EUR/USD and GBP/USD about to drop significantly below 1.1200 and 1.3000?
Economic Events April 22 – 26, 2019
Source: Economic Events Calendar April 22 – 26, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
The outlook for the DAX30 CFD remains bullish after the Easter weekend. It's reasonable to expect that the German index will stabilise significantly above 12,000 points, and if it does it would not be expected to be sustainable at that level, but there short-term after being pushed by favourable market conditions for the bulls (low volatility, thin volume, and bullish seasonality).
But last Thursday, the DAX30 CFD delivered a very strong reaction to very weak German economic data. There, the IHS Markit Germany Manufacturing PMI pointed to a rise in April 2019, from the previous month's near seven-year low of 44.1 to 44.5, but still below market expectations of 45.
It showed a sharp contraction in the manufacturing sector, as inflows of new business fell for the fourth month in a row, led by a further steep decline in new export orders which dropped at the second-fastest rate in the past ten years.
But after an initial bearish reaction, the DAX30 CFD took off, going for new yearly highs into the prolongated Easter weekend.
Such a strong reaction to a weak economic data set can usually be considered a strong sign, and as long as the DAX30 CFD trades above the SMA(200), further gains up to 12,450/500 points is very likely.
Only a drop back below the SMA(200) and 11,800 points would technically darken the picture:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between November 23, 2017, to April 18, 2019). Accessed: April 18, 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
While the picture for the US dollar hasn't, from a technical perspective, significantly changed over the last week of trading, the break of the neckline in the head-shoulder formation Gold (further details in the Gold subsection below) and the potential coming weakness in the Euro, could be a bullish driver for the US dollar index over the coming week.
The ongoing stabilisation in 10-year US Treasury yields adds to the positive outlook, and if the USD Index can sustainably push back above 97.00 points, further gains up to 97.70/98.00 points seems likely.
Technically, the picture would darken if the USD index future drops below 95.00 points, even though such a drop doesn't currently seem very likely - not only because of our above analysis, but also the increasing long exposure of large speculators in the Commitment of Traders Report:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to April 2019). Accessed: April 19, 2019, at 10:00pm GMT
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Euro
In general, the picture for the Euro looked quite favourable over the last week. Against the USD, the currency held above 1.1200 and saw a short bounce back above 1.1300.
This came as a surprise, particularly after the ECB rate decision (which somehow indicated a more dovish stance than previously, at the June meeting), but also threats from US president Trump brought back the potential of tariffs on EU products worth 11 billion USD before the ECB meeting, adding to rising fears of recession in the EU.
But the solid performance in the Euro was history last Thursday when the IHS Markit Germany Manufacturing PMI pointed to a rise in April, 2019 from the previous month's near seven-year low of 44.1 to 44.5, but still below market expectations of 45.
That fact, that the data showed an overall sharp contraction in the manufacturing sector, as inflows of new business fell for a fourth straight month led by a further steep decline in new export order, (which dropped at the second-fastest rate in the past ten years), adds not only to rising recession fears in Germany, but in the Eurozone in general, making an attempt in the EUR/USD to push dynamically below 1.1200 very likely in the coming days.
A downwards break such as this makes further losses very likely, and levels the path down to 1.0900/0950:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between January 19, 2018, to April 19, 2019). Accessed: April 19, 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%.
GBP
The farce around Brexit found a short-term calm over the last two weeks: after a six-hour debate among EU leaders, Theresa May was offered a six-month extension to article 50 - which means that Britain will remain a member state of the EU until 31 October, with the option to leave earlier if the prime minister can secure support for her deal from the House of Commons.
While this could be considered a somewhat positive sign for Pound Sterling, it stabilised at 1.3000 over the last days.
After very strong Retail Sales data last Thursday, pointing to a rise of 6.7% in March 2019 from a year earlier, following 4% growth in the previous month and easily beating market expectations of 4.6%, the GBP failed again to take on bullish momentum, we consider the GBP/USD to be set for a drop below 1.3000 in the days to come.
Such a break lower finds a first target around 1.2450/2500 and would go hand in hand with our bearish outlook for the EUR/USD in the paragraph above:
Source: Admiral Markets MT5 with MT5-SE Add-on GBP/USD Daily chart (between January 19, 2019, to April 19, 2019). Accessed: April 19, 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 GBP/USD 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
As discussed in our last weekly market outlook,
"The technical picture for Gold remains not only very interesting with the potential head-shoulder formation on a daily chart, but also somehow bearish."
Last Tuesday, the precious metal finally broke the neckline and went for an attempt to break below 1,275/277 USD.
With the ongoing stabilisation of 10-year US Treasury yields and dropping volatility in equity markets, further losses in Gold seem very likely in the coming days.
Should a pullback against the neckline into the region around 1,290 USD occur, short-engagements will become very attractive from a risk-reward perspective.
The outlook for the precious metal would brighten once Gold bulls reconquer 1,325 USD, but such a short-term expectation is a little too optimistic in our opinion. We instead favour a drop down to 1,220/230 USD.
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between January 14, 2018, to April 19, 2019). Accessed: April 19, 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%. Click on the banner below to download MetaTrader 5, and begin trading today!
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