DAX30 bulls showing strength – new milestone of 14,000 points coming in February?

Source: Economic Events Calendar February 17 – 21, 2020 - Admiral Markets' Forex Calendar

DAX30 CFD

As we predicted in our last weekly market outlook, the DAX30 CFD continued its bullish run and marked new all-time highs. Not even the remarks from Fed chairman Powell could negatively affect the current bullish bias among market participants.

Powell's remarks made a neutral impression, stating that the Fed considers the current rate policy stance as appropriate (translation: no rate cuts should be expected in the near future), and that the Fed will gradually transition from Repo operations to supply reserves.

Still, he also pointed out that the Fed carefully monitors the economic situation in China, and here around the Coronavirus where the picture can be still be seen as not very transparent.

That we didn't see either Equities or the DAX30 CFD have a sharp drop, instead marking new all-time highs, can be seen as very positive and we want to reinforce our outlook that we consider the downside in the German index to be limited.

On the other hand, for next few days, the risk-reward ratio for Long engagements isn't very attractive either, at least in our opinion. Not only is the economic calendar is quite thin, on Friday, the DAX sees a small expiration in Options at the EUREX. Here, the Open Interest of Short Calls is quite elevated at 13,800 points meaning that institutional market participants have an increased interest of holding the German index below 13,800 points, limiting the upside potential:

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between November 2, 2018, to February 14, 2020). Accessed: February 14, 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 has changed slightly over the last week of trading, leaving market participants with some question marks over our heads.

Technically, the US dollar Index Future at least interrupted the bearish sequence of falling highs and lows with pushing back above 98.50 points.

This move was most likely driven by Euro weakness with the European currency dropping significantly below 1.1000 and falling to the lowest levels since April/May 2017.

What's certainly interesting in this context is the fundamental picture in the Greenback.

Fed chairman Powell's comments at his semi-annual testimony in front of the Congress can be summarised as neutral, with, some might say, a slight hawkish touch.

The Fed chairman said that the Fed considers the current rate policy stance as appropriate (translation: no rate cuts should be expected in the near future) and that the Fed will gradually transition from Repo operations to supply reserves.

Interesting enough the words from Powell fell on deaf ears among market participants. At the CME they still expect the Fed to cut rates minimum once by 25 basis points in 2020 with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday), underlining that the current bullish stance in the US dollar may be short-lived.

That said, we remain cautious and don't favour Long engagements in the US dollar, even though the break above 98.50 makes a break below 95.00 points and a quick drop lower down to 93.00 points unlikely in the near-term and given the thin economic calendar in the days to come:

Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2017 to February 2020). Accessed: February 14, 2020, at 10:00pm GMT

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Euro

The picture in the Euro darkened significantly over the last week of trading. While we still remain sceptical in regards to the US dollar (for further details see the USD paragraph above) and consider chances of a fiscal stimulus or at least arising speculations elevated with the Euro being mid-term bullish, technically the sustainable drop below 1.1000 in the EUR/USD last week, and the European currency dropping to its lowest levels since April/May 2017 is clearly short-term bearish.

In fact, the move to the lowest levels since May 2017 should be clearly characterised as Euro weakness, driven by momentum selling initiated by another set of bad economic data where Euro-Area industrial output dropped to the lowest levels since 2016.

What is also a potential driver lower is probably an anticipation of an arising trade conflict between the US and Europe with US president Trump announcing any kind of sanctions and/or tariffs on European goods, especially automobiles from Germany.

In fact, Trump attacked Powell once again on Tuesday for his hawkish monetary policy approach, pointing explicitly to Germany and negative interest rates.

Certainly, this could be interpreted as a hint towards a trade conflict targeting especially Germany, bringing back Trump's remarks in Davos in January, where 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.

Technically, the focus in the EUR/USD lies on 1.0750, a still open gap resulting out of the French election and win from current French prime minister Macron in April 2017.

A potential short-trigger should we get to see a bounce can be found around 1.1000:

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between December 14, 2018, to February 14, 2020). Accessed: February 14, 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 EUR/USD 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

While the picture in the USD/JPY hasn't significantly changed over the last week of trading, we received once again a Price Action wise sign which leaves us with a limited upside potential expectation.

Our take: after the negative reaction in US yields despite solid US economic data in the first week of February, the also subdued reaction to Fed chairman Powell's neutral (and thus in our opinion, USD-bullish) comments at his semi-annual testimony in front of the Congress is not very USDJPY positive at all.

While the Fed chairman said that the Fed considers the current rate policy stance as appropriate (translation: no rate cuts should be expected in the near future) and that the Fed will gradually transition from Repo operations to supply reserves, these words fell on deaf ears among market participants with these still expecting the Fed to cut rates minimum once by 25 basis points in 2020 with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday).

That said, the current bullish stance in the US dollar should be carefully reviewed and each push above 110.00 in the USD/JPY may be short-lived.

Technically the region around 107.80/108.00 stays the lower end of the range within the USDJPY is currently trading, on the upside the focus lies on the region around 110.30/70.

Given the thin economic calendar in the days to come, we expect the currency pair to trade within this range, even though with a slight tendency towards the upper-end of the range:

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between December 5, 2018, to February 14, 2020). Accessed: February 14, 2020, at 10:00pm GMT

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 outlook for Gold became very positive with the reaction of the precious metal to the solid US economic data in the first week of February and the also subdued reaction to Fed chairman Powell's neutral (and thus in our opinion, Gold-bearish) comments at his semi-annual testimony in front of the Congress.

While the Fed chairman said that the Fed considers the current rate policy stance as appropriate (translation: no rate cuts should be expected in the near future) and that the Fed will gradually transition from Repo operations to supply reserves, these words fell on deaf ears among market participants with these still expecting the Fed to cut rates minimum once by 25 basis points in 2020 with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday).

In addition to that, 10-year US Treasury yields failed to gain bullish momentum, too, resulting in the focus staying on the technically important level of 1.50%.

If we get to see a break lower here (not necessarily in the days ahead since the economic calendar is quite thin and so far the developments around the Coronavirus seem not likely to induce a next wave of risk aversion), a dynamic move lower in US yields should follow, favouring gains in Gold.

Technically, Gold stays clearly bullish as long as the precious metal trades above its daily trend-support around 1,440/450 USD, keeping the potential next target on the upside around 1,650/700 USD active.

If we get to see a short-term drop below 1,550 USD, the picture would only darken short-term and favour Intraday-Short engagements, activating the region around 1,510/515 USD:

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between November 14, 2018, to February 14, 2020). Accessed: February 14, 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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