiled machine that will be in present time discounting future events and the overarching theme today is a COVID-19 recovery. US social unrest tends to be quelled and lack a longer lasting impact.

Affecting the mood in a positive manner, we also learned as stated above, via Bloomberg, that German Chancellor Merkel is hard at work trying to broker what would represent the country’s second stimulus package for the economy. The deal is said to be in the region between 50 billion-euros to 100 billion-euros. Bloomberg’s Raymond Colitt reported the news on “Bloomberg Markets: European Open.”

Besides, the soft approach by Trump towards China after the security law on Hong Kong, was another critical big risk removed allowing markets to continue the path of least resistance. It is clear that Trump is now fixated in massaging the rhetoric best suited to stack the best odds to be re-elected in Nov, and that won’t happen by pressuring the equity market or the economy via more punitive import tariffs or sanctions against China.

The demise of the USD and JPY, especially the latter, is a clear barometer of how hot risk appetite is running. Remember, if one wants to take the temperate of RORO (risk-on, risk-off) conditions, these two currencies, alongside the S&P 500, are your Go-To instruments. If one throws into the mix the sell-off seen in Gold or the Swiss Franc, it becomes blatantly evident that risk appetite is proliferating in a big way.

Another interesting development this week, which already began mid last week, is the transition we are seeing from mild range expansions in FX to a fully-fledged return of high volatility measures. It is only in this kind of expanding vol environment that we can reconcile with an Aussie netting more than 4% gains vs the USD in the last 24h.

It’s also important to remark that it is in these periods of expansion in market ranges, as opposed to spells of price contraction, that trend traders will find the best conditions to thrive. Volatility expansion creates opportunities, hence why this is a time to be bold, within your own set limits, and look to exploit what the market has to offer.

It’s also worth reminding readers that yesterday’s RBA decision came in line with expectations, leaving the cash rate and 3-year bond yield target unchanged at 0.25%. There were no surprises on asset purchases, liquidity operations or wording. The Board stated that this“ accommodative approach will be maintained as long as it is required”, with the rate at record lows until “progress is being made towards full employment and [the Board] is confident that inflation will be sustainably within the 2-3% target”.

Heading into Wednesday’s session, the Bank of Canada is next in line.
The benchmark interest rate is expected to stay on hold, while further stimulus to the economy via lending through corporate bond purchases is one of the scenarios being considered by economists. But the crux of the matter to move the CAD will reside on the central bank’s forward guidance on monetary policy under new Governor Tiff Macklem.

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.

Video Length: 00:19:21

Recent Economic Indicators & Events Ahead

(Click on image to enlarge)

(Click on image to enlarge)

Source: Forexfactory

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.