First week of trading in 2019 - A clear focus on the NFPs

This week's weekly market outlook will provide insights for the DAX30 CFD, the US Dollar, the Euro, the Pound and Gold. GBP traders should monitor news around the Brexit deal.

Source: Economic Events Calendar 01 January – 04 January 2019 - Admiral Markets' Forex Calendar

DAX30 CFD

After a very weak yearly close with the DAX30 CFD being down more than 6% for the month of December and 18% for 2018, the picture does not look very promising for the DAX30 CFD or equities in general into the start of 2019.

With the US shutdown likely to continue over the first week of trading in 2019 and ongoing uncertainty about the trade war between the US and China, a re-balancing of portfolios will most likely continue at the beginning of 2019.

And if the DAX30 CFD drops below 10,300 points, further losses and a drop below 10,000 points becomes very likely. Besides the US shutdown and the trade war, a stronger Euro poses also risks for the downside in the DAX.

The reason can clearly be found in the dovish rate hike of the FED on the December 19 and their sceptical outlook around the US economy which became clear when looking at the "collapsed" FED dot plot. If the yield differential between European and US yields keeps on contracting, a sustainable push above 1.1500 in the Euro could push the DAX30 CFD even lower.

The first breath bulls could take would be, if it hits the mark of 11,000 points again.

Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 14 November 2017 to 01 January 2019). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

In 2013, the value of the DAX30 CFD increased by 25.48%. In 2014, it 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%, meaning that after five years, it was up by 69.7%.

US Dollar

After the dovish hike of the FED on December 19, the USD lost some of its yearly gains in the last days of the year and pushed back below 96.00 points. Also, the FED dot plot now suggests only two rate hikes in 2019 after three hikes in the dot plot from September:

Source: CNBC - Accessed: 20 December 2018 at 14:00 GMT

This drop in terms of the economic outlook for the US among FED members also suggests that upcoming data, especially around the US employment situation, should be closely monitored.

To put it differently, if next Friday's NFPs come in below expectations, this could trigger further USD weakness and push the USD Index sustainably below 96.00 points, with a first target/support coming in at 94.80/95.00 points.

And as already mentioned in our last weekly outlook in 2018, the US Dollar is still vulnerable to a bigger wave of selling, driven by big speculators reducing their net long exposure in the US Dollar Index Future.

Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

Don't forget to register for the webinar "Admiral Markets' Weekly Market Outlook" with Jens Klatt, every Friday at 12 pm London time. It's your opportunity to follow Jens as he explores the weekly market outlook in detail, so don't miss out!

Euro

As already we mentioned, the Euro will probably start out strong into 2019, especially against the US Dollar and will start an attempt to hit the mark around 1.1500 again.

While there is still a high level of uncertainty around the Brexit deal and how Theresa May will get an approval from the British parliament on the January 14 on her negotiated Brexit deal, the Euro will most likely benefit from the found deal between Brussels and Italy around the Italian budget for 2019.

And with the sceptical outlook for the US Dollar in the days and weeks to come after the dovish rate hike of the FED on the December 19, an attempt to make it back sustainably above 1.1500, then with the first target around 1.1600/1630 seems a serious option.

But there is one reason to be careful and not consider such a move higher in the EURUSD a "no brainer" trade: such a higher push in January is unlikely to happen from a seasonal perspective. In fact, over the last 20 years, the Euro lost on average against its G7 FX counterparts within the first three months of the year. With that in mind and below 1.1500, another stint towards the 2018 yearly lows around 1.1200 stays an option:

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 04 January 2018 to 01 January 2019). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

In 2013, the value of the EURUSD increased by 4.2%, in 2014, it 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%, meaning that after five years, it was down by 10.0%.

GBP

GBP/USD will most likely experience a quiet start into the first week of trading of the year. If we get to see some volatile pushes, they will most likely arise from economic data from the US.

Nevertheless, Pound Sterling traders should carefully watch all the developments and also rumours around the Brexit deal vote in the UK parliament on Monday, January 14.

From a technical perspective on a daily chart, the outlook for GBP/USD stays bearish as long as we don't trade it above 1.3270/3300.

With that in mind, every news, especially around the Brexit deal forming on the horizon bears the potential for another push lower and an attack at the region around 1.2500. First targets below 1.2500 come in at 1.2350 and then 1.2130/2150.

Source: Admiral Markets MT5 with MT5SE Add-on GBPUSD Daily chart (between 01 December 2017 to 01 January 2019). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

The reason for the scepticism and bearish outlook can be found in the Commitment of Traders Report, where the net-short exposure of big speculators still has plenty of room to increase:

Source: Barchart – British Pound (B6) - Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

In 2013, the value of the GBPUSD increased by 1.8%, in 2014, it 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%, meaning that after five years, it was down by 16.8%.

Gold

Thanks to the dovish hike of the FED, the US shutdown and the bullish seasonal pattern in Gold, it saw a conciliatory yearly close.

And in fact, further gains into the start of the year 2019 are very likely, not only due to the potential and continued weakness in the US-Dollar mentioned several paragraphs above.

There is also a seasonal pattern within the time span from the January 7 until January 18. Within this period, the price of Gold has increased in 15 of the past 20 years with an average profit of 22.16 USD/ounce. The five years where the Gold price fell, it experienced an average loss of 10.98 USD with a maximum drawdown of 23 USD.

With this pattern in mind, the advantage can clearly be found on the upside, and a push towards 1,290/300 USD/ounce has a good chance from a technical perspective as long as we trade above 1,233 USD on a daily time frame.

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 24 November 2017 to 01 January 2019). Accessed: 01 January 2019 at 1:00 PM GMT

Please note: Past performance is not a reliable indicator of future results or future performance.

In 2013, the value of Gold fell by 28.1%, in 2014, it 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%, meaning that after five years, it was down by 21.9%.

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