Scan Of The Markets

The waxing and waning in equities kept on going with the S&P 500 and the Nasdaq falling back down (-0.34% and -0.73% respectively) unable to gather the momentum desired to jolt risk-on currencies all the way to the final closing bell.

These dynamics in equities ultimately benefited the risk-off associated currencies the likes of the USD, JPY and CHF by rallying into the second half of the US session, while the overall flows into the Euro were rather neutral in net effect following a dull ECB.

Heading into NY trading, the US Dollar was well offered after an initial buying wave noted in Europe, only to see all gains given back as the ECB took the stage with President Lagarde keeping her firm commitment on low rates and easing measures.

From there, further deterioration in COVID-19 cases and hospitalizations in the US, with chatter doing the rounds that Texas is next in tightening its grip and re-impose lockdowns (California announced it the prior day), led to risk sentiment succumbing.

A couple of elements likely to act as a source of volatility in coming weeks, include, firstly, the growing diplomatic tensions between the US and China after the US is now reportedly mulling to ban travel to the US for any Chinese CCP members and relatives.

Secondly, Phase 4 fiscal package in the US is set to be announced next week as Congress returns after a two-week recess. Keep an eye on this front becomes the market has and will continue to cling to news of further liquidity/stimulus injections into the system as positive news.

One of the drivers sustaining risk trades this week has been the anticipation of positive developments to come out of a COVID-19 drug trial being developed by AstraZeneca/Oxford, which should see data on results published next Monday.

But in the immediate future, heading into this Friday, judging by the vacant economic calendar, the sole focus for markets is going to be on the EU Council meeting. The way the Euro behaved this week suggests the pricing of progress to be made. However, the bar has been set quite high for policy-makers to walk away from this weekend-long talks with some form of final agreement on the EU Recovery fund.

Trending Markets On My Radar

In this section I short-list the markets where a case can be made to engage on a directional trend off higher timeframes, including the 4h and daily time scales. These are the markets included in my video analysis in the insights section below. 

Hot Trade Of The Day

In this section I pick a market or several ones that presented an opportunity to buy on weakness or sell on strength based on the higher timeframes outlook.  

This is what I posted in Discord as my long position in EUR//USD got filled post the ECB: “As the readership knows, this pair made it into our Watchlist today given the conducive trends in the 4h + daily time scales. That inclusion grants us permission to consider long EUR inventory vs USD at a technical discount (13-lwma 4h region) conditional to buyers stepping in, which they did around the ECB rate announcement, by taking out the origin of the European a.m. supply wave. Once 1.14 re-gained, and in light of Lagarde not causing a major shake-out of positions, the pair was bought up on a retest of the round number 1.14. We’ve witnessed the right sequence of events to resume the uptrend now.”

Unfortunately, after a 2:1 risk reward run, the trade turned out to be a scratch as the second wave of USD buying for the day came about late in the US session. To gain further insights into the logic of this trade, refer to the video analysis posted below.

Insights Into Market Flows

In this video analysis, I dissect the information above. Ultimately, it is the traders’ call, via a set of entries thoroughly backtested, to enter and manage a position, hence the video is intended as educational in nature and not financial advice. 

Video Length: 00:19:15

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.