Scan Of The Markets

The story of the day and the week/s continues to be the relentless appreciation of the EUR/USD, which if excluding the last 24h, reflects the crumbling of the USD appeal across the board as risk trades fly.

EUR/USD bulls are on a mature merry way journey for 8 straight days after the ECB over-delivered, based on the street’s forecast, with €600b addition to its PEPP (Pandemic Emergency Purchase Programme).

The recent policy stimulus in Europe, both fiscal and monetary, is the narrative the market has latched on to propel the Euro into fresh highs amid a softer risk appetite as expressed through the sluggish performance of equities in the US, where neither the S&P 500, down 0.34, nor the Nasdaq, -0.71%, kept up the buying pace this time.

Even if we also learned that Finland joined the ‘frugal four’ in Europe, which have serious objections towards the EU Recovery Fund, all the market cared about was how the ECB exceeded the PEPP expectations, with bond buying now to extend until at least June ’21.

This leaves us with a EUR/USD breaking and closing above the 1.13 level in what constitutes one of the largest daily percentage gains in months, which comes on the back of what was already looking like a very mature and overstretched market.

This implies that if the risks of getting caught on a weak-handed net EUR long position were already high ahead of the ECB, it’s now even trickier to find any form of justification to buy Euros from a value perspective. However, that’s just half of the equation…

Why? because for the systematic momentum/scalping type, these one-sided flows is where these strategies thrive, hence why I suspects the strong tide will require a fair amount of time to see a meaningful turnaround in fortunes for those accumulating short EUR inventory. The momentum is just so sizzling hot.

Granted, the pain trade to be USD long has been felt across the spectrum of commodity-linked currencies, and testament of that is themomentum established in pairs such as the AUD/USD, a whisker away from hitting the 0.70, a USD/CAD recently reaching 1.35 or the NZD/USD, which exchanges hands over-inflated at 0.66.

Going forward, the next 24h sees the publication of the US payrolls data, expected to show an 8 million decline in employment, which would add to the last 20.5mn recorded in April, with the unemployment rate rising to 19.5% from 14.7% last time. Also keep an eye on the neighboring country as Canada’s employment report is due to be released, with expectations pointing at the unemployment rate jumping to 15.0% from 13% in April.

Last but not least, today I allowed myself the permission to rewind back to 2019 and share a video that I produced and people loved it in order for everyone to get a taste of what the backbone of a momentum-type strategy, which is what’s dominated proceedings in the EUR/USD may look like in your charts. Enjoy it!

Throwback Momentum Plays

Video Length: 00:14:59

Recent Economic Indicators & Events Ahead

(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.