Partial Trade Deal reached – new yearly highs ahead in the DAX30 CFD?
Economic Events October 14 – 18, 2019
Source: Economic Events Calendar October 14 – 18, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
The last week of trading in Equities was once again mainly driven by news around the trade dispute between the US and China and despite the fact that Fed chairman Powell's comments during a speech in Denver last Tuesday clearly hinted to the Fed about to relaunch QE (more details in the USD paragraph below).
Interesting enough and after the volatile dust has settled now, the technical picture in the DAX30 CFD looks the same on a daily time-frame, even though with a bullish touch and new yearly highs in sight after the strong bullish move last Friday, mainly on the announced partial trade deal between the US and China.
With that in mind, a break on the downside below the SMA(200) and below 11,800/850 points seems currently off the table, since a new wave of escalation in the trade war between the US and China does not seem very likely.
To create further bullish momentum a push above 12,500 points is need, activating the current yearly highs around 12,650 points as a first target.
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between July 5, 2018, to October 11, 2019). Accessed: October 11, 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%.
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US Dollar
While the overall picture in the US dollar didn't significantly change over the last week, we'd like to re-emphasize our scepticism for the Greenback, we already pointed out in our last weekly market outlook.
Here we wrote
[…]Probably, the US dollar shortage in money markets is the current reason for the US dollar performance, especially against the Euro and once the repo markets normalises (if it does…), the Greenback could see some heavier selling pressure.[…]
This quote is especially noteworthy after a speech from Fed chairman Jay Powell in Denver last Tuesday. Here Powell said that the Fed will resume Asset Purchases to prevent a cash crunch (and announced that on Friday).
What came as a surprise here was that he mentioned that it's not a QE program (which surprises since the extension of the Fed Balance Sheet could already be seen after the first liquidity injection by the NY Fed several weeks ago).
Powell argued that these actions differ from a crisis-era programme, since they are directed at solving "recent tech issues" rather than materially affecting "stance of monetary policy."
To be honest: to us this seems to be hair-splitting and we are of the opinion that these liquidity injection increasing the Fed Balance Sheet again and the to be expected ongoing rate cut cycle by the Fed, currently pointing to two further 25 basis point rate cuts with a probability of around 50% until December 2019, will weigh on the US dollar and result, rather sooner than later, in heavier selling pressure.
Nevertheless, short-engagements in the USD Index Future should be taken with great caution since technically the USD Index Future stays bullish as long as it trades above 95.00:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to October 2019). Accessed: October 11, 2019, at 10:00pm GMT
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Euro
After the short-term drop below 1.0900 into the start of the 4th quarter of 2019 and the bounce back towards 1.1000, the picture in the EURUSD didn't change over the last days – neither from a fundamental, nor from a technical perspective.
While the technical outlook for the EUR/USD stays bearish below 1.1100/1130 on a daily time-frame, the potential USD weakness (as pointed out in the USD paragraph above), makes it difficult in our opinion to see the Euro go for another test of the region around 1.0880/0900 in the days and weeks to come.
On the other hand: with a potential escalation of the trade dispute between the US and Europe, another Euro bearish trigger shortly entered the stage, our thinking: after a partial deal between the US and China became reality last Friday, market participants probably start to speculate whether the White House and Donald Trump could start to turn more and more towards Europe and potential tariffs against the Euro-Zone now.
Such a step could drive the Euro surely lower, especially against the US dollar, activating 1.0750 as a target on the downside.
Still, the most likely outcome for the upcoming days in EUR/USD is that the currency pair stays volatile, trading within a range between 1.0900 on the downside and 1.1100 on the upside:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between August 20, 2018, to October 11, 2019). Accessed: October 11, 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 overall picture in the USD/JPY didn't significantly change over the last week of trading.
Despite the rising tensions in the trade dispute between the US and China in the first half of the last week resulting in an attack at the region around 106.80/107.00, the outlook of the two biggest economies globally finding at least a partial trade deal, pushed the USD/JPY back towards 108.50/109.000 into the weekly close.
But we still stay cautious with long engagements in the currency pair, at least as long as the USD/JPY does not sustainably reconquer 108.50/109.00.
This is not only true when looking at the rising political instability in the US around the potential impeachment of President Trump, but also given the (in the USD paragraph above mentioned) QE4-relaunch of the Fed.
And since the next BoJ meeting falls together with the Fed rate decision on October 31, but we still don't see any announcements in regards to this upcoming meeting and the BoJ monetary policy path, we consider another attempt to break back below 106.80/107.00 a serious possibility.
This is still particularly true if any signs of risk aversion start to materialise where a new wave of selling could result in the USD/JPY being pushed below 105.80 and trigger further selling, quickly activating the region around 105.00 again.
On the other hand: a sustainable break back above 109.00 makes further gains up to 110.70/111.00 likely in the days to come:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between August 27, 2018, to October 11, 2019). Accessed: October 11, 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 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
Despite the recent developments and at least partial trade deal between the US and China into the last weekly close with Gold closing below 1,500 USD, the technical picture in Gold hasn't changed.
The precious metal can still be considered stabilising around 1,500 USD which comes as a bit of a surprise after the latest comments from Fed chairman Powell at a speech in Denver last Tuesday.
Here Powell said that the Fed will resume Asset Purchases to prevent a cash crunch, even though he also said that it's not a QE program, but argued that these recent actions differ from crisis-era programmes since they are directed at solving "recent tech issues" rather than materially affecting "stance of monetary policy".
What's surprising is that these Asset Purchases extend (as QE did) the Fed Balance Sheet (which could already be seen after the first liquidity injection by the NY Fed several weeks ago).
With that in mind and in addition to the expected rate cuts by the Fed, darkening US economic projections (thus rising recession fears), we remain bullish and still see our mid-term target around 1,650/700 USD being active.
And even a stint below the current October lows around 1,460 USD wouldn't darken the picture, but instead, bring a potential mid-term long trigger around 1,440/450 USD into play:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between July 13, 2018, to October 11, 2019). Accessed: October 11, 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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