Pandemic fears disappear – DAX with new all-time highs next week?
Source: Economic Events Calendar February 10 – 14, 2020 - Admiral Markets' Forex Calendar
DAX30 CFD
After closing the month of January below 13,000 points, driven mainly by fears and developments around the Coronavirus and increasing risks of a widespread pandemic, the DAX bulls took over control again on Tuesday after such fears vanished.
With the German index holding above the trend support on the daily time frame around 12,900 points, we stay technically bullish on D1 with targets on the upside being found around 13,800 and 14,000 points if we make it to new All Time Highs with a break above 13,640 points.
Fundamentally, such a bullish run seems likely given the ongoing monetary support especially from the US central bank Fed and the expectations among market participants that the Fed will cut rates minimum once by 25 basis points in 2020 with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday), despite the solid US economic data over the course of last week.
That said, the downside stays limited with only a sustainable break below 12,900 points darkening the picture in the DAX30 CFD:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between October 26, 2018 to February 7, 2020). Accessed: February 7, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of the DAX30 CFD 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%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.
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US Dollar
While at first glance the overall picture in the US dollar didn't change over the last week of trading, in our opinion it became clear that our US dollar scepticism is probably well-founded.
After fears and thus risk-off tendencies vanished over the last days, funding currencies for Carry Trades like the Euro, Japanese Yen and Swiss Franc took a hit, especially against the Greenback.
In addition to that, solid US economic data resulted in a bounce in US yields, 10-year US Treasury yields could substantially stabilise above 1.50%.
While this doesn't seem to support our US dollar scepticism, the fact that despite solid US economic data expectations among market participants that the Fed will cut rates minimum once by 25 basis points in 2020 are still seen with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday), underline that any bullish moves in the US dollar may be short-lived.
Technically, the bullish picture stays intact as long as the USD Index Future trades above 95.00 points on a weekly time frame, while a break below 96.00 points could trigger a more dynamic move to this important region of support.
A break below 95.00 points would make a quick drop lower down to 93.00 points likely and switch the mode on a weekly time-frame to bearish from the beginning of October 2019 with an established sequence of falling highs and lows. On the other hand, only recapturing 98.50 brightens the technical picture.
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2017 to February 2020). Accessed: February 7, 2020, at 10:00 PM GMT
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Euro
After the stronger push higher and the Euro finding support in the region around 1.1000 into the end of the month of January, the short-term Euro strength vanished again over the last week of trading with the Euro dropping to and below 1.1000.
To us it seems as if the push higher in the Euro resulted, similar to those in the Japanese Yen and Swiss Franc, in vanishing risk-off tendencies among market participants and thus Carry Trade funding currencies like the JPY and CHF, but also the Euro took a hit.
With the drop and weekly close below 1.100, our positive take on the Euro took a serious hit and leaves us neutral, but with a clear bearish tendency.
For our positive Euro outlook to play out, fundamentally we definitely need a rising likelihood of fiscal stimulus, especially from Germany.
On the other hand: without any announcement or clear hints into that direction, bulls should remain cautious.
This is especially true after the remarks from US President Trump in Davos which leave the Euro vulnerable to at least a short-term drop after he mentioned that the EU and the US have to make a trade-deal, else the US has to put tariffs of 25% on European cars.
On the upside, we continue to see a first target in EURUSD around 1.1400, but only if Euro bulls are capable of sustainably recapturing 1.1000 over the days to come.
If the drop below 1.1000 shows itself to be sustainable, a first target can be found around the 2019 yearly lows around 1.0880/0900:
Source: Admiral Markets MT5 with MT5-SE Add-on EURUSD Daily chart (between December 6, 2018, to February 7, 2020). Accessed: February 7, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of the EUR/USD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, 2018, it fell by 4.4%, 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.
JPY
The USD/JPY failed to break sustainably below 108.00, mostly resulting out of the missing support from US yields where 10-year US yields didn't break below 1.50%, but also because of vanishing risk-off tendencies among market participants and thus Carry Trade funding currencies like the JPY not finding further strong demand.
Into the weekly close, the USD/JPY saw a deep push back above 109.00, keeping the technical mode neutral and choppy, but now again with a bullish touch and the region around 110.70 coming into our focus again.
Still, we remain cautious regarding USD/JPY long engagements. The reason: despite solid US economic data over the last week, expectations among market participants that the Fed will cut rates minimum once by 25 basis points in 2020 are still seen with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday).
With that in mind, we think that any bullish moves in the US dollar may be short-lived and should be cautiously reviewed.
Technically the region around 107.80/108.00 stays the lower end of the range within the USDJPY is currently trading, on the upside the focus lies on the region around 110.30/70:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between November 28, 2018, to February 7, 2020). Accessed: February 7, 2020, at 10:00 PM GMT
In 2015, the value of the USD/JPY 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%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.
Gold
Gold lost some of its bullish momentum over the last week of trading with vanishing fears of a wide spread Coronavirus.
Still, we remain positive for the precious metal. That's mainly due to market participants expectations that the Fed will cut rates minimum once by 25 basis points in 2020 are still seen with a likelihood of around 80% (according to the Fed Watch Tool and as of last Thursday), l despite solid US economic data over the last week.
With the still given demand against the region around 1,555 USD, the region of the 2019 yearly highs, there is no reason to not be Gold bullish, technically as long as we trade above 1,440/450 USD.
And even a drop back below 1,550 USD would only be short-term bearish, activating the region around 1,510/515 USD as potential long-trigger and keeping the potential next target on the upside around 1,650/700 USD active.
Also from a seasonal perspective Gold traders should remember that Silver, a highly positively correlated asset to Gold, still finds itself in bullish seasonal window till mid-February:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between November 7, 2018, to February 7, 2020). Accessed: February 7, 2020 at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2015, the value of Gold 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%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.
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