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US Retail Sales could fuel recession fears again – will Gold profit?

February 18, 2019 13:30

Could Gold reach new highs while recession looms?


Economic Events: February 18-20, 2019

Weekly economic events calendar

Source: Economic Events Calendar February 18 – February 22, 2019 - Admiral Markets' Forex Calendar


DAX30 CFD

After the past week of trading, the overall picture for the DAX30 CFD did not darken. Instead, the DAX30 CFD traded back above 11,000 points and stabilised there.

Nevertheless, with last Thursday's unexpectedly disappointing US retail sales data coming in at -1.2% for December, marking the biggest drop since September 2009, the first signs of risk off among market participants was found in equity markets since recession fears began to arise again.

From a technical perspective, the question for the upcoming week will be whether further bearish momentum will push the DAX30 CFD below the current February lows of around 11,860 points.

If so, further losses are likely, with the DAX30 CFD finding an initial target around the 2018 lows of 10,280 points. If the bulls can regain control, and continue the astounding performance shown last Friday, a push above 11,400 points could be coming and induce further bullish momentum up to 11,550/600 points.

DAX 30 CFD index daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between November 3, 2017, to February 15, 2019). Accessed: February 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%. Check out Admiral Markets' most competitive conditions on the DAX30 CFD 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 reconquered the technically relevant level of around 96.70 in the first half of last week. While this break, from a technical perspective, levels the path towards the 2018 yearly highs of around 97.70, last Thursday's disappointing US retail sales data coming in at -1.2% for December - making this the biggest drop since September 2009 - clearly took the momentum from the bull's side.

Though we are only looking at one month's data, US retail sales can be considered to represent the backbone of the US economy. Amid rising recession fears over the last months, this reading could initiate another period of weakness for the US dollar, driven by capital outflows from the world's largest economy.

Before the picture for the US dollar starts to darken, a break below 95.00 points needs to be brought in its way. But the near-future seems to favour the short-side for the dollar, and a significant push below 97.00 points seems likely.

US dollar index weekly chart

Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2016, to January 2019). Accessed: February 15, at 10:00pm GMT

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

The EUR/USD continued to move ever lower over the last week of trading, reaching new yearly lows and only just falling short of a re-test of the region around 2018 yearly lows of 1.1200.

With the combination of the sceptical outlook for the US dollar in the section above, and the economic calendar not only being thin for the US dollar but also for the Eurozone (despite the EZ Consumer Confidence Flash and some EZ PMIs on Thursday), a break below 1.1200 in the upcoming days seems unlikely.

Even if, for whatever reason, the EUR/USD breaks below 1.1200, the thin market environment could trigger a dynamic and sharp move down to 1.1000. Nevertheless, between 1.1200 and 1.1600 the EUR/USD stays neutral on a daily time frame:

EUR/USD index daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between November 25, 2017, to February 15, 2019). Accessed: February 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%.


CAD

Once again, the economic calendar is quite thin for the Canadian dollar in the upcoming days, despite a speech from BoC Governor Poloz last Thursday, and Canadian retail sales on Friday. But, the picture for the currency still looks very interesting from a technical perspective.

As pointed out in our weekly market outlook last Monday, the rhetoric from Bank of Canada Deputy Governor Timothy Lane pointed to a more dovish stance for the BoC, especially after it declared plans to intervene in markets if necessary, in response to the past sharp movement of the CAD exchange rate.

From a technical perspective, chances still seem high that USD/CAD will go for a test, probably trying to reconquer 1.3370/3400 in the coming week. If a break back above that level succeeds, further gains up to 1.3670/3700 are to be favoured.

USD/CAD daily index chart

Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD Daily chart (between November 15, 2017, to February 15, 2019). Accessed: February 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/CAD increased by 9.4%, in 2015, it increased by 19.1%, in 2016, it fell by 2.9%, in 2017, it fell by 6.4%, in 2018, it increased by 8.4%, meaning that after five years, it was up by 28.4%.


Gold

The picture for Gold stays bullish, not only from a technical perspective - but after the US retail sales data last week last Thursday, from a fundamental perspective as well.

After Gold initiated a significant break above 1,300 USD/ounce after the FED declared a more flexible in approach to the balance sheet runoff, the current stabilisation of 10-year US Treasury note yields and the US dollar let Gold correct down into the region of its breakout two weeks ago.

However, the overall picture for the precious metal remains positive from a fundamental perspective, despite the balance sheet runoff flexibility, ongoing tensions between the US and China in terms of trade, US retail sales data fuelling recession fears among market participants, and rising scepticism around the dollar. Long engagements against 1,295/299 still seem interesting, especially since the technical picture in Gold on a daily time frame can be considered long given that Gold trades above 1,275/277 USD/ounce.

In general, a test of the 2017/2018 highs around 1,360remains an option in the coming days.

Gold index daily chart

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between November 15, 2017, to February 15, 2019). Accessed: February 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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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer that refer to any past performance is not a reliable indicator of future results.
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