Economic Events: 10 September – 14 September 2018
Source: Admiral Markets' Forex Calendar
The first week of trading in the month of September, historically the worst performing month for the DAX and DAX30 CFD, which pushed the German equity index below 12,000 points, the first time since April 2018. With the break below the June, July, and August lows of around 12,100 points, a clear bearish signal was provided, making a test of the current yearly lows of around 11,700 points in the upcoming days/weeks very likely. In general, the DAX still seems weak compared to its US counterparts, with the SP500 CFD and the US30 CFD still trading in reach of their 'All Time Highs'.
That being said, the situation could dramatically worsen if the US equity markets finally see a pullback, which would probably be initiated from a corrective move in one of the FAANG shares: Facebook, Amazon, Apple, Netflix or Google (Alphabet). Especially after Amazon hit a new 'All Time High' last week, reaching one trillion in market capitalization. The overall picture seems a little extended and overheated. In combination with a thin market environment, such a pullback in US equities could push the DAX dynamically towards 11,700 points.The overall picture brightens up a little, if the DAX bulls can re-conquer the region around 12.600 points.
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The US Dollar Index Future Index started to stabilize after its deep corrective move back below 95.00 points, pushing it back above that level into the weekly close.The released data sets over the last days of trading (especially the NFPs on Friday) came in solid to strong, resulting in rising speculation that the FED will hike a fourth time in December, after a hike on the 26 September looking like a done deal already. In the upcoming days, performance in the USD will depend on the performance in the Euro, which has 58% in the basket of currencies calculated against the USD in the USD Index Future.
The Euro faces a rate decision on Thursday, and even though no rate hike is expected, it will be interesting to see how the ECB evaluates the BREXIT negotiations, the still brewing trade conflict with the US, and the somehow unstable political situation in Italy. If the ECB or Mario Draghi show any signs of scepticism at the press conference, speculations could heat up that a ECB rate hike could be pushed at the end of 2019, if there will be any rate hike at all. With the weight of Euro in the USD Index future basket in mind, a resulting push lower in the Euro could mean the USD index taking on serious momentum, targeting 96.50/97.00 points in the upcoming day/weeks.
In general, the positive outlook for the USD against its G7 counterparts wouldn't be significantly touched, even if the ECB presents itself as neutral or unchanged next Thursday. The reason being: the speculative positioning in the Commitment of Traders Report still shows big speculators holding on their highest USD net long position within the last 15 months:
Source: Saturday 08 September 2018 3pm CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart
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As mentioned earlier, the main event of the upcoming week will be the rate decision of the ECB on Thursday. As already pointed out, there won't be a rate hike. Nevertheless, the BREXIT negotiations, and some rumours being spread concerning the German and UK government are willing to reduce their expectations around BREXIT, making a step towards each other, the question arises if a favourable deal exists for both sides (Germany is the one of the biggest trading partners of the UK) would probably mean a more hawkish stance in the monetary policy of the ECB (a sooner than expected rate hike in 2019)
If such a positive outlook materializes, the Euro could see a significant push on the upside, with the bulls trying to break back above 1.1800/1850 against the US Dollar. But what's more likely is a neutral stance from the ECB. Such a neutral stance does not necessarily go hand in hand with a dynamic push down towards 1.1300 and lower. But it could at least increase chances of push back below 1.1500, because a first rate hike of the ECB should be expected into the end of 2019, while the FED, especially after the NFPs on Friday, is most likely not only good for a fourth rate hike in 2018 for December, but also for a minimum of 3 hikes in 2019. That being said, the yield differential between US and EU yields should keep on widening and resulting in further EUR/USD weakness to come, not only in the next week, but also in the next few months.
In this context it is worth mentioning again that, if such scepticism around the Euro materializes, there is big potential from a speculative side, since the Commitment of Traders Report shows the big speculators currently being slightly net long:
Source: Saturday 08 September 2018 3pm CEST - Euro FX - Weekly Nearest OHLC Chart: Barchart
Besides the ECB rate decision on Thursday, the BoE is also about to decide on their rates on the same day. After the hike in August, the MPC is not expected to take action this time. But the tide has turned compared to last month: in August, based on an expected dovish hike, GBP could be expected to push below 1.3000. Instead of a dovish hike, the BoE delivered a quite hawkish stance, nevertheless Pound Sterling pushed below 1.3000, to its lowest levels since June 2017.
Meanwhile, GBP was able to stabilize and trade back towards 1.3000, mainly driven by some very positive signs for GBP around the BREXIT negotiations: after comments from EU chief negotiator Barnier in the last week of August, where he stated that the EU is prepared to offer Great Britain a partnership ''such as has never been with any other third country'', last Wednesday Bloomberg reported that the United Kingdom and Germany have softened their Brexit demands. This is especially interesting considering that large speculators in the Commitment of Traders Report have built their net short exposure to the highest levels since May 2017 (note: back then GBP traded around 1.2000 against the USD) or to put it differently: GBP is probably good for a short squeeze, especially if those speculations around BREXIT are supported by a resulting positive outlook for the UK economy, resulting in speculations around another, sooner rather than later, 25 basis point rate hike:
Source: Saturday 08 September 2018 3pm CEST - British Pound - Weekly Nearest OHLC Chart: Barchart
With this short squeeze potential in mind, GBP/USD has probably potential for a significant push back above 1.3000, eyeing minimum 1.3200, if not higher than that. The trigger line for such a squeeze can be found around 1.3050:
It seems more and more as if Gold has finally found a bottom around 1,160 USD on the 16 August. Even though the following is highly speculative, and the overall technical picture on a daily chart brightens with a recapture of the region around 1,235/240 USD, when looking at the current positioning of big speculators, the sentiment seems to be a bit stretched for Gold on the Short side:
Source: Saturday 08 September 2018 3pm CEST - Gold - Weekly Nearest OHLC Chart: Barchart
But it is not only that big speculators are still nearly neutral in terms of their net long exposure. When looking at the yield market (10 year US-T-Notes) we can also spot a sentiment extreme in the positioning of big speculators in terms of their net short exposure:
Source: Saturday 08 September 2018 3pm CEST - 10 Year US Treasury Notes - Weekly Nearest OHLC Chart: Barchart
To make long things short: if the market is hit by a risk off event, and market participants begin to rush out of the doors, dumping their equity exposure, and seeking safe havens like 10-year treasury notes, a massive short squeeze could hit the US yield market, potentially resulting in a sharp rise in Gold. Even though this does not necessarily need to happen in the upcoming week of trading, it is still worth keeping it in mind.risks.