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USD about to take on some bullish momentum again?

September 03, 2018 12:21

Trade With The US Dollar Index

Key Economic Events 3 – 7 August 2018

Forex Calendar

Source: Admiral Markets' Forex Calendar

Equities

DAX30 CFD

Thanks to a strong start in the last week of trading, the DAX was capable of avoiding another attack at the region of the June, July, and August lows of around 12,100 points. But chances are high that the bears are currently thinking "we'll make up for it another time" and in this context, it is noteworthy once again that we are now entering the worst month of the year historically for the DAX30: September.

DAX 30 Monthly Performance

Source: Monthly DAX 30 Performance / Data Range: 1959 - July 2018 - Finanzen

In general, the DAX seems weak compared to its US counterparts: while the SP500 CFD made a new all time high last week, and the US30 CFD trading was within 3% of new all time highs, the DAX30 CFD has to make 10% for such new milestones. With the political landscape in Germany recently presenting itself as a little shaky, together with, rising tensions between Italy and the EU around the refugee crisis, the only chance for positive news in terms of pushing the DAX higher is around signs of a solution in terms of trade between the US and the EU.

The problem: it seems as if chances are slim that the US makes a similar statement towards the EU, like the EU did towards the US last Thursday (there it was said that the EU is willing to scrap car tariffs in their US trade deal). Trump already rejected this offer to eliminate auto tariffs. That being said, it seems unlikely that the DAX will see another attempt to make it back above the SMA (200). So, chances are high that in the near-term we get to see another, aggressive attempt to break through the important support around 12,100 points, which will then be reaching for a near term test of the region of around 11,700 points:

DAX Daily ChartSource: Saturday 01 September 2018 11am CEST - Admiral Markets MT5 with MT5SE Add-on

If you're interested in trading, 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

The US Dollar Index Future kept on correcting its push above 95,00/30 over the last week of trading. The reason can most likely be found in the comments from Jay Powell in Jackson Hole, the weekend before, which seemed to disappoint market participants who obviously hoped for a clearer message in terms of a fourth rate hike of the FED in 2018 in December.

Nevertheless, from a technical perspective the picture in the USD Index remains positive as long as we trade above 93,00 points. And if the US data in the upcoming days, especially around the employment situation on Friday, continues with its solid readings, chances are good that we will get to see buyers stepping up, pushing the USD significantly back above 95,00 points. This positive outlook for the USD is underlined from the speculative positioning in the Commitment of Traders Report, with the big speculators holding with their highest net long position within the last 15 months:

US Dollar Index Weekly ChartSource: Saturday 01 September 2018 11am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

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!

Euro

Knowing that the Euro has a weight of 58% in the basket on which the USD Index Future above is calculated, it doesn't come with a surprise that the EUR/USD extended its rally during the last week of trading, and pushed shortly above 1.1700. Despite this seemingly quite deep regression, the technical picture in the EUR/USD on a daily chart remains bearish, as long as the EUR/USD does not break back above 1.1800, and closes above that level. That being said, and with the potential bullish outlook for the USD in the paragraph above, especially if the incoming US data over the next few days raises again, with speculations of around a fourth rate hike of the FED in December, while the uncertainties around Turkey and Italy remain at an elevated level, a push back to and below 1.1600 in the EUR/USD has a quite high likelihood:

EUR/USD Daily ChartSource: Saturday 01 September 2018 11am CEST - Admiral Markets MT5 with MT5SE Add-on

In this context, it is worth mentioning once again that the big speculators remain sceptical about the Euro, which can be seen on the still rising net-short position in the Commitment of Traders Report:

EURO FX Weekly ChartSource: Saturday 01 September 2018 11am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

CAD

As expected in Admiral Markets' weekly market outlook last week, USD/CAD pushed back below 1.3000. The main driver was the speculation that after the US and Mexico agreed on a new NAFTA agreement, there will be a solution presented between the US and Canada soon as well. In this context US president Donald Trump stated on Wednesday that talks with Canada are going well, expressing optimism that the two countries could reach a deal in the next few days. This hope was destroyed on Friday when the news that the first negotiation went badly, and hit the wire, pushing USD/CAD back above 1.3000.

With this in mind, the BoC rate decision on Wednesday, and the employment report being published on Friday next to the NFPs, delivers plenty of volatility triggers which could result in some CAD fireworks, but not necessarily on the (CAD) upside anymore. From a price action perspective, scepticism seems appropriate, resulting out of the fact that after the push below 1.3000, and with USD/CAD trading as low as 1.2900, the USD/CAD reversed and began trading back towards 1.3000, instead of moving in a downward direction toward 1.2750.

Putting this in context with the fundamental situation, this could be a sign that, even if a final deal between the US and Canada is reached, most of the potential positive CAD news is already priced in, and the BoC does not have that much potential to surprise with a more hawkish stance on Wednesday, especially after Poloz said in Jackson Hole, that "taking a gradual, data-dependent approach to monetary policy can help manage risk to the inflation outlook in the face of economic uncertainties such as digital disruption". Even though the option of a push towards 1.2750 is still given as long as the USD/CAD trades below 1.3180/3200, it seems realistic that the USD/CAD could, especially if incoming Canadian data and the BoC does only fulfill (or miss?) market expectations next week, which could then result in a stabilisation back above 1.3000:

USD/CAD Daily ChartSource: Saturday 01 September 2018 11am CEST - Admiral Markets MT5 with MT5SE Add-on

GBP

Pound Sterling surprised over the last week of trading, when it was pushed back above 1.3000 against the USD after comments from EU chief negotiator Barnier, who said that the EU is prepared to offer Great Britain a partnership such that ''has never been with any other third country''. Based on that potential, chances seem good that GBP will probably see further gains in the days to come, even though the outlook for the Euro is several lines above, and is not that positive, while correlation between the EUR and GBP remains high (note: that being said, EUR/GBP is probably interesting to watch from a short perspective…). Nevertheless, as long as GBP/USD trades below 1.3350, the overall picture on a daily chart remains bearish, with a potential target of around 1.2600 into the end of the third quarter 2018.

GBP/USD Daily ChartSource: Saturday 01 September 2018 11am 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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