DAX30 CFD in position to make new yearly highs despite trade war escalation?
Economic Events: May 20 - 24, 2019
Source: Economic Events Calendar May 20 – 24, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
In our last weekly market outlook, we mentioned that a significant drop below 12,000 points in the DAX30 CFD stays a serious option if no trade deal between the US and China could be struck, and if new tariffs from the US on Chinese goods went into effect on May 10.
The push below 12,000 points in fact happen as a result of China's answer last week, by announcing the plan to raise tariffs on $60 billion of US goods from June 1, stopping the purchase of US agricultural products and energy, reducing Boeing orders, restricting US service trade with China, and especially discussing the possibility of dumping US Treasuries.
While bears were in total control of the action, and a drop back below the daily SMA(200) seemed only a matter of time, things changed last Wednesday when US president Trump announced a plan to postpone auto tariffs on the EU.
The step seems logical: Trump obviously expects the trade conflict with China to continue, and wants to avoid a trade war on several fronts.
As a result, the DAX30 CFD quickly reconquered the 12,000 point mark, gained momentum into the weekly close, and we are certain that as long as no further trade war escalation headlines between the US and China hit the wire, in the coming days a stint towards new yearly highs around 12,500 points is very likely.
Only a drop back and below 11,800 points would technically darken the picture:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between February 12, 2018, to May 17, 2019). Accessed: May 17, 2019, at 10:00pm 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
Once again, volatility in Forex markets, and particularly the US dollar, stayed surprisingly low after the next round of escalation in the trade conflict between the US and China.
After China answered the imposed tariffs beginning May 10 by the US on Chinese goods with announcing to new tariffs on $60 billion of US goods beginning June 1, stopping the purchase of US agricultural products and energy, reducing Boeing orders, restricting US service trade with China, and especially discussing the possibility of dumping US Treasuries. So the US dollar initially dropped.
The dollar saw an immediate response in US Treasury yields, as market participants now see an increased chance of the Fed cutting rates by December 2019, with a probability over 70% according to the Fed Watch Tool.
With these developments, the mode in the US dollar stays neutral in the coming days. While technically, a substantial break above 98.00 points still levels the path up to 100.00/50 points, resulting out of the projected target of the range, every stint higher sees a risk of being aggressively sold as a sword of Damocles (=China really considering a dump of USTs) hanging over the dollar.
Nevertheless, only a drop back below 95.00 points darkens the technical bullish picture:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to May 2019). Accessed: May 17, 2019, at 10:00pm GMT
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Euro
Again, the picture in the Euro didn't change over the last week of trading, despite a new round of escalation between the US and China in regards to their trade conflict.
While the news on China imposing tariffs on $60 billion of US goods from June 1 as an answer to the US, and especially discussing the possibility of dumping US Treasuries, the Euro initially gained, but didn't make it back above 1.1300.
Instead, the currency pushed back towards and dropped back below 1.1200, after fears arose of a new confrontation between Rome and Brussels when Matteo Salvini said that the government should be ready to break the EU's deficit ceiling of 3% of GDP and push the debt to 140% of GDP if necessary, to lower unemployment.
In addition, over the next weekend the European election should be in focus of Euro traders, especially with the potential of right wing and Anti-Euro parties showing serious momentum in different polls.
Nevertheless, in the coming days, the picture in the EUR/USD stays unspectacular as long as we hold above 1.1100 respectively trade below 1.1330.
Only a break higher/lower would trigger a potential dynamic move and lead to stronger intraday-trends, in case of the downside with a first target around 1.0900/0950 respectively on the upside around 1.1450/1500, in the days to come:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between February 16, 2018, to May 17, 2019). Accessed: May 17, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the EUR/USD 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%.
CAD
After several attempts to break above 1.3500 and take on momentum towards the current yearly highs around 1.3670, the USD/CAD will probably rather sooner than later see an elevated level of volatility – interesting enough on the downside.
After China answered the imposed tariffs from May 10, from the US on Chinese goods last week, by announcing a plan to raise tariffs on $60 billion of US goods from June 1, and especially discussing the possibility of dumping US Treasuries, it became clear that the conflict between those two will likely continue for longer than initially expected.
Particularly after US president Trump last Wednesday announced plans to postpone auto tariffs on the EU.
The step seems logical: Trump wants to avoid a trade war on several fronts. And what seems logical now, too, is: it seems only a matter of time till the US announces to postpone or lift tariffs on aluminium and steel from Canada and Mexico.
This should be bullish for the CAD and if the USD/CAD drops below 1.3380 as a reaction, a re-test of the long-term trendline and the region around 1.3300 seems likely in the days to come.
Nevertheless, only a sustainable drop below 1.3200 would darken the overall bullish picture on the daily time-frame in the USD/CAD:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD Daily chart (between February 15, 2018, to May 17, 2019). Accessed: May 17, 2019, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the USD/CAD increased by 9.4%, in 2015, it increased by 19.1%, in 2016, it fell by 2.9%, in 2017, it fell by 6.4%, in 2018, it increased by 8.4%, meaning that after five years, it was up by 28.4%.
Gold
After the trade war between the US and China reached a new level of escalation over the last week, it seems as if the Head-shoulder formation in Gold is off the table for now.
After China answered the imposed tariffs beginning May 10 by the US on Chinese goods with announcing to new tariffs on $60 billion of US goods beginning June 1, stopping the purchase of US agricultural products and energy, reducing Boeing orders, restricting US service trade with China, and especially discussing the possibility of dumping US Treasuries.
The resulting heavier selling of the US dollar went hand in hand with Gold pushing back towards 1,300 USD.
Last Wednesday, when US president Trump announced plans to postpone auto tariffs on the EU, it became clear that we should expect the conflict with China to continue for some time, without a deal being struck.
That said, while the head-shoulder formation is technically still in motion as long as we trade below 1,310 USD, it seems only a matter of time till risk-aversion of market participants pushes Gold towards and above that level.
On the other hand: the weak weekly close of the precious metal came surely as a surprise and leaves another stint towards and below 1,266 USD on the table. If such a break occurs, further losses in Gold are to be expected with a first projected target around 1,230/235 USD:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between February 15, 2018, to May 17, 2019). Accessed: May 17, 2019, at 10:00pm 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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