Dovish ECB pushes the EUR/USD down to 1.1200 – a test of 1.1000 soon?
Economic Events March 11–15, 2019
Source: Economic Events Calendar March 11–15, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
In our last weekly market outlook, we discussed that the European Central Bank may consider another round of TLTROs at the meeting last Thursday. That said, the upside potential for the DAX30 CFD seemed limited, only an even more dovish ECB announcement could deliver further momentum upwards for a significant break above 11,700 points.
Well, the ECB delivered, and some market participants might probably say that the ECB decision was indeed slightly more dovish than expected.
The European Central Bank not only held rates at current levels, but also changed the guidance with putting the rate on hold at least through 2019, and announced new TLTROs for this coming September. This indicates that the ECB does not expect the eurozone economic picture to significantly brighten up from a fundamental perspective and time soon.
And while dovishness can be interpreted as fairly bullish for equities, the DAX30 CFD did not gain any significant momentum and closed the week below the open.
While it can be argued that much of the ECB was already priced in, and the statement wasn't dovish enough to overcome this fact - with the markets expecting a trade deal between the US and China fairly soon, generally, optimism for equities and the DAX30 CFD seems to diminish more each day, leaving the DAX30 CFD vulnerable to a push downwards.
If we break below 11,400 points in the coming days, further losses down to 11,250 become very likely.
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between November 23, 2017, to March 8, 2019). Accessed: March 8, 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%. Check out Admiral Markets' most competitive conditions on the DAX30 CFD and Dow Jones CFDs and start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!
US-Dollar
While we expected a neutral ECB announcement in our last weekly market outlook, it was instead more dovish than expected and thanks to the weight of 58% of the Euro, the USD index future was pushed back above 97.00 points.
In our opinion, this could be the starting point of another push to aim for the weakest currency. This is because John Williams, President of the Fed of New York spoke at the Economic Club of New York last Wednesday. He announced that the Fed may consider negative rates and quantitative easing in case of economic downturn, and the positive effect of a solid employment reading may be short-lived (as we saw last Friday with the biggest drop, month-on-month, in the NFPs since June 2010).
With that in mind, this coming Tuesday's inflation data is of interest, since a lower-than-expected reading could trigger a bounce in the USD on a broad front.
Nevertheless, as long as the USD index future trades above 96.00 points, a break above 97.60 is very likely and could trigger a shift up to 99.00 as a first target.
Source: Barchart - U.S. Dollar Index - Weekly Nearest OHLC Chart (between January 2016, to January 2019). Accessed: March 8, 2019, at 10:00pm GMT
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Euro
Last week, all eyes were on Thursday's ECB rate decision. By Wednesday, rumours began to spread, speculating that the ECB will cut its outlook by enough to warrant new loans, and to also cut its inflation projections through 2021.
Indeed, the ECB delivered as expected, and not only did it elect to hold rates at the current levels, but also changed the guidance with putting the seeing rate on hold at least through 2019.
The ECB also announced new TLTROs for this coming September, indicating that the ECB does not expect the eurozone economic picture to significantly brighten up from a fundamental perspective and time soon.
With that in mind, the overall picture for the Euro does not look very promising - the drop towards and initial short push below 1.1200 is probably only the beginning of further losses in the EUR against the USD.
With a break lower, further losses with an initial target of around 1.1000 in the coming weeks seems very likely, as a response to a duplication of the trading range seen in the chart below.
On the other hand: as long as the EUR/USD trades between 1.1200 and 1.1600 on a daily time frame, the mode stays neutral (though, with a clear bearish touch):
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between November 29, 2017, to March 8, 2019). Accessed: March 8, 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
In last Wednesday's market analysis, we pointed out two principal events which could be of interest for USD/CAD traders, while the index aimed for the region around 1.3370/3400. While the Ivey PMIs fell to 50.6 in February from 54.7 in the previous month (missing market expectations of 55.1 and pointing to the lowest reading since last September) the BoC came out fairly dovish at the meeting.
The BoC spoke to an increased uncertainty of future rate increases due to a sharper Q4 economic slowdown than projected, coupled with a weaker-than-expected Canadian economy so far in 2019.
The dovishness echoed last month's comments from Deputy Governor Timothy Lane of the BoC, where he, among other things, stated that the BoC is ready to intervene in markets if it deems necessary.
The result was a break higher and weekly close above 1.3400, levelling the path up to the yearly highs around 1.3670 and letting the advantage in the currency pair being found on the upside in the days to come, especially if volatility in Equities returns.
Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD Daily chart (between November 29, 2017, to March 8, 2019). Accessed: March 8, 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 push back below 1,300 USD/ounce on the first trading day of the month, Gold has stabilised over the last few days. While the technical picture doesn't look as promising for an attack of the region of resistance around 1,360 USD/ounce, Gold bulls argue it would look even worse if it drops below 1,275 USD/ounce.
In fact, from a fundamental perspective, the picture looks even better for Gold after the speech from John Williams, president of the Fed of New York at the Economic Club of New York, last Wednesday.
In his speech, he stated that the Fed may consider negative rates and quantitative easing in case of an economic downturn, and any positive effect of a solid employment reading may be short-lived (why last Friday's disappointing NFP data didn't come as a surprise after the reading from the month prior).
While we consider mid-term Gold long engagements still a bit risky, over the coming days, it seems likely that Gold will at least try to reconquer 1,300 USD/ounce, and Intraday-long-engagements are to be favoured.
On the other hand: particularly from a technical perspective, the picture would significantly darken in the event of a drop below 1,275 USD, activating the region around 1,240 USD as a next target on the downside.
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between December 13, 2017, to March 8, 2019). Accessed: March 8, 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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