Fed chairman Powell limits downside potential in Equities – DAX30 bulls in lurking position
Economic Events July 15 – 19, 2019
Source: Economic Events Calendar July 15 – 19, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
The German index took a beating the last few days, showing a negative fore sign for the first time since 5 weeks, and trading lower each day than the last.
What sounds pessimistic at first glance isn't really worrisome in our opinion, at least not as long as the DAX30 CFD can hold above 12,150 points.
That said, from a technical perspective, a break to new yearly highs stays an option as long as the DAX30 CFD trades above that level, with a break above 12,650 points levelling the path in the German index up to 12.850/900 points in the days to come.
A drop below 12,150 points on the other hand leaves the German index vulnerable to a test and drop below 12,000 points.
Even though, such a drop seems not very likely, since right now we find ourselves in a still Equity friendly environment after the latest testimonial from Fed chairman Powell in front of the House Financial Services Panel last week on Wednesday where he opened the door for an even deeper rate cut than the anticipated 25bp cut at the Fed meeting on July 31.
And since the economic docket is quite thin in the days to come and the main focus will be on the kick off in the US earnings season for Q2/2019, we don't really see a sharper drop in equities and thus in the DAX30 CFD since a sharper push higher especially in US yields seems not very likely:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between March 23, 2018, to July 12, 2019). Accessed: July 12, 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
In our last weekly market outlook we wrote
"[…] That said, the outlook for the USD stays bearish in the days to come and any rally should be sold in our opinion (similar to our 'buy the dip' approach in the Gold paragraph below.[…]",
even though the NFPs came in very solid at the first Friday of the month.
And still, Fed chairman Powell's testimonial before the House Financial Services Panel last week on Wednesday and his remarks there came at least as a little surprise for us.
In fact, Powell brought not only a rate cut, but a deep rate cut (50bp), back on the table with saying that a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit. And there is a risk that weak inflation will be even more persistent than the Fed currently anticipates.
With that said, our outlook for the US dollar, even though the economic docket is thin (only Retail Sales data on Tuesday is of potential interest of market participants here), stays similar to the week before.
If the market starts to see up to 4 rate cuts by 25bp each till December 2019 from the Fed, another serious attack at the region around 95.00 points in the USD Index Future seems very likely in the days to come leaving currencies like the Euro, GBP, but especially the JPY with some solid upside potential to the dollar:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to July 2019). Accessed: July 5, 2019, at 10:00pm GMT
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Euro
Even though the overall outlook for the Euro didn't change over the last week, the EUR/USD saw a drift back towards the region around 1.1300 and to the level from which the drop lower after the strong NFP report on 5th of July started.
The drift higher was initiated from Fed chairman Powell who took a very dovish stance in front of the House Financial Services Panel last week on Wednesday, thus was USD weakness driven.
That said, not only did the fundamental outlook for the Euro not change (which should be seen sceptical and ECB dovish, underlined by the high probability of IMF chairwoman Lagarde taking over as successor from current ECB president Drgahi), but also technically the picture in the EUR/USD stays the same as last week:
while a drop below 1.1180/1200 still activates the region around 1.1100, further USD weakness and the EUR/USD recapturing 1.1300 could level the path back up to 1.1400 and here making a re-test of 1.1450/1500 possible:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between April 6, 2018, to July 12, 2019). Accessed: July 12, 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
The USD/CAD is currently eyeing a technically interesting level: the region around 1.3000 is not only interesting from a psychological perspective, but is also the region around the current yearly lows in the currency pair.
A break lower could level the path down to 1.2780 which is definitely an option after last week Wednesday and the comments made from US Fed chairman Powell at his testimonial before the House Financial Services Panel while at the same time the BoC publishing their latest monetary policy statement.
While Powell said that a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit, while there is a risk that weak inflation will be even more persistent than the Fed currently anticipates and bringing back speculations around a 50bp rate cut from the Fed at the end of July, the BoC left interest rates at 1.75% on hold, even though said that recent Canadian economic strength is not sustainable.
Still, the BoC statement didn't clearly point to lower borrowing costs in the near-term similar to the Fed or ECB which leaves the CAD a potential strong performer against the EUR or USD, especially if inflation data on Wednesday continues with its uptrend since the beginning of January where the Canadian inflation rate was published at only 1.4% while in May it read already 2.4%:
Source: Admiral Markets MT5 with MT5-SE Add-on USDC/AD Daily chart (between April 13, 2018 to July 12, 2019). Accessed: July 12, 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 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 on the first Friday of the month Non-Farm Payrolls came in very solid and markets priced completely out a 50 basis point rate cut by the Fed on her meeting on July 31, Fed chairman Powell's testimonial before the House Financial Services Panel last week on Wednesday brought such a deep rate cut back on the table – and Gold eyeing its current yearly highs around 1,440 USD again.
Powell said that a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit. And there is a risk that weak inflation will be even more persistent than the Fed currently anticipates.
As a result, US yields tumbled again (even though 10-year US-Treasury yields held above 2%) and Gold aggressively pushed back above 1,400 USD.
While the economic docket is quite thin for the upcoming days for the precious metal, the device in the yellow metal seems to be 'Buy the dip' and on the lower time-frames the region around 1,405/407 USD should be carefully watched as a potential long-trigger.
In general, we consider another serious attack at the region around 1,440 USD an option as long as Gold holds above 1,380 USD. A break higher activates 1,480/490 USD:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between 13 April 2018 to 12 July 2019). Accessed: 12 July 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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