Trump threatens Europe with tariffs – DAX30 CFD about to drop back below 13,000?
Source: Economic Events Calendar November 18 – 22, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
After making it sustainably back above 13,000 points over the first days of November and stabilising above that, chances seem high that the German index will continue to consolidate there over the next few days, reducing the extended mode on the upside over time.
The main reason we do not expect a deeper corrective move is in the thin economic calendar in the coming days, but also Thanksgiving and Black Friday in the week ahead. resulting in lower than usual volatility and shortened trading hours in US equities which will have a similar impact on positively-correlated European pendants.
Nevertheless, bulls shouldn't be too over-confident, too: Trump's speech at the Economic Club in New York last Tuesday showed not only a new wave of Fed bashing, but for the Euro and European equities more important, a comment point out that Europe set up 'terrible' barriers for the US on trade, in fact in some ways worse than China.
Since we consider the speech to be kind of a pre-election party, we doubt that rather sooner than later Trump will come up with significant steps like auto-tariffs for Europe. But any signs could definitely result in a sharper decline in the German index, pushing the DAX30 CFD back below 13,000 points.
Still, given the recent and very dovish stances from the ECB and Fed, 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:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between May 15, 2018, to November 15, 2019). Accessed: November 15, 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
The last week of trading hasn't delivered any new hints as to where the US dollar and our outlook is headed. After 10-year US-Treasury yields took on bullish momentum in the first half of November, gaining over 20 basis points and driving the US dollar Index Future higher, the last week hasn't shown any significant signs of volatility.
And with the economic calendar being thin in the days to come and Thanksgiving and Black Friday in the week ahead, this will likely not change.
Still, we remain sceptical for the US dollar into at least the end of the year 2019 with not only the latest "bashes" from US president Trump in front of the Economic Club in New York last Tuesday, but also the aggressive extension of the Fed Balance Sheet within their announced "Non-QE"-QE program, where the current plan is to buy US Treasuries for the next 8.5 months at a pace of 60 billion USD per month. And given the fact expectations among market participants of another Fed rate cut by 25 basis points in December dropped to around/below 5% over the last few days, this leaves markets a little too biased to a "wait-and-see" approach from the US central bank.
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:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to November 2019). Accessed: November 15, 2019, at 10:00pm GMT
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Euro
After we pointed out in our last weekly market outlook we pointed out that the outlook for the Euro hasn't significantly changed over the last few days and sharper moves in one or the other direction depend on the developments in the US dollar and here especially in US yields.
With volatility in US yields having been subdued in the last days and this is not likely to change over the next few days, but also the next week with Thanksgiving and Black Friday ahead, the latest comments from US president Trump raise some attention.
At a speech at the Economic Club in New York last Tuesday Trump not only bashed the Fed again, but said that Europe set up 'terrible' barriers for the US on trade, in fact in some ways worse than China.
Since we consider the speech to be kind of a pre-election party, we doubt that rather sooner than later Trump will come up with significant steps like auto-tariffs for Europe.
That said, 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.
Nevertheless, we should carefully watch any comments from Trump towards Europe in regards to tariffs: even though we consider these unlikely with a Phase-1-deal with China still not signed, any surprising move here could push the EUR/USD sustainably back below 1.1000:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between May 16, 2018, to November 15, 2019). Accessed: November 15, 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
The outlook for the Japanese Yen hasn't in fact changed over the last week. After the USD/JPY pushed back towards 109.00/30, mainly driven by 10-year-US-Treasury yields which took on bullish momentum in the first half of November, gaining over 20 basis points and driving the positive correlated USD/JPY higher, too. Subdued volatility in US yields also calmed volatility in the USD/JPY.
And it seems as if the low volatility outlook for the USD/JPY will not change over the next few days and also the next week with Thanksgiving and Black Friday ahead, reducing chances of risk on/off driven moves in yield and currencies, especially JPY.
Still, with US inflation coming in below 2% at 1.8% last Wednesday and market participants not seeing any further dovishness from the Fed into the yearly end, markets seem a little too biased to a "wait-and-see" approach from the US central bank.
That said, we still consider the Short-side in the USD/JPY to be more attractive from a risk-reward-perspective. Not only that a rise in rate cut expectations could trigger a push lower in USD/JPY, but also rising pressure on US president Trump in regards to the current impeachment developments, resulting in the Chinese using these developments as a tool to build further pressure on the US and Trump, telling them to give up on all already imposed tariffs, else they won't negotiate further on the Phase-1-deal, are potential risk drivers and should be watched carefully.
With that in mind, any spikes above 109.00/30 in USD/JPY should be carefully watched, present themselves as potential fake outs, resulting in USD/JPY go for another stint to the region around 108.00:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between May 30, 2018, to November 15, 2019). Accessed: November 15, 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
After Gold stabilised around 1,500 USD over the month of October, the yellow metal finally saw a deeper correction down to the crucial region around 1,440/450 USD after 10-year US-Treasury yields saw a sharp rise of over 20 basis points into the start of the month of October.
With all in all solid NFPs and ISM data sets and expectations among market participants of another Fed rate cut by 25 basis points in December dropping to around/below 5%, making such a step very unlikely, at first glance it seems as if our bullish outlook for Gold darkened a little.
But we'd like to be a little careful here: with US inflation coming in below 2% at 1.8% last Wednesday and market participants not seeing any further dovishness from the Fed into the yearly end, markets seem a little too biased to a "wait-and-see" approach from the US central bank.
While the upcoming days and also the next week with Thanksgiving and Black Friday should present themselves with overall low volatility, we still view the current prices in Gold as very interesting for Long engagements from a risk-reward perspective. This seems to be especially true with knowing that from Mid-December till Mid-/End-January a seasonal bullish pattern in Gold opens (further details on that in one of the upcoming Weekly Market Outlooks).
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:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between March 29, 2018, to November 15, 2019). Accessed: November 15, 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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