FED and new tariffs: Is the EUR/USD prone to a push below 1.1100?
This week's weekly market outlook will provide insights for DAX30 CFD, the US Dollar, the Euro, the British Pound and Gold, particularly following last week's FED announcement, NFP results, and US president Trump's tweet about new tariffs on Chinese goods from this Friday.
Source: Economic Events Calendar 06 – 10 May 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
All in all the price action in the DAX30 CFD seemed promising for the bulls – until US president Trump announced new tariffs on Chinese goods this Friday following the trade deal negotiations.
Last Wednesday, FED chairman Powell on Wednesday said that he did not see a case for moving the FED's monetary policy 'in either direction' (which was taken with a grain of salt in US equity markets), and this was followed by a sharper drop shortly after the announcement. This indicates that the recent 'All Time High' rally was to some extent based on rate-cut and QE speculation.
While the DAX30 CFD could have easily seen a bigger drop, attacking the short-term important region around 11,200 points, instead the bulls pushed the German index back towards 11,400 points and stabilised around new yearly highs into the weekly close. However, with trade tensions rising between the US and China again, a sharper pullback seems likely.
But even if we get a sharper short-term correction, a pullback finds a solid support and potential long-trigger around 12,000/030 points and only a break and daily close below 11,800 shifts the mode from bullish to neutral.
Still, over the days to come short engagements seem to be favoured, at least in the short term.
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 15 January 2018 to 03 May 2019). Accessed: 03 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
The price action in the US dollar, especially against the Euro after the break below 1.1180/1200 and a strong GDP reading for Q1 in the US, came as a surprise.
In fact, we had to wait until the FED rate decision last Wednesday to see the Greenback showing strength again. Initially it seemed as if the US president Trump's tweet really left market participants thinking that the FED might announce a rate cut.
FED chairman Powell ended these speculations by emphasising that he did not see a case for moving the FED's monetary policy 'in either direction' and that the FED is 'non-political' and doesn't take president Trump's comments into account.
After that, the US dollar took on bullish momentum again and we think that we may have just seen the beginning of another push higher in the Greenback. The reason? When looking at the market's expectations for a rate cut of the FED before (~60%) and after (~50%) until December 2019, we think that there is probably still too much dovishness priced into the FED policy and bearishness into the US dollar.
On top of that, the announcement of new tariffs on Chinese goods from this Friday, with and no trade deal between the US and China being in sight, is another potential bullish driver for the US dollar.
That said, technically a substantial break above 98.00 points levels the path up to 100.00/50 points, resulting out of the projected target of the range.
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to April 2019). Accessed: 03 May 2019 at 10:00 PM GMT
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Euro
Just as the USD surprised us last week by not taking on further bullish momentum, the pullback towards and stabilisation around 1.1200 in the EURUSD came as a surprise for us, too.
Sure, one could argue that EU GDP data last Tuesday came in better than expected and helped to stabilise the European currency after some very weak economic data, especially from Germany, over the last few weeks. But US GDP surprised us on the upside, too and easily outperformed its European counterpart.
So, while it seems difficult to spot the reason for the solid Euro performance, with FED chairman Powell ending, at least in the short term, the discussion around a rate cut and new tariffs on Chinese goods from this Friday, another test of 1.1100 and break lower with a target around 1.0900/0950 stays a serious option, technically as long as we trade below 1.1330 on daily time-frame.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 16 January 2018 to 26 April 2019). Accessed: 03 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%.
GBP
The picture in the GBPUSD is very similar to the one for the EURUSD described above. As we pointed out in our last weekly market outlook, the GBPUSD seemed to be […]prone to a drop below 1.3000 in the days to come[…].
After the drop happened, however, the US dollar couldn't take on further momentum and the GBP/USD traded back above 1.3000. What's interesting is that the comments from FED chairman Powell, which can be considered positive for the USD, didn't push the currency pair below 1.3000, instead the down-talking of the USD by the Trump administration after the solid NFP dataset let the currency pair to close the week above 1.3100.
Nevertheless, after Trump's announcement of new tariffs on Chinese goods, a push below 1.3000 stays an option over the coming days, even though the BoE rate decision last week delivered a signal that more than one rate hike is needed to keep inflation in check, while it cut its inflation forecasts for 2019 and 2020.
Source: Admiral Markets MT5 with MT5SE Add-on GBPUSD Daily chart (between 16 January 2019 to 03 May 2019). Accessed: 03 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 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
In our last weekly market outlook we stated for Gold:
[…]After we got to see a pullback against the neckline, a potential short-trigger was potentially found around 1,290/295 USD, while the target on the downside around 1,230 USD stays active.[…]
And indeed did the precious metal take on bearish momentum and went for a break below the April lows around 1,266 USD after FED chairman Powell explained that the FED does not see a case for moving the FED's monetary policy 'in either direction' and NFPs came in very solid on Friday.
In addition to that, after Trump's tweet about new tariffs on Chinese goods, and the expected USD strength as a result, we still favour the short-side in the precious metal.
With a break lower a target around 1,230 USD would be activated, while only a push back above 1,310 USD would negate the overall bearish picture for the yellow metal.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 31 January 2018 to 03 May 2019). Accessed: 03 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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