Scan Of The Markets

Those capitalizing on the abundance of ‘risk on’ opportunities would probably don’t mind me sounding like a broken record. The reality is that nothing has changed in financial markets, where equities and commodity-linked currencies continue charging higher.

We have an Australian Dollar coming into close contact with USD 0.70, the S&P 500 on its merry way to meet its next 100% proj target at 3,160.00, Gold selling-off, and the like of US Dollar, Yen, Franc following the same path as the shinny metal. This is a receipt for disaster if you are going to wear anything other than a ‘risk on’ hat.

But as much as I have been promoting the proliferation of ‘risk on’ trades for a while now, we are dangerously approaching very overstretched levels with the EUR/USD above 1.12, GBP/USD near 1.26, USD/CAD at 1.25 to name a few. These are big levels hit.

There might be further gas in the tank but unless you are focused on systematic momentum or scalping strategies, we’ve come a long way and discounted a lot of future positives. The key drivers continue to orbit around a relatively prompt economic recover (starting to be backed by some tentative evidence through data) and vaccines available to fight off the COVID-19 pandemic within 12-18 months. Angela Merkel’s coalition inking a $146b stimulus package aided sentiment too.

If recent data is anything to go by, which it is, as it starts to capture life post COVID-19, the releases support the idea that we may have seen the trough or lowest point in the global economic downturn. We had China’s Caixin Services PMI spiking to 55.0, Australia’s Q1 GDP data falling by 0.3% – within expectations – , Germany’s May unemployment rose at a slower pace (238k vs 372k in April). But the big data point came via the US ADP employment report, which saw ‘only’ a loss of 2.8 million jobs in May, much better than expectations.

A major event on Wednesday now behind us included the Bank of Canada policy decision, which kept its rate and QE bond buying programme unchanged. The rhetoric was more positive, noting that the Bank judged that the worst of the COVID-19 impact on the global economy may be behind us and the Canadian economy had just avoided the Bank’s most disastrous downside projection. The Bank also announced an curtailment in the frequency of some of its emergency operations, including purchases of short-term bank paper and its term repo (collateralised lending) operations, which is a good sign. The CAD traded steady but not overly bullish post the event.

Now, going forward, the next big event today orbits around the ECB monetary policy meeting, with expectations running high that they will leave its deposit rate where it is at -0.5% while reinforcing the rhetoric that they stand ready and committed to maintain monetary policy settings incredibly accommodative to assist the economic recovery.

For further insights into the technical aspects in equities, currency majors and other markets of interest, please refer to the video I posted below. This content gets updated on a 24h basis to keep it as actionable and relevant as possible.

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: 00:18:56

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.