Scan Of The Markets

The commodity-linked currencies are on fire, with one in particular (AUD) taking the spotlight as it hits 0.68 USD, the highest levels since early February before the whole COVID-19 crisis got out of hand.

The one-way street in the AUD follows the soft response by Trump to China’s approval of a new Hong Kong security law, trapping wrong-sided shorts in the process? However, the lenient retaliation may not detract China from ending the US-China phase-1 trade deal.

As Foreign Policy site notes: “The Chinese government appears to be reneging on the sputtering deal, reportedly telling state-owned agricultural firms to halt purchases of U.S. soybeans, one of the major U.S. agricultural exports to China and a pillar of the deal…”

Besides, the gains in the Aussie come despite the sluggish performance in equities, where the S&P 500 eked out a mere 0.4%. Note, the pretext to keep favoring buying strategies remains there nonetheless, as portrayed by the back-to-back bullish pin candles off the daily, alongside the structure and momentum of this market.

One could argue that even amid the absence of decisive buy-side commitment in equities, the AUD found further positive drivers through the spikes in iron ore and gold.

One of the limiting factors for bulls to keep the clear momentum in US equities could be explained by the unfolding social unrest nationwide as Trump promises “decisive action” against violence following the homicide by a police officer against an Afro-american.

Another negative input preventing the lift off in US stocks came as news broke out that the third-phase trials of Gilead’s Remdesivir anti-viral drug were far from the Goldilocks scenario one would wish, taking a small bite out of risk trades intraday.

Back to FX, if the AUD is the star, at the bottom of the board we find two familiar suspects (JPY, USD). The currencies most linked to risk-off flows are having a real struggle amid the flourishing of risk as the focus remains on economic re-openings.

As per the EUR/USD, I am starting to see a very obvious negative divergence against the EUR index. What this means is that further gains expansion will prove a real challenge and topside failures are starting to become a scenario to highly consider as the pair’s upward path is unsustainable if the EUR index keeps selling off. Fundamentally, the EU recovery fund approval and the ECB meeting on Thursday are the risks ahead.

Shifting to the Pound, the currency landed right on its 100% measured move vs the USD in record time, with buyers still pushing further up past the 1.25 round number. This is a market with plenty of momentum but the elongated daily candle warrants caution.

I won’t spend much time dissecting the action in the USD/JPY as this is a pair that continues its boring slog as the risk-off flows depress in relatively equal intensity both the Yen and the USD, hence the contraction period we are seeing as flows move in tandem.

The USD/CAD is another currency pair that is moving very nicely with bears in absolute control here. Note, the Bank of Canada meeting is tomorrow so you may want to re-calibrate your exposure if holding longs on the Canadian currency ahead of the event. Remember, Tiff Macklem is taking over the post from Gov Poloz. I’ve been endorsing an aggressive target of 1.35 in recent daily analysis.

In the next 24h, the key event to pencil in includes the RBA meeting. No change is expected in either the 0.25% cash rate nor the 0.25% 3-year yield control target. In its recent testimony before the Senate, RBA Governor Lowe said the economy is faring better than the baseline projections, but on the flip side, said this does not mean the scenario won’t continue to be “depressing”, with unemployment high for years.

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: 00:20:48

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.