*Monday market recap on how various financial markets are moving and why*
Happy Monday, I hope you all had a good weekend. In this blog post I am going to talk you through the 3 main markets that I trade, explain what’s happened over the past week, talk about what has been moving these markets and why. I will finish up by showing you my open trade positions across the various markets.
I think it is important for new traders/those learning to trade to take time at least once or twice a month and look at the bigger picture. Clear your charts, open Bloomberg/Google and look at what has been happening across the markets you trade and look in to why it happens and what is moving things. Spend some time to develop a deep understanding of why price is moving like it is instead of just focusing on buying and selling and trying to make money.
The Foreign Exchange (FX) markets are always the most volatile. They see the most volume flow through on a daily basis and this shows with movements. Over the past 2 weeks we have seen some good sizeable swings in price across multiple currencies which I believe is attributed to a switch in global risk appetite once again. In particular I have been following typically “risk on” currencies like the Australian Dollar and the global reserve currency which is the US Dollar.
The chart below shows the AUDUSD FX currency pair.
Aussie Dollar saw some good buying momentum from mid-April into the end of last month. This coincided with what seemed to be a risk on appetite across most markets with stocks getting bid up to new highs since the 2020 crash. However, late last week we saw a significant reversal on many Currency pairs. As you can see on the chart above, the Australian Dollar began to sell off quickly showing a 3% drop in value agains the USD in less than 3 days of trading.
The British Pound (GBP) gained over 400 pips against the Australian Dollar in less than 3 days of trading which is a significant move and shows the power of momentum when risk appetite changes overnight.
The US Dollar also saw a similar swing in directional bias.
I have used the USD vs Canadian Dollar chart because I am currently in a long position on this FX currency pair. As you can see, it shows a similar but inverse picture to the Australian Dollar with demand for USD increasing as money continues to flow into safe havens. This is a sign of risk off appetite growing once again.
Important! If you are unsure about how risk sentiment effects global markets, please click on the link below to read my previous blog post on the subject. It explains everything in much more detail.
Stock markets are huge and cover a wide variety of financial instruments. When I refer to the “stock markets” most of the time I am talking about the stock market indexes that generally represent an economy as whole. For example, the FTSE100 index represents the UK stock market, the S&P500 and Dow Jones Indices represents the US stock market and the Nikkei225 Index represents the Japanese stock market.
Global stock markets saw a similar switch in risk appetite last week with both the Dow Jones Index and FTSE100 Index (two of the main indices I trade) reversing weekly gains and selling off into the Friday market close.
The chart above shows price for both Indices from the start of April 2020 through to today. You can see that last week saw strong buying on both Indices until Thursday 30th April where reversals began to occur. The Dow sold-off and dropped over 1200 points in 2 days of trading.
The stock markets have seen a lot of volatility over the past 3 months and this is due to no one knowing exactly what “it” all means for economies across the globe. The coronavirus shut down, the crude oil price war and the vast amounts of fiscal stimulus from central banks and governments have produced a volatile mix of market moving fundamentals.
Many industries have been forced to close or have seen huge reductions in demand. In my opinion, no amount of fiscal stimulus can cover the amount of liquidity and demand removed from the markets over the past few months and this is now beginning to show.
I believe we could see a very bearish month across the stock markets through May 2020 and this should link to risk on currencies like AUD falling in value against strong currencies like the US dollar and Yen.
The main commodity everyone is taking about right now is Oil. As we all now know, last month saw Crude Oil futures prices actually go below zero for the first time ever. I covered this all in a previous blog post called “The Crude Oil Crisis – In My Own Words”. You can check it out by clicking on the link below.
As it stands, WTI Crude Oil has managed to stabilise itself somewhat since the big sell-off on the futures markets. Current 1st to expire June contracts for WTI are residing just below the $20bbl price and I think we could once again see prices begin to sell-off down to new monthly lows and even negative prices once more.
If the risk off sentiment is gaining traction then Oil will begin to sell off along with stocks. Oil is considered to be one of the more risky investment choices for funds and investors so it will see a change in price action.
I also believe we will soon be in a similar position to last month with over supply and market panic driving short term futures prices lower. There has been NO significant cut in oil production in the last few weeks and demand is still low. Most global lockdown procedures are still in place along with global travel bans and air travel demand at all time lows.
This is definitely one to watch over the next few weeks!
I currently have a few open positions across the FX and Indices markets. I am LONG US Dollar via the USDCAD FX currency pair and SHORT Australian Dollar via the AUDUSD FX currency pair. I am also LONG stock market volatility (VIX) which is a tactical play to take benefit from a sell-off in the US Stock markets.
The charts for all 3 trades can be seen below.
USDCAD (Spot) – Long @ 1.38720
AUDUSD (Spot) – Short @ 0.65425
VIX May 20 Futures – Long @ 31.800
Coming this week!
I am going to publish a blog post later this week which does a full breakdown on the technical and fundamental analysis for each of the 3 trade positions shown above. You can then add them to your own trade playbooks and keep them for referencing potential trade set ups in future.
I have also received a few questions about my Mastering The Markets – Retail Trading Course so I plan to provide some more detail on the costs of my trading course, exactly what is included and a bit more about why I decided to produce a trading educational course.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
FTMO Trader Funding Programme.
Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.
DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.