Will the Fed already cut rates on Wednesday, and smash the US dollar?
Economic Events June 17 - 21, 2019
Source: Economic Events Calendar June 17 – 21, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
Even though the DAX30 CFD didn't deliver anything really new from a technical perspective, the stable performance after the ECB rate decision on June 6, and the weak NFP print, can be considered positive.
That said, another push higher and a test of the current yearly highs around 12,500 points remains an option, at least as long as no further trade war escalation between the US and China and/or Europe hits the newswire.
In fact, up until Wednesday, and with the FED rate decision on the agenda, chances seem statistically good that equities in general are to perform solid-to-positively, especially if the US yield curve flattens more (as it currently is doing), and volatility in US equities continues to be elevated.
Still, the deck could be reshuffled after Wednesday, given a dovish stance from the Fed in their statement. That would be, in our opinion, not necessarily connected to bullishness in equities since it would be very likely initiated and driven by rising scepticism around the near-term economic outlook.
Technically, the mode in the DAX30 CFD stays neutral, with a bullish touch above 11,600 points and the target lying around 12,500 points.
A drop below 11,600 points and the SMA(200) activates 11,250 points as a next potential target on the downside and hands the advantage over to the bears:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between March 5, 2018, to June 14, 2019). Accessed: June 14, 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 start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!
US dollar
In the coming days, all eyes will be on the Federal Reserve, and the rate decision on Wednesday.
After we speculated in our last weekly market outlook last Monday, the current strength of the dollar seems to be an obvious thorn in the side of the Trump administration, based on the spread rumours on a potential discussion of a currency clause in a US-Japan bilateral trade deal at the G20 meeting in Osaka at the end of June, the weak NFPs, dovish comments from FED chairman Powell, and inflation coming in below-expectations last Wednesday - so it seems no big surprise that chances of min one rate cut by December is now 99% based on the Fed Watch Tool.
In fact, the question for the US dollar is whether we probably get a clear sign of a cut in the near future, opening the door for further cuts in the second half of 2019.
Any aggressive dovish sign of a minimum of two cuts can be surely considered USD-bearish, and a significant push and test of the region around 95.00 points in the USD Index Future seems very likely.
On the other hand, we have to carefully watch the newest trade developments, especially between the US and Europe: any sign or harsh rhetoric from US president Trump bringing tariffs on goods from Europe (especially German cars) on the table has the potential of the USD gaining strength against the Euro which would, based on the weight of the Euro in the currency basket, leave another stint up to 98.00 points an option:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to June 2019). Accessed: June 14, 2019 at 10:00pm GMT
Don't forget to register for the weekly webinar "Admiral Markets' Weekly Market Outlook" with Jens Klatt, every Friday at 12pm London time! It's your opportunity to follow Jens as he explores the weekly market outlook in detail, so don't miss out!
Euro
After the 'hawkish' impression the ECB delivered at the meeting on June 6 (for details on this, please view our weekly market outlook from last Monday, even though we can say that 'hawkishness' is probably a little too much…), the European currency moved for a short stint back to, and slightly above, 1.1300 over the last week, but nevertheless closed around 1.1200.
Still, the push higher in the EUR/USD wasn't necessarily Euro strength or ECB rate hike speculations, but more likely driven by the current USD weakness.
That said, in the coming days, a lot will depend on the rhetoric from the US central bank on Wednesday: any hint towards 2, probably 3 rate cuts in the second half of 2019, probably already one cut on Wednesday (which would definitely come as a surprise to market participants where currently 2 out of 3 do not expect the FED to move), would definitely deliver the fuel the currency pair needs to sustainably break above 1.1330 and aim for 1.1450/1500.
Nevertheless, with US president Trump making a very aggressive impression in regards to trade rhetoric and imposing tariffs and the G20 summit in Osaka at the end of this month, market participants in general should be cautious, since any tweet is capable of another push lower in the EUR/USD and test of the current yearly lows around 1.1100:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between March 19, 2018, to June 14, 2019). Accessed: June 14, 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%.
JPY
The Japanese Yen, particularly the USD/JPY currency pair, hasn't seen much volatility over the last few days of trading. This is most likely due to the fact that the Fed rate decision on Wednesday has the potential to be a real market mover.
After the weak NFPs, the dovish comments from Fed chairman Powell around two weeks ago and below-expectations inflation last Wednesday, markets are aggressively pricing in three rate cuts from the Fed until December with a likelihood of around 70% based on the Fed Watch Tool.
That said, any dovish rhetoric and/or surprising rate cut on Wednesday is a potential bearish driver for USD/JPY, leaving the currency pair vulnerable to a significant drop below 108.00.
In general, USD/JPY still finds itself with a clear bearish touch not only from a rate-perspective. After the biggest five-day drop in 2-year Treasury yields since 2008, it can clearly be argued that a potential risk-off-mode among market participants seems to brew and any new 'trade-attack' from US president Trump especially on Europe or countermeasures from China, especially in regards to Huawei, could let the carry-trade-vehicle JPY benefit and push USD/JPY significantly below 107.50/70.
Technically, a drop lower stays an option as long as we trade below 110.70 on a daily time-frame:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between March 19, 2018, to June 14, 2019). Accessed: June 14, 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/JPY 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
Gold bulls will consider the current outlook for the precious metal as potentially quite promising – not only from a technical, but also from a fundamental perspective.
After Gold saw the pullback against 1,320/25 USD, which we made a topic in today's technical analysis, last Wednesday, the precious metal took on serious bullish momentum again after US Inflation came in at 1.8% in May 2019 from a 5-month high in April, but below expectations of 1.9%.
As a result, expectations that the Fed will start cutting interest rates this year crept higher with the Fed Watch Tool for the next meeting on Wednesday now seeing chances that the central bank doesn't move at only 65 - 70%, after one week earlier we stood at nearly 85%.
As a result, Gold pushed to new yearly highs last Friday, and in addition to the weak NFP reading and Fed chairman Powell opening the door for a potential rate cut on June 4, another mixed economic data set around the Retail Sales last Friday increased chances of a further acceleration on the upside, especially if the Fed on Wednesday comes out very dovish, not to say if she cuts rates surprisingly by 0.25%.
A break higher and above 1,360/365 can be considered a strong mid-term buy-signal which sees a projected target somewhere around 1,700 USD, and possibly even higher.
In general, the bullish picture in Gold on a daily time-frame stays active as long as we trade above 1,266 USD:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between March 14, 2018, to June 14, 2019). Accessed: June 14, 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%.
Investing in Forex with Admiral Markets
Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!
Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:
- This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
- Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
- Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
- To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
- Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
- The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
- Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
- The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
