USD has difficulty gaining bullish momentum – bears waiting to strike?
Source: Economic Events Calendar May 13 – 17, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
As expected, US president Trump's announcement to increase tariffs from 10 to 25% on Friday, May 10, resulted in a sharp drop in equities and the German DAX30 CFD.
Still, the German index stabilised above 12,000 points and found, as expected in our last weekly market outlook, an initial solid support.
Nevertheless, if the trade war between the US and China escalates, and no deal between the two countries is struck (Liu He, the Chinese chief negotiator, left without any deal being presented and no future talks scheduled as of today), a significant drop below 12,000 points and back below the SMA(200) is a serious option since markets have clearly believed in several tweets from US president Trump over the last months, saying that trade talks are going well, and built part of the rally in Equities on this belief.
On the other hand, we are technically still bullish on a daily time frame, and even though we would have to wait for further details on a trade deal, it seems possible that the DAX30 CFD starts another attack at the region around 12,450/500 points:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between January 15, 2018, to May 10, 2019). Accessed: May 10, 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
Surprisingly, volatility in Forex markets and the US dollar has been relatively low after the announcement of new tariffs on Chinese goods from last Friday onwards and still, no trade deal between the US and China is in sight.
At first glance, this should usually be a potential bullish driver for the US dollar, but instead, the currency stabilised at an elevated level.
Given the current fundamental and technical picture, we sustain our bullish outlook for the US dollar, even though we keep a close eye on the Fed Watch Tool where, surprisingly, market participants once again see a chance of a rate cut by the Fed of nearly 60%, even though Fed chairman Powell emphasized that the Fed does not see a case for moving the Fed's monetary policy 'in either direction'.
On the upside, a substantial break above 98.00 points still levels the path up to 100.00/50 points, resulting out of the projected target of the range, only a drop back below 95.00 points darkens the technical bullish picture:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to April 2019). Accessed: May 10, 2019, at 10:00pm GMT
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Euro
The picture for the Euro didn't change over the last week of trading. Even though it could be expected to see the US dollar appreciate against the Euro after Trump's tweet last Sunday, after several threats against the Eurozone to impose tariffs on European goods, the Euro presented itself stable against the USD.
A potential reason comes from the chance of no deal being struck between the US and China which keeps demand of the Euro from the Chinese consistent, since the Chinese are unlikely to move away from European imports and support competitive US companies.
For the coming week, the picture in the EUR/USD remains unspectacular as long as we hold above 1.1100 respectively trade below 1.1330. Only a break higher/lower would trigger a potential dynamic move and lead to stronger intraday-trends. In the case of the downside with an initial target around 1.0900/0950, and on the upside around 1.1450/1500:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between January 16, 2018, to May 10, 2019). Accessed: May 10, 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%.
GBP
The Pound Sterling is currently a play ball of politics, especially against the US dollar: as we pointed out in our last weekly market outlook, after Trump's announcement of new tariffs on Chinese goods last Friday, a push below 1.3000 remained an option over the last few days.
But it wasn't USD strength resulting out of Trump's tweet, but rather the political (and Brexit) uncertainties that pushed GBP lower and below 1.3000 again.
So far, talks between U.K. Prime Minister Theresa May and the opposition Labour Party to find a Brexit agreement are going nowhere, putting even more pressure on May after a disastrous string of failures for her Conservative Party in local elections the week before.
That said, a sustainable break below 1.3000, probably triggered by weak employment data on Tuesday, levels the path to 1.2880 and below to 1.2700, while only a break above 1.3180 opens the door for further gains up to 1.3350/3400:
Source: Admiral Markets MT5 with MT5-SE Add-on GBP/USD Daily chart (between January 16, 2019, to May 10, 2019). Accessed: May 10, 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 GBP/USD fell by 5.9%, in 2015, it fell by 5.4%, in 2016, it fell by 16.3%, in 2017, it increased by 7.4%, in 2018, it fell by 5.6%, meaning that after five years, it was down by 22.9%.
Gold
Even though volatility spiked over the last week of trading after Trump announced new tariffs on Chinese goods from last Friday onwards, increasing chances that no trade deal between the US and China will be found, Gold didn't take on significant bullish momentum and stabilised between 1,266 USD and 1,290 USD.
That said, the bearish outlook for the precious metal after the break of the neckline of the head-shoulder formation persists.
In fact, it looks as though we will have to wait to see the direction in which Gold shifts in reaction to a deal being struck or not. Since last year, we have quite often identified a positive correlation between Gold and the Yuan Renminbi which could be hit if no deal is found, leaving Gold vulnerable to losses, as well, even though rising volatility and a resulting risk-off mode in financial markets usually speaks for gains in the yellow metal.
But however we put it: if we break below 1,266 USD, further losses in Gold are likely and an initial projected target can be found around 1,230/235 USD.
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between January 31, 2018, to May 10, 2019). Accessed: May 10, 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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