Tensions between the US and Iran didn’t escalate further – DAX30 CFD with new all-time highs in the near future?
Source: Economic Events Calendar January 13 – 17, 2020 - Admiral Markets' Forex Calendar
DAX30 CFD
After the recent developments in the Middle East, with fears arising that a war between the US and Iran could be on the horizon, the DAX30 CFD saw a short-term push below 13,000 points, but has quickly recovered.
Especially after last Wednesday, with Iranian retaliation and US president Trump managing to not further the tensions between the US and Iran, our outlook for the German index is positive for the near future.
It is considered very positive that, after last week, volatility didn't spike significantly higher, but instead remained relatively calm– a sign that market participants are probably "buying the dip" instead of panicking.
With the Fed continuing to flood markets with liquidity to avoid a funding crisis especially in the repo market and the, in our opinion, quite strong performance despite last week's geopolitical tensions, we continue to see the downside limited in the DAX30 CFD and also stay technically bullish as long as the German index trades above 12,900 points.
The break above 13,500 points into the weekly close can be considered clearly bullish, making a test of the current all-time highs around 13,600 points likely and, if a break occurs, levelling the path up to the next psychological region around 14,000 points.
A drop below 12,900 points activates the region around 12,600 points as a next target:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between September 20, 2018, to January 10, 2020). Accessed: January 10, 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
The picture for the US dollar is nearly the same as it was one week ago. That said, it also means that mid-term USD scepticism remains.
Technically, the bullish picture stays intact as long as the USD Index Future stays above 95.00 points on a weekly time frame, this region is likely to be in our focus in the days to come.
A break lower makes 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, but given the fact that 10-year US-Treasury yields should stay under pressure, especially with the expectation of the Fed to keep on flooding markets with liquidity to avoid a funding crisis especially in the repo market, the advantage in the US dollar is potentially being found on the short-side.
In this context, FX traders should also carefully watch the upcoming US economic data (inflation on Tuesday and Retail Sales on Thursday) and if it keeps on disappointing/coming in below expectations.
If so and expectations of market participants of at least one 25 basis point cut in 2020 keep on keep on increasing above 70% (currently and according to the Fed Watch Tool we see a likelihood of ~60%), further bearish momentum in the US dollar seems to have a significant higher probability than a sharp turnaround:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2017 to January 2020). Accessed: January 10, 2020, at 10:00 PM GMT
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Euro
The picture in the Euro hasn't significantly changed over the last week of trading – and won't likely in the days to come with the ECB rate decision on January 23.
That said, we'd like to re-emphasize our bullish take for EUR/USD, technically as long as we trade above 1.1050/70 on a daily time-frame.
While the currency pair couldn't hold above 1.1200, we still like to point out the solid Euro performance despite 10-year US-Treasury yields keeping on stabilising and the still positive yield differential between US and European bonds.
That said, if speculations around fiscal stimulus and additional public investment (especially from Germany) continue respectively are fuelled again at the next ECB meeting from ECB president Lagarde, the Euro and thus the EUR/USD could see a significant push higher with the Euro finding a first target around 1.1400 in the weeks to come and as long as we trade above 1.1000.
On the other hand, we need to remember the CNBC interview from White House advisor Navarro who mentioned that the US is "going to try to get something going [in regards to a trade deal] with Great Britain, Vietnam, Europe and anybody else who wants to fairly trade with the United States of America", making especially Europe a potential target for a tariff announcement from US president Trump in the days, weeks and months ahead.
Source: Admiral Markets MT5 with MT5-SE Add-on EURUSD Daily chart (between November 12, 2018, to January 10, 2020). Accessed: January 10, 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
After the recent developments in the Middle East, with fears arising that a war between the US and Iran could be on the horizon, the overall picture in the USD/JPY didn't substantially change.
With no sustainable risk off hitting the market and volatility staying all in all quite low, a sustainable drop below 108.00 wasn't seen, in fact, the USD/JPY traded back above 109.00 and closed the week in positive territory.
Still, our overall bearish midterm expectation for the USD/JPY hasn't changed: with the latest mixed US economic projections and despite the fact that the situation between the US and Iran will likely not escalate in the near-term, the Fed flooding markets with billions in liquidity to avoid a funding crisis especially in the repo market and market participants, according to the Fed Watch Tool, still expecting at least one 25 basis point cut in 2020 with a likelihood of 60%, we continue to see the upside in USDJPY limited.
This stays also true with our expectation to see the BoJ to stay neutral in regards to her monetary policy with the expected economic package from Japanese prime minister Shinzo Abe staying on the table. That said, USDJPY stays, from a risk-reward perspective midterm, an attractive Short candidate.
Technically, the main focus stays on 106.80/107.00, where, from a technical perspective, a break lower could result in a drop as low as 105.00 and probably even lower
On the other hand: a push above 110 activates 110.70, playing into the cards of USDJPY bulls, at least short-term:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between October 31, 2018, to January 10, 2020). Accessed: January 10, 2020, at 10:00pm 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
After the recent developments in the Middle East, with fears arising that a war between the US and Iran could be on the horizon, Gold profited from the resulting risk-off mode, seeing a short-term push above 1,600 USD.
When these were brought down from US president Trump on Wednesday and it seems that, at least for now, no further escalation between the US and Iran should be expected, the overall picture for Gold stays positive.
This is especially true after the mixed US economic data over the last week and with a bearish tendency developing in 10-year US-Treasury yields, because of which we expect the precious metal to stabilise around the yearly highs of 1,550 USD in the days to come.
In this regard Gold traders should also carefully watch the upcoming US economic data (inflation on Tuesday and Retail Sales on Thursday) and if it keeps on disappointing/coming in below expectations, but also if any further escalations between the US and Iran arise.
While on a daily time-frame Gold stays bullish as long as we trade above 1,440/450 USD, the potential next target on the upside can be found in the region around 1,650/700 USD.
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between October 10, 2018, to January 10, 2020). Accessed: January 10, 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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