DAX30 CFD bulls lose 12,000 point level – further losses ahead?
Source: Economic Events Calendar 03 – 07 June 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
While the European elections didn't deliver such an surprising outcome that it would have led to a sharp push in either direction, the DAX30 CFD still went south, breaking through the 12,000-points mark. Dropping below the crucial region around 11,800/830 points means the index is about to re-test the SMA(200) on a daily time-frame.
The main driver was the tweet from US president Trump who announced new tariffs on Mexico, "[…]until such time as illegal migrants coming through Mexico, and into our Country, STOP[…]"
From a fundamental perspective, there are several other several potential accelerators that leave the DAX30 CFD vulnerable to further losses: beside several economic indicators, especially from the US where weak numbers could trigger a next round of recession fears, there are also fears of reaching another escalation level in the trade war between the US and China, and China countering the attacks from the US on Huawei with attacks on Apple and/or the supply for US software companies in general.
And then there is the ECB on Thursday: after the latest employment numbers from Germany last Wednesday, which pointed to the first rise in registered unemployment since June 2017 and the largest in a decade, signs seem to point to a bigger economic downturn in the biggest economy of the EU. If the ECB does not address that, but stays with its wait-and-see-approach, there is a high risk of an acceleration on the downside in the DAX index, probably even a sustainable drop below the SMA(200).
Technically, we only see a brighter picture for the German index with a push above 12,500 and new yearly highs, else and from a midterm perspective, the bears have the advantage on their side.
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 16 February 2018 to 31 May 2019). Accessed: 31 May 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the DAX30 CFD increased by 2.65%, in 2015, it 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%, meaning that after five years, it was up by 10.5%.
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US dollar
From a pure fundamental perspective, the outlook for the US dollar seems to have dramatically worsened over the last week.
With 10-year US-Treasury yields dropping to the lowest levels since September 2017 and the FED Watch Tool showing market participants expecting the FED to cut rates by December with a chance of over 80% and Overnight Index Swap Rates seeing a minimum two further cuts in 2020, the only reasons the USD Index Future can stabilise around 98.00 points seems to be the weakness of the other basket currency, especially the current very weak Euro.
But, while long engagements in the USD should be carefully taken and managed, the fact that the Greenback still holds a significant yield advantage against the Euro, GBP and JPY and elevated trade war fears which naturally increase the USD demand, surprisingly positive economic news releases next week (ISM (Monday and Wednesday), ADP (Wednesday), NFP (Friday) could finally push the USD above 98.00 and level the path up to 100.00/50 points.
Technically spoken, only a drop back below 95.00 points would darken the still bullish picture.
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to May 2019). Accessed: 31 May 2019 at 10:00 PM GMT
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Euro
After the EU election over the last weekend in May, the Euro had a strong start the last week of trading – quite stable after a strong right-wing and Euro-sceptic election result didn't manifest. Still, the Lega party in Italy coming out as the strongest party with the 5-star-movement only coming in third resulted in fresh fears around a renewed budget standoff between the Italian government and the European Union.
In addition to that, the latest employment numbers from Germany last Wednesday showed the first rise in registered unemployment since June 2017 and the largest in a decade, intensifying signs of an bigger economic downturn in the biggest economy of the EU, putting pressure on the ECB next Thursday delivering a more dovish stance and that said, pushing the Euro lower.
A push below 1.1100 in the EURUSD levels the path down to the region around 1.0900/0950, a more bearish target can probably be found around a gap from April 2017 after the French election around 1.0770.
From a technical perspective on a daily time frame, only a push back above 1.1260 would brighten the technical picture, a little more conservative above 1.1330.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 06 March 2018 to 31 May 2019). Accessed: 31 May 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the EURUSD fell by 11.9%, in 2015, it fell by 10.2%, in 2016 it fell by 3.2%, in 2017 it increased by 13.92%, 2018 it fell by 4.4%, meaning that after five years, it was down by 16.5%.
JPY
With 10-year US-Treasury yields dropping to their lowest levels since 2017 and the tweet from US president Trump announcing new tariffs on Mexico, the USDJPY broke below the crucial support region around 108.70/109.00 into the last weekly close.
With the SP500 CFD confirming its potential double-top with the break below 2,800 points, leaving the US equity index vulnerable to further losses (technically projected as low as 2,700 points), it wouldn't come as a surprise if this break below 108.70 is some the 'real deal', especially if the incoming US news releases around the ISM Manufacturing and Non-Manufacturing, ADP and especially NFPs disappoint and accelerate the drop lower in US yields.
That said, a stint as low as 105.00, the region around the January Flash Crash lows, is a serious option in the weeks to come.
Source: Admiral Markets MT5 with MT5SE Add-on USDJPY Daily chart (between 15 February 2018 to 31 May 2019). Accessed: 31 May 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of USDJPY increased by 13.7%, in 2015, it 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%, meaning that after five years, it was up by 4.1%.
Gold
In fact, the overall technical picture for Gold didn't change over the last week.
After our U-turn in last week's market outlook, where we pointed out that "[…] technically, the Head-shoulder formation in Gold stays in play as long as we trade below the right shoulder at around 1,310 USD.[…]" this view hasn't changed.
So, if the next stint towards and below 1,266 USD is successful, further losses in Gold are to be expected with a first projected target around 1,230/235 USD.
Nevertheless, after the tweet from US president Trump who announced new tariffs on Mexico, and with Gold closing last week significantly above 1,300 USD, Gold bears should stay very cautious in our opinion: if based on the new trade war escalation and resulting risk-off-mode in markets, but also any new recession fear arising from bad US economic data coming in over the next days the yellow breaks back above 1,310 USD, further and quick gains up to 1,325 USD are very likely.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 22 February 2018 to 31 May 2019). Accessed: 31 May 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of Gold fell by 1.7%, in 2015, it 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%, meaning that after five years, it was up by 6.4%.
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