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​US Dollar bears take over, bullish outlook for EUR/USD, GBP/USD and Gold into the end of Q3/2018

September 24, 2018 11:20

Weekly Market Outlook

Economic Events 24 – 28 September 2018

Forex Calendar

Source: Admiral Markets' Forex Calendar

DAX30 CFD

The DAX30 CFD is about to start the new and final week of its weakest month of trading from a performance perspective, September, with an overall positive outlook. After we faced a serious chance of a push towards and below the yearly lows at the beginning of the month, the bulls brought the DAX significantly back above 12,000 points.

With the economic docket being thin over the next days, and the tensions between the US and China around an escalation of a trade war beginning to diminish a little (please note: the Trump administration announced tariffs on approximately 200 billion USD worth of imports from China, effective from Sept 24, but the tariff rates will only be lifted to 25% in January 2019, which means that there is still some time for China and the U.S. to engage in negotiations, which also resulted in equity markets being able to present themselves as stable over the last few days), there seems to be a good chance for a monthly close above 12,000 points.

Nevertheless, the overall outlook for the DAX remains bearish from a technical perspective, since we still trade below the SMA (200), with the overall picture starting to brighten up if the bulls push the DAX back above 12,600 points. As long as this is not the case, there is still a high chance that another attack of the yearly lows around 11,7000 points will be initiated, if not next week (which is unlikely), then within the last three months of the year.

Source: Accessed Saturday 22 September 2018 9am CEST - Admiral Markets MT5 with MT5SE Add-on

If you're interested in trading yourself, make sure to check out Admiral Markets' most competitive conditions on the DAX30 CFD and Dow Jones CFDs, and start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!

US-Dollar

In Admiral Markets' previous weekly outlook it was observed that: "after the ECB rate decision it seems as if the probability of such a stint (towards 97,00) is not only lower now, but in fact higher, and a test of the important support region around 93,00 is very likely."

And even though yields of 10-year US-Treasury Notes rose to their highest level since May 2018, and above the psychologically relevant level at 3%, the Greenback couldn't really profit from it and take on momentum, and dropped instead to its lowest levels since June 2018. That being said, the US Dollar currently walks on a very thin line, right before the rate decision of the FED on Wednesday: to understand this a little better, we should recall the significantly stretched net short exposure in 10 year US-T-Notes, which could sooner rather than later result in a massive short squeeze (whereby = T-Notes go up, and US yields go down).

10 Year Treasury Notes

Source: Accessed Saturday 22 September 2018 9am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

Such a loss of at least some of the yield advantage the US Dollar currently holds against the Euro or the GBP (induced by a slightly more dovish than expected touch of the FED statement) could trigger further losses in the "Buck", and could result in a very dynamic move on the downside into the end of the third quarter of 2018 going into next week, meaning on the other hand that the EURUSD and GBPUSD are probably about to close the third quarter in the region around their highs of around 1.1800 to 1.3350 respectively. If you'd like to learn more, don't forget to register for the weekly webinar "Admiral Markets' Weekly Market Outlook" with Jens Klatt, every Friday at 12pm London time! It's your opportunity to follow Jens as he explores the weekly market outlook in detail, so don't miss out!

Trade Forex & CFDs

Euro

After reading the paragraph around the US Dollar, it comes with no surprise that our outlook for the EUR/USD in the upcoming week of trading is bullish. But it is not only the potential sharper drop in the US Dollar which is the main reason here, but also, the comments from Mario Draghi at the press conference on 13 September, that the ECB won't tolerate an aggressive overshoot on their inflation target rate at 2% (which is very hawkish compared to the FED (which is willing to allow inflation to be symmetrical above 2%).

And on top of that, there is now also increasing optimism that the EU and the United Kingdom are willing to find a solution which is more or less widely known as "Soft BREXIT", which may potentially result in reduced negative impacts for the UK, but also the European economy after Great Britain leaves the EU. From a technical perspective, a break above 1.1800/1850 could result in further gains in the fourth quarter of 2018, pushing the EUR/USD back above 1.2000 and towards 1.2150/2200.

EURUSD

Source: Accessed Saturday 22 September 2018 9am CEST - Admiral Markets MT5 with MT5SE Add-on

GBP

In Admiral Markets' previous weekly outlook the following observations were made: ''Keeping in mind the still elevated short position of the large speculators in the Commitment of Traders Report, chances seem good that with a simultaneous reduction of longs in the USD, GBP/USD can push back towards and above 1.3200 in the next week of trading"

On Friday news hit the wire that after some productive and accommodative negotiations between the EU and Great Britain, the atmosphere froze at a meeting between the EU and UK in Salzburg, Austria. UK Prime minister May pointed out that the offered deal from the EU is unacceptable and before taking it, she would go for a "No deal" solution (i.e. a 'Hard Brexit').

Pound Sterling took a hit, with GBPUSD closing the week below 1.3100. Nevertheless, things look positive for Pound Sterling, and it's possible that GBP bulls are not yet done on the upside, especially with the very sceptical outlook for the US Dollar, while there is still a good chance that the EU and Great Britain will find a deal within their Brexit negotiations, which reduces the negative impact on the British economy, but also the European and German economies. That being said, big speculators might keep on reducing their short bets on Pound Sterling which were interestingly increased slightly to the week before, when looking at the latest Commitment of Traders Report data from last Tuesday, published on Friday:

British Pound

Source: Accessed Saturday 22 September 2018 9am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

Technically speaking, GBP/USD still eyes the Q3/2018 highs, even though a test in the last week of trading in Q3 around 1.3350 is not very likely after the developments in Salzburg last Friday. GBP/USD might lose its short-term bullishness, but only if there is a drop back below 1.2800.

GBPUSD

Source: Accessed Saturday 22 September 2018 9am CEST - Admiral Markets MT5 with MT5SE Add-on

Gold

There is not much left to say for Gold, except the following: with the bearish outlook for the US Dollar above, especially if the net short sentiment extreme in 10-year T-Note futures unwinds, we are probably about to see a significant attack and break of the region around 1,215 USD/ounce in Gold in the next few days of trading. From a technical standpoint, short-term bullishness in Gold is to be favoured as long as we trade above 1,185 USD, even though price action purists might argue that here we are only talking about a swing low, and that we have to wait until we break above 1,215 USD, so that we can start talking about bullish structure and a short-term trend support:

Gold CFD

Source: Accessed Saturday 22 September 2018 9am CEST - Admiral Markets MT5 with MT5SE Add-on

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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