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ISM, ADP, NFP – volatility ahead in FX and Equities before the Fed?

December 02, 2019 16:00

Source: Economic Events Calendar December 2 – 6, 2019 - Admiral Markets' Forex Calendar


DAX30 CFD

Due to the US bank holiday Thanksgiving, and 'Black Friday' happening later, the overall price action in Equities has been subdued over the last week of trading and our outlook hasn't changed.

As pointed out in our last weekly market outlook, we remain sceptical, and do not expect a deeper corrective move, given the recent and very dovish stances from the ECB and Fed.

Especially if the incoming economic data from the US (ISM, ADP, NFP) comes in below expectations, bearish stints could be short-lived with rising expectations of an even more dovish stance from the Fed at the meeting on December 11.

On the other hand: after the latest US data releases over the last few weeks showed solid prints and with market participants not expecting a move from the Fed according to the Fed Watch Tool, good data prints could initiate a rally up to the current All Time Highs around 13,600 points.

So, the advantage in the DAX30 CFD stays on the long side, still bulls shouldn't be too over-confident, too.

The developments around US president Trump, like a potential impeachment and erratic behaviour, leave the chance for comments in regards to the trade dispute between the US and China, and also Europe, can be expected anytime (especially with the SP500 CFD trading significantly above 3,000 points).

Technically, it seems difficult to see a sustainable break back below 13,000 points. Even if such a drop occurs, the DAX30 CFD should be solidly supported around 12,470/500 from where a Santa Claus rally with a DAX30 CFD closing 2019 above 13,000 points stays on the table:

DAX30 CFD Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between August 23, 2018 to November 29, 2019). Accessed: November 29, 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

As expected in our last weekly market outlook, thanks to the US bank holiday Thanksgiving happening, as well as 'Black Friday' and the shortened trading hours, the picture in the Greenback hasn't significantly changed over the last few days.

But this will likely change over the next week of trading with some important US news releases (ISM, ADP, NFPs) ahead of the Fed rate decision on December 11.

After the latest US data releases over the last few weeks showed solid prints, and with market participants not expecting a move from the Fed according to the Fed Watch Tool, the US dollar probably finds itself in a lose-lose-situation and the risk-reward is probably interesting for USD bears.

Much of positive news releases seems to be priced in and with the Fed's balance sheet currently expanding at a faster rate than during QE1, QE2 or QE3, a rate hike is off the table in our opinion, meaning that good US data won't likely drive the US dollar, but disappointing prints could see the USD take on serious bearish momentum.

With that in mind, the US dollar stays a potential short candidate, even though from a technical perspective the sequence of higher highs and lows stays intact as long as the USD Index Future stays above 95.00 points on a weekly time frame:

US Dollar Index - Weekly

Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to November 2019). Accessed: November 29, 2019, at 10:00 PM GMT

Don't forget to register for the weekly "Trading Spotlight" webinar with presenters including Jens Klatt, every Monday, Wednesday and Friday at 2pm London time! It's your opportunity to follow Jens and others as they explore the weekly market outlook in detail, so don't miss out!


Euro

Over the last week of trading and since the main driver of the price action over the month of November could be found in US yields, the picture in Euro hasn't significantly changed.

Due to the US bank holiday Thanksgiving, as well as 'Black Friday' and shortened trading hours, this could be in fact expected – and will likely change in the days to come.

The main focus in the EUR/USD stays on 1.1000 with a drop lower staying on the table: while most of any positive US economic releases (ISM, ADP, NFPs) should be priced in (the latest US data releases over the last few weeks showed solid prints with market participants not expecting a move from the Fed according to the Fed Watch Tool at her December meeting), in our opinion a sustainable drop lower is not likely.

Still, we want to reinforce our careful Euro outlook after the latest comments from US president Trump at his speech at the Economic Club in New York on November 12.

Any significant steps like auto-tariffs for Europe keep on being a serious threat and any such announcement from Trump could dynamically drive the Euro significantly lower and sustainably below 1.1000.

Nevertheless, with the Fed's balance sheet currently expanding at a faster rate than during QE1, QE2 or QE3, from a midterm perspective we still favour the Long-side in the Euro with a first target around 1.1280/1300, while a breakthrough levels the path up to 1.1400 in the weeks to come:

EURUSD Daily Chart

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between October 8, 2018, to November 29, 2019). Accessed: November 29, 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

And again: the outlook for the Japanese Yen and especially the currency pair USD/JPY, hasn't changed over the last few days (as expected in our last weekly market outlook due to the US bank holiday Thanksgiving, as well as 'Black Friday'), even though chances are quite high that this will change in the days to come.

With the ISM Manufacturing (Monday) and -Non-Manufacturing (Wednesday), ADP (also on Wednesday) and Non-Farm-Payrolls (Friday), the main focus will stay on the developments in 10-year US-Treasury yields which have driven price action in the currency pair into the start of the month of November.

After the latest US data releases over the last few weeks showed solid prints and with market participants not expecting a move from the Fed according to the Fed Watch Tool, we remain sceptical as to whether the USD/JPY has a serious chance to stabilise significantly above 109.00 (despite last week's close above that level).

The reason: better than expected data could result in short-term bullish stints which are then aggressively sold off again, leaving a test of the region around 108.00 over the next week of trading a topic.

The same is true in our opinion with worse than expected data which could result in rising expectations of an increasingly dovish stance from the Fed at the meeting on December 11, which could result in a drop in US yields since such an expectation would add to the bearish yield outlook with the Fed expanding her balance sheet at a faster rate than during QE1, QE2 or QE3.

Nevertheless, we remain cautious in regards to an overly bearish USD/JPY outlook: into the yearly close volatility should be expected to stay low and we don't expect an aggressive attack at the region around 106.80/107.00, at least not for now respectively into the yearly close which would definitely increase chances of a sharper drop from a technical perspective as low as 105.00 and probably even lower:

USDJPY Daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between September 21, 2018, to November 29, 2019). Accessed: November 29, 2019, at 10:00 PM GMT

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

As expected in our last weekly market outlook, thanks to the US bank holiday Thanksgiving, as well as 'Black Friday' and the shortened trading hours, the picture in Gold hasn't significantly changed.

But with the packed economic calendar for the US dollar in the coming days (ISM, ADP, NFP), this will likely change.

The main focus will stay on the developments in 10-year US-Treasury yields which have driven price action in the yellow metal into the start of the month of November.

After the latest US data releases over the last few weeks showed solid prints and with market participants not expecting a move from the Fed according to the Fed Watch Tool, Gold bulls could be in a favourable position, our take:

Better than expected data could result in short-term bearish stints which are then aggressively bought back and leave Gold for a push higher since most of a 'hawkish' is already priced into the precious metal.

Worse than expected data on the other hand could result in rising expectations of a increasingly dovish stance from the Fed at the meeting on December 11, adding fuel to our bullish Gold outlook which is mainly driven by the fact that the Fed's balance sheet is currently expanding at a faster rate than during QE1, QE2 or QE3.

With that in mind, technically our picture switches to Long again with Gold breaking back above 1,520 USD which would level the path up to the current yearly highs around 1,557 USD, a first bullish sign in the lower time-frames (H1) is already sent with Gold recapturing 1,480 USD:

Gold daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between August 31, 2018, to November 29, 2019). Accessed: November 29, 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%.


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