All eyes on FED: Anticipating a next US-China trade escalation?
This week's weekly market outlook will provide insights for the DAX30 CFD, the US Dollar, the Euro, the JPY and Gold, with a particular focus on Trump's latest comments on Chinese trade tariffs, and the upcoming FED announcement on December 11th.
Source: Economic Events Calendar 09 December – 13 December 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
In our last weekly market outlook for the DAX30 CFD we wrote
[…] The developments around US president Trump, a potential impeachment and his known erratic behaviour, leave chances of comments in regards to the trade dispute between the US and China, but also Europe, on the table and can be expected at any time[…].
As quickly as Monday, our predictions came true: during the NATO summit in the UK, Trump announced his plan to restore tariffs on steel and aluminium shipped from Brazil and Argentina and, in addition, his administration proposed tariffs of "up to 100%" on certain French goods (about $2.4 billion worth) in retaliation for France's digital services tax.
As a result, the DAX30 CFD dropped sharply and fell below 13,000 points, but recovered over the following days, even after Trump also mentioned that it is probably better to wait until after the election for a trade deal with China, closing the week above the psychological relevant level.
While we remain sceptical of a serious drop below 13,000 points with the significant monetary support especially from the FED, the days to come with the FED rate decision on Wednesday remain very interesting.
If Trump's statements are true rather than mere rhetoric, then they suggest that there is a very real possibility that the next set of US tariffs, due on December 15, could come into effect, which would greatly undermine current market sentiment and could trigger a major selloff in risk assets.
This seems especially true if the FED on Wednesday doesn't deliver a dovish stance as Trump suggested in his tweets last Monday.
The uncertainty around the erratic behaviour of US president Trump leaves it difficult to draw out a clear scenario for the days to come.
In general, our take is DAX30 CFD bullish, even if we drop sustainably below 13,000 points.
The German index should be solidly supported around 12,470/500 from where a Santa Claus rally with a DAX30 CFD closing 2019 above 13,000 points stays on the table.
If we get to see a rally right from the current levels, a break above 13,350 points levels the path to the current all time highs around 13,600 points:
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD Daily chart (between 30 August 2018 to 06 December 2019). Accessed: 06 December 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
Over the last week, the outlook for the US dollar hasn't significantly changed.
Last Monday, during the NATO summit in the UK, Trump announced his plan to restore tariffs on steel and aluminium shipped from Brazil and Argentina. In addition, his administration proposed tariffs "up to 100%" on certain French goods (about $2.4 billion worth) in retaliation for France's digital services tax.
The resulting risk-off mode initiated a drop in 10-year US Treasury yields, too, pushing the US dollar lower (interestingly enough, also against the Euro).
What will be of high interest now is the FED rate decision on Wednesday. If Trump's statements of not feeling any urgency for a trade deal with China are true rather than mere rhetoric, then they suggest that there is a very real possibility that the next set of US tariffs, due December 15, could come into effect.
Having that in mind, this seems especially true if the FED on Wednesday doesn't deliver a dovish stance as Trump suggested in his tweets last Monday.
So, with the Fed's balance sheet currently expanding at a faster rate than during QE1, QE2 or QE3 and rising speculations around a dovish FED (at or after the rate decision on Wednesday), the US dollar stays a potential short candidate, even though from a technical perspective the sequence of higher highs and lows stays intact as long as the USD Index Future stays above 95.00 points on a weekly time frame:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to December 2019). Accessed: 06 December 2019 at 10:00 PM GMT
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Euro
While the outlook for the Euro hasn't changed over the last few days, the picture in the EURUSD could become very interesting, not only in regards to the FED rate decision, but also in regards to the ECB rate decision next Thursday.
When looking at recent developments around the trade dispute between the US and China, but also around the US and Europe, we pointed out above that, despite an expected unspectacular FED rate decision on Wednesday, it wouldn't come as a big surprise if US president Trump uses the FED rate decision as leverage to bring US tariffs due December 15.
