DAX back above 10,000 points - further gains to come?

April 13, 2020 15:00

Economic Event

Source: Economic Events Calendar April 13 – 17, 2020 - Admiral Markets' Forex Calendar

DAX30 CFD

The DAX30 CFD surprised traders with a very bullish performance over the last week of trading, recapturing 10,000 points and has further corrective potential, possibly as high as 11,000 points.

Interestingly enough, after the Easter weekend, the German index also enters a bullish seasonal window: between April 8 - 27, the DAX gained in 16 out of the last 21 years on average 250 points while it dropped in the remaining five years by only 95 points with a max drawdown of 230 points.

That said, bulls could see a short "revival", even though traders should remain cautious in regards to become overly optimistic.

In fact, we are not quite sure about the real driver behind the move higher in Equities, probably we are seeing hope of market participants in regards to the "not-so-bad" impact on the global economy after the "Corona shutdown" comes to an end.

[Note: we are ignoring here the massive announcement from the Fed last Thursday to take additional actions and provide up to $2.3 trillion in loans to support the economy, adding to her already massive Treasury buying program now also elements from the high-yield universe, since most of the gains in the DAX30 were seen already before Thursday in the first half of the week.]

But such high hopes are probably too optimistic, especially after the German IFO institute sees the German economy shrinking by at least 10% in Q2.

That in mind leaves a re-test of the region around 8,000 points as a serious option on table, probably a drop even lower.

Still, in the days to come the picture stays short-term and technically positive as long as the German index holds above 10,100/150 points. A drop below that level again leaves room for an accelerating drop which targets the region around 9,300 respectively 9,150/200 points:

Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between December 27, 2018, to April 10, 2020). Accessed: April 10, 2020, at 10:00pm 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%.

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US Dollar

The picture in the US dollar hasn't changed over the last week of trading, leading into the Easter weekend.

The USD Index Future stabilised around 100.00 points, technically a positive sign since as long as we trade above 99.00 points the mode stays bullish.

This might be especially true if a new wave of de-leveraging, driven by a high demand for the US dollar given the global USD shortage, hits the financial markets, making another stint higher with a target around 105.00 points an option.

Looking at a longer time-span, we are still very cautious and don't see a very bright USD future: this is especially true when looking at the still bearish sequence in 10-year-US-Treasury yields where only recapturing 1.20% would technically brighten the picture, but also the US central bank Fed having pumped her balance sheet to over 6.0 trillion USD and further "pumping" to follow after last Thursday's announcement to take additional actions and provide up to $2.3 trillion in loans to support the economy, adding to her already massive Treasury buying program now also elements from the high-yield universe.

So mid- to long-term, the massive government spending and given the massive monetary stimulus from the Fed, leaves us with massive USD-scepticism and short-engagements in the Greenback should be attractive from a risk-reward perspective.

US Dollar Index

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

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Euro

The mode in the Euro and here especially in the EUR/USD stays choppy, even though volatility stays elevated.

Over the last few days, the currency pair stabilised significantly below 1.1000, but still above its March lows around 1.0630.

While we still consider the short-term picture in EURUSD bearish and see a serious chance of a re-test, probably even a drop below the current yearly lows around 1.0600/30, FX traders should keep a close eye to the developments among Euro member states.

On Thursday, EU finance ministers agreed to a common emergency plan to limit the economic impact of the coronavirus pandemic on the EU, with members having agreed to an emergency response plan of €500 billion.

While no agreement on Euro/Corona bonds was found, the signal of having found an agreement can be considered a signal not just pointing to economic support, but probably also in direction to an intensified European unity and is something we would all in all see Euro bullish.

Still, it seems possible that a next wave of risk-off, driven by the still given shortage of USD liquidity in European markets could result in a next wave of stronger selling pressure in the EUR/USD.

Technically, a break below 1.0600/30 makes a further drop in the EUR/USD as low as 1.0500 and probably even lower a serious option.

A next wave of bullish momentum could drive the EUR/USD probably as high as 1.1200/30, but should be carefully reviewed in terms of sustainability:

Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between February 11, 2019, to April 10, 2020). Accessed: April 10, 2020, at 10:00pm 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

After high volatility in Treasury and FX markets over the last month, the picture in the USD/JPY hasn't substantially changed over the last week of trading.

Technically the currency pair made back some of its recent losses after its drop back below 108.50/109.00, with the overall mode staying choppy, but in our opinion an overall bearish touch.

Reason for our "bearishness" is the to be expected pressure on 10-year-US Treasury yields, where technically only recapturing 1.20% would brighten the bearish outlook.

But, while we still consider chances of a next wave of risk-off hitting global financial markets to be high, we don't consider the current market environment as normal.

Under such "normal" circumstances for the USD/JPY, a drop in the currency par towards the region around 105.00 would be likely.

But as pointed out in our USD paragraph above, we consider such a risk of wave going hand in hand with an increasing demand for the US dollar given the global USD shortage where the usage of the re-installed swap lines of the Fed from the BoJ could result in an ongoing squeeze higher.

While we certainly need to wait if such a wave of risk-off really hits the markets and will really result in a strong USD demand, a test, probably even break of the region around 112.00/30 would be an option.

Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between February 18, 2019, to April 10, 2020). Accessed: April 10, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the USD/JPY 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

The picture in Gold hasn't changed over the last week. We still consider the situation to be tense, even though chances seem elevated that we'll see a rather sooner than later attack of the current yearly highs around 1,700 USD.

Technically this is true as long as we hold above 1,440/450 USD.

And also fundamentally, especially given the massive monetary stimulus from the Fed over the last weeks (e.g. on March 23, the Fed announced to buy an unlimited amount of US Treasuries and Mortgage-Backed-Securities (MBS)), we find another reason to be mid- to long-term positive for the precious metal.

Still, short-term we consider a next wave of de-leveraging hitting global financial markets as a potential risk event for global financial markets, driven by the given global USD shortage, resulting also in a next wave of aggressive selling in the yellow metal due to liquidity reasons.

In this context we'd like once again to point out the still widened spread between Spot and Future prices due to the massive short-supply in regards to physical Gold, resulting out of feared (Coronavirus) shutdowns of precious metal refineries, especially in Switzerland.

In fact we have to wait if this development can be solved to some extent in the near-term thanks to the arrival of 4.8 million ounces in 400-ounce bars from London in New York on Monday.

Usually these cannot be delivered against Comex's main gold futures, but now can thanks to new Comex Gold Future contracts being launched on Monday with the target to address supply concerns.

Again: technically the key-support can still be found around 1,440/450, above that level another push up to 1,700 USD stays realistic.

Nevertheless, another "liquidation wave" could bring a short-term drop below 1,440/450 USD into play which would technically darken the picture, activating 1,250/260 USD as a first target:

Gold Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between December 21, 2018, to April 10, 2020). Accessed: April 10, 2020, at 10:00pm 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%.

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