The first thing that comes to mind when analyzing the currency space is how focused the market has turned to the immediate future. In other words, short-term economic jitters due to stricter lockdowns appear to be overriding any hopes for the longer-term vaccine-fueled positivism.
With volatility dramatically compressed in the last week, finding opportunities to trade in the Forex market has not been an easy task. Trading these tough conditions has been, first and foremost, an exercise of patience and sticking to one’s plan of engagement. Even if so, a fair number of trades were simply not getting out of second gear.
The currency exhibiting the most stable trend on Monday was the British Pound, attracting buyers amid the positive soundbites that a Brexit trade deal with the EU looms near. On the opposing end of the performance board we find the Japanese Yen, sold off ahead of the London fix with no respite of the offered tone afterwards.
In today’s analysis of the Forex market, what has caught my attention, is the follow-through continuation in risk appetite dynamics. To the point that the market is starting to morph into an environment that makes for some ideal conditions to trend trading. As I show in today’s video analysis, there is a growing number of markets where the 4-hour and the daily time frames exhibit a clear congruence in the direction.
What immediately caught my attention in the last 24h of Forex trading activity was the contrasting performance of the British Pound against the Japanese Yen or the Swiss Franc. In order to understand the sell-side pressure that hit the British currency, one must be reminded of the high-stakes context the United Kingdom finds itself in.
The main mover last Friday was once again the suspect swinging the wildest as of late, that is, the British Pound. A couple of negative headlines around Brexit led to another strong round of selling pressure as the market comes to terms about the ongoing stalemate between the EU and the UK in order to reach a Brexit trade deal.
The USD benefits from month-end re-balancing flows
Quick Take
Trading the Forex market in the last 24 hours, especially around the London fix, involved higher-than-usual erratic volatility, on account of month-end re-balancing flows. Although the currency that saw the most aggressive turnaround from its lacklustre performance up until the London fix was the US Dollar.
Acute Flow Imbalances In European vs Risk-Off Currencies
Quick Take
The Euro and its correlated twin the Swiss Franc saw steady demand on Tuesday. The strength was initiated at the London open only to accelerate into and post the London fix. The breach of 1.20 in the EUR/USD snowballed into further broad-based USD weakness, with the Kiwi and the Pound also capitalizing in the miseries of the USD…
The Euro and the Swiss Franc continue to be the markets where most of the buying flows have concentrated as of late. We had really solid demand in these two markets since the London session, a replica of the dynamics seen through Wednesday as well. The Australian Dollar joined the bullish party this time following a major turnaround early doors in the US session.
The US Dollar continues to be smacked lower mercilessly. Once again, the currency ended as the worst performer. On the flip side, the volatile Pound topped the leader board, following the sharp decline it had the prior day. This whipsawing action in the British currency comes to show how erratic the behaviour remains amid the ‘crunch time’…
The latest TT setup that was made available in the GBP/AUD last Friday, manifests the difficulty as of late to materialise into profitability the amount of work one puts in. This takes me to the last thought of the day that I also want to stress. Unlike other professional endeavours, when trading the markets, you will realise that hard labour doesn’t necessarily correlate with rewards.