ECB delivers fuel for bulls and US-China trade talks in focus again
This week's market outlook will provide insights on the markets following the ECB's latest announcement, and the trade talks between the US and China. In particular, we will be focusing on the Euro and GBP, DAX30 CFD, the US dollar and gold.
Source: Economic Events Calendar 28 January – 01 February 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
After the significant break back above 11,000 points on January 18, the re-test and overall consolidation below 11,250 points, but above 11,000 points wasn't a surprise.
Even though the ECB couldn't initially trigger bullish momentum with their dovish statement, mainly because the statement was countered by new fears of a further escalation in the trade war between the US and China, the picture for the DAX30 CFD bulls started to brighten into the weekly close.
At the start of the ECB press conference, Wilbur Ross, US commerce secretary, warned in an interview on CNBC that the US and China were "miles and miles apart on trade resolution". However, his warnings faded as the easing speculation around the QE took over.
After the break above 11,250 points on Friday, further gains and a move up to 11,550 points in the days to come seem possible, especially if after the next Brexit deal vote in the UK parliament on Tuesday, concessions from the EU towards the UK become more likely.
Nevertheless, we should keep in mind the ongoing trade talks between the US and China in the days to come (Wednesday and Thursday). If these fail, or at least present themselves as tougher as expected, there seems a fair chance of the DAX30 pulling back back below 11,000 points.
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 02 September 2017 to 25 January 2019). Accessed: 25 January 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%.
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
While the US Dollar kept on stabilising over the last week, it saw a very weak weekly close. The reason could be found in speculations around the FED ending their "Quantitative Tightening" (balance sheet reduction), which contributed to higher volatility, especially in equity markets, into the yearly close.
As we pointed out in our last weekly market outlook, the "strength" of the USD Index Future wasn't real strength, but more Euro weakness (we have to remember: the Euro contributes 58% of the weight in the basket calculated against the USD).
Depending on the trade negotiations between the US and China next week, as well as the US employment situation, further weakness could be triggered if no deal between the US and China can be found. Such an outcome would trigger fears of an ongoing economic downturn and resulting naturally in an end of the FED's quantitative tightening, moving the USD lower.
And if on top of that, the US employment situation next Friday does not deliver a similar spectacular reading as last month, the USD Index Future has a high risk of another attempt to break below 94.80/95.00 points, at least as long as we trade below 98.00 points.
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 25 January 2019 at 10:00 PM GMT
Don't forget to register for the webinar "Admiral Markets' Weekly Market Outlook" with Jens Klatt, every Friday at 12pm London time. It's your opportunity to follow Jens as he explores the weekly market outlook in detail, so don't miss out!
Euro
The anticipated ECB rate decision didn't deliver anything new. The ECB kept its main refinancing rate unchanged at 0.00%, its lending facility unchanged at 0.25% and the deposit facility rate unchanged at -0.40%, all as expected.
Nevertheless, Draghi reinforced his words in front of the EU parliament in Strasbourg on January 15, saying that risks to the economic outlook have moved to downside, which the Euro responded to negatively into Thursday evening. Into the weekly close, the Euro could then stabilise, bounce back above 1.1300, and could close the week above 1.1400 thanks to a weak USD and the speculation around an end of the Quantitative Tightening of the FED.
Putting together the price action in the Euro and the comments from Mario Draghi respectively, the picture for the EURUSD hasn't significantly changed.
After the fake out above 1.1500 following the comments from FED's Bostic on January 9, in our opinion further losses in the EURUSD seem likely with a potential first target to be found around the 2018 yearly lows round 1.1200 and slightly lower around 1.1150 and as long as the EURUSD trades below 1.1600.
Nevertheless, between 1.1200 to 1.1600 the overall picture in the EURUSD stays neutral and the outlook for volatility in the major currency pair is subdued.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 23 October 2017 to 25 January 2019). Accessed: 25 January 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%.
GBP
As we pointed out in last week's market outlook, after May won the confidence vote on January 16, one day after her crushing defeat in the UK parliament, January 21 could have been the start of a sharper rally in GBPUSD back above 1.3000.
Even though no significant concessions have been made by the EU to date, hopes are increasing around these. This is especially true after Theresa May pointed out that a delay of the Brexit date (currently the March 29) is still not an option (most likely trying to put pressure on the naysayers in the House of Commons), while German minister of Economics said in Davos that the UK could take more time to clarify its position.
That said, and even if the next vote in the UK parliament on January 29, when taking a step back it becomes clear that all available options (with a no-deal not being a serious option due to the trade connections between the UK and Germany) point to a deal favouring a soft(er) Brexit.
That said, and in combination with the currently weak USD after the rising speculation of an end of the FED's Quantitative Tightening, we still see GBPUSD gaining further with a first target around 1.3250/3300 USD on the upside.
Only a drop back below 1.2800/2830 would darken the technical picture again and make further losses in the GBPUSD likely in the days to come.
Source: Admiral Markets MT5 with MT5SE Add-on GBPUSD Daily chart (between 02 October 2017 to 25 January 2019). Accessed: 25 January 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 GBPUSD fell by 5.9%, in 2015, it fell by 5.4%, in 2016 it fell by 16.3%, in 2017 it increased by 7.4%, in 2018 it fell by 5.6%, meaning that after five years, it was down by 22.9%.
Gold
Until Friday it looked, as if, once again, the picture for Gold wasn't changing. But as the US dollar took a nosedive as a result of the speculation that the FED would end their Quantitative Tightening, the yellow metal pushed above 1,300 USD into the weekly close.
In combination with the USD weakness (which could become even stronger if trade negotiations between the US and China fail), while any deal (or step in the right direction) could surely stabilise the USD, it would also most likely trigger Yuan Renminbi strength, which is positively correlated towards Gold, Gold seems to be in a win-win-situation for the days to come.
And if the momentum on the upside is kept, if Gold breaks above 1,308/310 USD, further gains up to 1,330 USD seem an serious option.
Only a drop back below 1,275/277 USD would darken the picture from a technical perspective, but seem unlikely given the aspects described above.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 06 December 2017 to 25 January 2019). Accessed: 25 January 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%.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
