DAX bulls cheer! Will the Fed add new fuel to the push?

January 27, 2020 16:00

Source: Economic Events Calendar January 27 – 31, 2020 - Admiral Markets' Forex Calendar


DAX30 CFD

Last Wednesday, we finally made it to new all-time highs in the DAX30 CFD, but the question for the days to come is now whether bulls can gain further bullish momentum.

Even though we have the Fed rate decision on Wednesday on the agenda and we don't expect any changes in regards to the recent handling of the funding pressures in the Repo market and a potential change in the guidance from the Fed here, US Equities, but also Europeans and here the German DAX index, seem a little extended on the upside and prone to a corrective move.

A driver could be delivered with the latest news on an outbreak of a new virus in China which has had, at least for now, not a big impact on world financial markets.

Still, at least short-term, financial markets could see some risk-off tendencies.

Based on a 2017 paper, economists calculated that the expected annual losses from pandemic risk could amount to about $500 billion (ca. 0.6% of global income) per year.

But given the fact that first headlines on the virus made rounds on Tuesday, but the DAX30 CFD shrugging of any fears here and making new all-time highs on Wednesday, the risk of a sharper correction seems limited.

Technically we stay bullish on a daily time-frame as long as the German index trades above 12,900 points with targets on the upside being found around 13,800 and 14,000 points:

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between 12 October 2018 to 24 January 2020). Accessed: 24 January 2020 at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016 it increased by 6.87%, in 2017 it increased by 12.51%, in 2018 it fell by 18.26%, in 2019 it increased by 26.44% meaning that after five years, it was up by 34.2%.

Check out Admiral Markets' most competitive conditions on the DAX30 CFD and start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!


US Dollar

With the Fed rate decision being considered the news main event on Wednesday, it doesn't come as a big surprise that volatility in the US dollar stayed subdued last week and thus the picture for the greenback hasn't significantly changed.

Technically, the bullish picture stays intact as long as the USD Index Future trades above 95.00 points on a weekly time frame, while a break below 96.00 points could trigger a more dynamic move to this important region of support.

A break below 95.00 points would make a quick drop lower down to 93.00 points likely and switch the mode on a weekly time-frame to bearish from the beginning of October 2019 with an established sequence of falling highs and lows. On the other hand, only recapturing 98.50 brightens the technical picture.

Still, it seems unlikely in our opinion that the Fed will initiate the needed volatility in FX markets and thus for the US dollar, reason: when looking at the Fed Watch Tool market participants don't expect a change in rates with over 80% and given the December rate decision, used rhetoric in the Fed statement there, after sign off of the Phase-1 trade deal between the US and China, a re-formulation of the Status Quo seems likely.

Probably, we get any hints in regards to the recent funding pressures in the Repo market and a potential change in the guidance from the Fed here, but that would come as a surprise – at least for now.

In general, we see elevated volatility in the US dollar and thus among major FX pair only if expectations of market participants of at least one 25 basis point cut in 2020 see a significant change, e.g. increasing above 70% (currently and according to the Fed Watch Tool we see a likelihood of ~60%). That would certainly initiate bearish momentum in the US dollar:

Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2017 to January 2020). Accessed: 24 January 2020 at 10:00 PM GMT

Don't forget to register for the weekly "Trading Spotlight" webinar with presenters including Jens Klatt, every Monday, Wednesday and Friday at 2pm London time! It's your opportunity to follow Jens and others as they explore the weekly market outlook in detail, so don't miss out!


Euro

Despite the ECB rate decision last Thursday, the picture in the European currency hasn't changed – and won't likely in the days to come.

The ECB respectively ECB president Lagarde failed to provide any new information on the monetary policy while it is noteworthy that Lagarde had a clear focus on fiscal stimulus and repeated during her press conference that she calls European governments with fiscal space to timely set up stimulus measures.

That said, we still consider the overall picture for the Euro positive, technically as long as we trade above 1.1000 in the EURUSD.

As pointed out in our weekly market outlook last week our positivity in the Euro is mainly based on our expectation that we see an elevated likelihood of fiscal stimulus, especially from Germany, a country which sees one of the main reasons for currently showing the slowest economic growth in six years in 2019 because of the German government opting for a consistent surplus on its budget, giving out a budget deficit last time in 2011.

