Economic Events July 19 – August 23 2019
Source: Economic Events Calendar August 19 – 23, 2019 - Admiral Markets' Forex Calendar
The picture in the DAX30 CFD darkened significantly over the last week of trading.
After on Tuesday signs intensified that trade talks between the US and China could take on fresh momentum when the news agency of the Chinese Government Xinhua reported that China's Vice Premier Lui spoke with Robert Lighthizer and US Treasury Secretary Mnuchin will hold discussions again within the next two weeks via phone, but especially that US president Trump decided to delay the announced 10% tariffs from September on Chinese goods due to concerns over the Christmas shopping season, Equities around the globe dropped sharply on Wednesday giving back all their previous relief rally gains.
One potential main driver were rising fears of a US recession after 10-year US-T-Note-yields dropped below their 2-year pendant for the first time since 2007, but also the news that the Chinese government said that the US violates the Xi-Trump consensus with a new 10% tariff and that it has to take necessary countermeasures.
What's especially concerning in our opinion is the fact that trust in comments on a trade solution in general and especially from the White House and Donald Trump are not capable of creating any optimism among market participants anymore, while markets have already priced in a significant portion of further monetary stimulus from the US central bank and also the ECB.
In the case of the ECB, it can be seen by the fact that the latest comments from Finnish ECB member Rehn who said in an interview with the Wallstreet Journal last Thursday that "it is important that we (the ECB) come up with a significant and impactful policy package in September" which didn't result in significant bullish momentum in the German index.
That said and in combination with the now bearish technical picture with the German index having now sustainably dropped below its SMA(200) a drop below 11,250 points leaves the DAX30 CFD vulnerable to drop as low as 10,800 points in the days to come.
Only a pullback above 11,850 points could brighten the technical picture on a daily chart, but seems highly unlikely in our opinion:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between May 18, 2018, to August 16, 2019). Accessed: August 16, 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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In our last weekly market outlook we pointed out that from a technical perspective:
[…] the price action in the USD Index Future should be expected to stay choppy, especially as long as we trade between 95.00 and 98.00 points[…]
And with the USD Index Future still trading below 98.00, but above 95.00 points, despite the ongoing drop lower in 10-year T-Notes [which is likely to continue due to our expected reduction of 10-year-US-T-Note yield-Longs (in this context have also a look at the Commitment of Traders Report) and a following acceleration in 10-year-USTs to new All Time Lows], the overall picture seems to not have significantly changed.
All in all a further escalation in the trade war between the US and China could result in an even more aggressive risk off mode in markets with expectations of an aggressive easing Fed resulting in higher volatility, especially in the USD.
Still, we favour a breakout on the upside out of the 95-98 trading range.
This is in our opinion not only given due to the expected appreciation of currencies against the USD, since countries like China, but also the EU, UK or Japan will likely anticipate further protective measures from Trump.
But that said, such a devaluation especially of the Euro is also necessary from a pure fundamental perspective with the German economy showing further signs of an upcoming recession after German GDP data on Wednesday (note: the German economy shrank in Q2/2019 (QoQ), for the first time since Q3/2018), making the ECB more likely to act at her September meeting (based on ECB's Rehn comments in the WSJ last Thursday, it is in fact often better to overshoot than undershoot), coming up with a rate cut and a potential re-launch of QE.
A break of the range above 98.00 in the USD Index Future activates the psychological relevant region around 100.00 points as a first target:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to August 2019). Accessed: August 16, 2019 at 10:00pm GMT
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In our last weekly market outlook we noted
[…]we are very sceptical if we can get to see a (sustainable) push back towards 1.1300, reason: : the ECB will likely come out very dovish at her meeting on the 12th of September (rate cut to -0.1% and potentially a revival of her QE program in one or another way).[…]
This idea at our end was confirmed from Finnish ECB member Olli Rehn, who said in an interview with the Wallstreet Journal last Thursday that "it is important that we (the ECB) come up with a significant and impactful policy package in September".
In combination with the announcement of a delay of Trump's additional 10% tariffs on Chinese goods from September until December 15 last Tuesday, which only resulted in a short-term relief rally and risk off among market participants picking up momentum again from Wednesday into the weekly close, while the Euro didn't pick up bullish momentum again, we now see the midterm advantage in the currency clearly on the short-side.
Especially after German GDP data on Wednesday showed a shrinking German economy in Q2/2019 (QoQ) for the first time since Q3/2018, but also based on our expectations of rather than later necessary countermeasures in regards to further protectionist actions taken from the US and Trump (=devaluation of the affected economy/currency), we still see a significant drop below 1.1000 in the weeks and months very likely with a break lower activating 1.0750 as a first potential target:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between June 15, 2018, to August 16, 2019). Accessed: August 16, 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%.
AUD and JPY
After devoting a section in our last weekly market outlook on the AUD/JPY, we want to add today USD/JPY to our analysis.
After USD/JPY went for a test of the January Flash Crash lows around 105.00 last week, we saw a sharp bounce on Tuesday, after news hit the wire that that trade talks between the US and China could take on fresh momentum again.
Especially the fact that US president Trump decided to delay the announced 10% tariffs from September on Chinese goods due to concerns over the Christmas shopping season, JPY saw heavier selling while the tight 'risk off grip' loosened a little.
Still, on Wednesday with finding stronger resistance around 106.80, USD/JPY dropped back below 106.00 again, after 10-year US-T-Note-yields dropped below their 2-year pendant for the first time since 2007, intensifying recession fears among market participants.
That said, we still remain irritated why large speculators in the Commitment of Traders Report hold on their elevated net-short 10-year-US-T-Note position.
With expecting a rather sooner than later reduction of yield-Longs and a following drop in 10-year-USTs to new All Time Lows, a drop below 105.00 in USD/JPY seems only a matter of time and we remain bearish.
The same is true for AUD/JPY where the current risk-off-mode has chances to increase over the days to come and where signs of an upcoming dovish RBA in the minutes on Tuesday could trigger further weakness and result in a drop below the psychological relevant level at 70.00:
Source: Admiral Markets MT5 with MT5-SE Add-on AUD/JPY Daily chart (between May 31, 2018, to August 9, 2019). Accessed: August 16, 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 AUD/JPY increased by 4.1%, in 2015, it decreased by 10.4%, in 2016, it decreased by 3.5%, in 2017, it increased by 4.0%, in 2018, it decreased by 12.1%, meaning that after five years, it was down by 17.7%.
Last week, Gold bulls shortly gulped: after on Tuesday the news hit the wire that US president Trump decided to delay the announced 10% tariffs from September on Chinese goods due to concerns over the Christmas shopping season, Gold shortly dropped back below 1,500 USD.
But after 10-year US-T-Note-yields dropped below their 2-year pendant for the first time since 2007, intensifying recession fears among market participants on Wednesday and the Chinese government saying that the US violates the Xi-Trump consensus with a new 10% tariff and that it has to take necessary countermeasures, the yellow metal stabilised significantly above 1,500 USD and in combination with the now open bullish seasonal window, further gains seem likely.
The bullish seasonal pattern between August 15 and September 5 looks as follows: here, over the last 21 years, Gold saw in 16 years an average gain of 28.48 USD while in the remaining five years, Gold dropped on average only 13.34 USD, while the maximum loss was 42.75 USD and the maximum drawdown being 50.85 USD.
That said, our midterm target on the upside around 1,650/700 USD stays active, technically on a daily time-frame as long as we trade above 1,380 USD:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between May 17, 2018, to August 16, 2019). Accessed: August 16, 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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