Scan Of The Markets

The follow-through in risk sentiment came to fruition and with it a fresh record high in the Nasdaq index, the S&P 500 sealing its bullish outlook as structure and momentum re-align, while the Pound and the Kiwi continue to be the darlings of FX this week.

The behavior in the GBP this week, swiftly transitioning from the weakest link last week to now top the performance board, speaks loud and clear of the erratic toing and froing in currency dynamics. I am the first one who will admit that the sentiment has been really choppy and challenging, one best suited for rotational type strategies.

However, this environment characterized by the constant shifts in sentiment may be about to reach an inflection point to hopefully get a more discernible and prolonged directional bias as the phase of accumulation ends. The action in equities and the Yen index this week is starting to suggest real crack in favor of risk seekers are happening.

While readers have been warned of the perils to one’s sane in trying to rationalize the market movements through fundamentals in a market where efficient price discovery has been unprecedentedly distorted by the flooding of Fed liquidity, here it goes.

Firstly, the chatter has it that the re-invigoration in risk was supported by the positive surprise in the US ISM PMI data (52.6 from 43.1) alongside the encouraging news about the development of a coronavirus vaccine from Pfizer Inc. and partner BioNTech SE where positive trial results were reported and media picked up on it.

According to the Wall Street Journal: “Healthy adult volunteers given the vaccine candidate had higher levels of antibodies four weeks after being vaccinated and seven days after getting a second dose, compared with the antibody levels in recovered Covid-19 patients who didn’t get the shots, the researchers reported Wednesday.”

Again, if the pendulum had swung in the opposite direction on Wednesday and risk-off ended up being the outcome, market commentators would always find a way to massage the interpretation of the news to fit the current market action/narrative in hindsight.

There is a high risk to get the wrong reads on market dynamics by attaching too much weight on the bombardment of headlines to determine our daily biases. For that, we have the quality of technicals to much more accurately guide us through the noise. Central Banks or COVID19 are nonetheless still the big dogs moving the needle.

That said, it’s still of the essence to stay in tune with all the potentially market-moving news or releases. One in particular, even if the bar to create vol had been set really high based on recent actions, was the type of key message delivered by the June 1 FOMC meeting Minutes. After scanning through the released minutes, I must say, we’ve learned very little new and that’s been reflected by tepid market moves.

As the Economics Team at NAB notes: “The Committee appears to have agreed on the need for strengthened forward guidance regarding the longevity of its ultra-easy policy settings, be that in the form of state-based or (probably less likely) date-based guidance. The committee doesn’t look to have moved any further forward regarding support for adopting some form of Yield Curve Control that it was at its prior, late April, meeting. The Minuets also reveal continuing support for more stimulus actions from Congress…”

Besides, looking ahead, be reminded that due to the July 4 public holiday in the US, the US Non-Farm Payrolls will be published today. This event, which is thought to see about a 2-3 million gain and the jobless rate falling to 12.5% should spur some volatility.

When it comes to the technicals side of the equation, hands down the most critical area to organize one’s thoughts before making a bet, a picture (in this case a video) speaks a thousand words, which is why I will refer you to the video posted below to pick on my brain and what’s the lay of the land heading into this Thursday’s session.

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: 00:15:25

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.