So, we continue to see a first target in EURUSD around 1.1400 in the weeks to come and as long as we trade above 1.1000.

On the other hand, the latest remarks from US President Trump in Davos leave the Euro vulnerable to at least a short-term drop after he mentioned that the EU and the US have to make a trade-deal, else the US has to put tariffs of 25% on European cars.

In addition to that he said, that finding a deal with Europe and negotiating with the European commission is in many ways tougher than with China. And after seeing the developments in the trade dispute between the US and China over the last 1.5 years, we today know that this means not only a very long negotiation process, but also an extremely high likelihood of Trump building pressure to get the deal (or at least small parts of it…) he wants, by imposing tariffs.

But since such steps shouldn't be expected in the near-term, this is only something to keep in mind, even though long engagements in the EURUSD should be favoured:

Source: Admiral Markets MT5 with MT5-SE Add-on EURUSD Daily chart (between 26 November 2018 to 24 January 2020). Accessed: 24 January 2020 at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EURUSD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, 2018, it fell by 4.4%, 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.


JPY

The picture in the JPY respectively USDJPY hasn't changed over the last week and despite the Fed rate decision next Wednesday, we don't expect a big jump in volatility in relation to last week's price action here.

The reason: we don't expect much from the rate decision at all. Looking at the Fed Watch Tool market participants don't expect a change in rates with over 80% and given the December rate decision, used rhetoric in the Fed statement there and that the trade dispute between the US and China came to a rest on the 15th of January, a re-formulation of the Status Quo seems likely.

Probably, we get any hints in regards to the recent funding pressures in the Repo market and a potential change in the guidance from the Fed here, but that would come as a surprise – at least for now.

That said, the downside in USDJPY seems still limited and a sustainable push above 110.00, activating 110.70 is very likely.

In the lower time frames we consider the region around 109.50/70 a potential long-trigger and also relevant from a price action-wise perspective since a substantial drop below darkens the short-term bullish picture in the currency pair:

Source: Admiral Markets MT5 with MT5-SE Add-on USDJPY Daily chart (between 14 November 2018 to 24 January 2020). Accessed: 24 January 2020 at 10:00 PM GMT

In 2015, the value of USDJPY increased by 0.5%, in 2016, it fell by 2.8%, in 2017 it fell by 3.6%, in 2018, it fell by 2.7%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.


Gold

While the picture in Gold hasn't changed over the last week with the precious metal continuing to stabilise around the 2019 yearly highs around 1,555, mainly because of the relative weakness/drop lower we have seen in 10-year-US-Treasury yields, the main focus in the next days will be on the Fed rate decision on Wednesday.

But, to be honest, we don't expect much from the rate decision. Looking at the Fed Watch Tool market participants don't expect a change in rates with over 80% and given the December rate decision, used rhetoric in the Fed statement there and that the trade dispute between the US and China came to a rest on the 15th of January, a re-formulation of the Status Quo seems likely.

Probably, we get any hints in regards to the recent funding pressures in the Repo market and a potential change in the guidance from the Fed here, but that would come as a surprise – at least for now.

In general, our outlook for Gold stays positive, technically as long as we trade above 1,440/450 USD and the potential next target on the upside being found in the region around 1,650/700 USD.

In addition to that, we'd like to reinforce our bullish outlook also from a seasonal perspective.

Last week on Friday, Gold entered a bullish seasonal window, which lasts till the 04th of February.

In more detail, the seasonal bullish pattern developed over the last 20 years with Gold seeing an average gain of 23.50 USD for 15 of the past 20 years.

In the remaining five years, it dropped on average only 11.73 USD, while the maximum loss of the pattern was 23.90 USD and the maximum drawdown being 26.05 USD, adding to the advantageous outlook for Gold bulls:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between 17 October 2018 to 24 January 2020). Accessed: 24 January 2020 at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of Gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.


Discover the world's #1 multi-asset platform

Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!

Download MetaTrader 5 and begin trading today!

Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
  7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
  8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.
Avatar-Admirals
Admirals
An all-in-one solution for spending, investing, and managing your money

More than a broker, Admirals is a financial hub, offering a wide range of financial products and services. We make it possible to approach personal finance through an all-in-one solution for investing, spending, and managing money.