If, in addition to that, speculations around fiscal stimulus and additional public investment (especially from Germany) are fuelled over the ECB rate decision, the EURUSD could see a significant push higher with the Euro finding a first target around 1.1280/1300, while a breakthrough levels the path up to 1.1400 in the weeks to come and as long as we trade above 1.1000:
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 15 October 2018 to 06 December 2019). Accessed: 06 December 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%.
JPY
In our last weekly market outlook we questioned whether […]USDJPY has a serious chance to stabilise significantly above 109.00[…].
Already on Monday our scepticism was underlined during the NATO summit in the UK where US president Trump announced his plans to restore tariffs on steel and aluminium shipped from Brazil and Argentina and proposed tariffs on certain French goods.
The resulting risk-off mode initiated a drop in 10-year US Treasury yields, too, pushing the US dollar lower, especially against the Japanese Yen.
After the disappointing US economic data releases over the last week (despite the surprising solid NFPs on Friday) and the FED rate decision on Wednesday, the USDJPY could be about to see a further drop below 108.00.
Our thoughts: if Trump's statements of not feeling any urgency for a trade deal with China and which could wait until after the Presidential election in 2020, are true rather than mere rhetoric then they suggest that there is a very real possibility that the next set of US tariffs due on December 15 could go into effect.
Having that in mind, this seems especially true if the FED on Wednesday doesn't deliver a dovish stance as Trump suggested in his tweets last Monday.
So, with the Fed's balance sheet currently expanding at a faster rate than during QE1, QE2 or QE3 and rising speculations around a dovish FED (at or after the rate decision on Wednesday), the US dollar stays a potential short candidate.
On the other hand, over the last week speculations made rounds that the Japanese government is currently preparing a $120 billion economic stimulus package which would mean nothing more that the BoJ could keep on winding down their QE which would be positive for JPY.
While we remain cautious in regards to an overly bearish USDJPY outlook into the yearly close, we still consider the USDJPY from a risk-reward perspective in the midterm to be an attractive short candidate, with the main focus being on 106.80/107.00, where from a technical perspective a break lower could result in a drop as low as 105.00 and probably even lower:
Source: Admiral Markets MT5 with MT5SE Add-on USDJPY Daily chart (between 28 September 2018 to 06 December 2019). Accessed: 06 December 2019 at 10:00 PM GMT
In 2014, the value of USDJPY increased by 13.7%, in 2015, it increased by 0.5%, in 2016 it fell by 2.8%, in 2017 it fell by 3.6%, in 2018 it fell by 2.7%, meaning that after five years, it was up by 4.1%.
Gold
With the latest developments in the trade dispute between the US and China and mixed US economic projections over the last week, the picture in Gold has brightened into the yearly close.
After Trump announced on Monday his plan to restore tariffs on steel and aluminium shipped from Brazil and Argentina and, in addition, his administration proposed tariffs of "up to 100%" on certain French goods (about $2.4 billion worth) in retaliation for France's digital services tax, risk off in financial markets kicked in, initiating a drop in 10-year US Treasury yields.
What will now be of high interest is the FED rate decision on Wednesday. If Trump's statements of not feeling any urgency for a trade deal with China, which could wait until after the Presidential election in 2020, are true, then they suggest that there is a very real possibility that the next set of US tariffs due December 15 could come into effect.
Having that in mind, this seems especially true if the FED on Wednesday doesn't deliver a dovish stance as Trump suggested in his tweets last Monday.
As a result could be in a very bullish spot with either a very dovish FED on Wednesday or a resulting risk-off mode by Trump escalating the trade war with China further.
In addition, we also want to keep an eye on the seasonal bullish window in Gold between December 18 and January 10, where Gold saw an average gain of 47 USD for 12 of the past 15 years, while in the remaining three years, it dropped on average only 19.65 USD, while the maximum loss and the maximum drawdown being 31.03 USD.
With that in mind, technically our picture switches to Long again with Gold breaking back above 1,520 USD which would level the path up to the current yearly highs around 1,557 USD:
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 07 September 2018 to 06 December 2019). Accessed: 06 December 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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