After G20, before NFPs: Gold in corrective territory – buy the dip?
Economic Events July 1 -5, 2019
Source: Economic Events Calendar July 1 – 5, 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
We are probably about to enter one of the most interesting stages of the trading year.
The G20 summit in Osaka left market participants curious; market participants are unsure if we can really believe the truce between the US and China after the meeting between Trump and Xi Jinping at the G20 summit in regards to a potential trade deal.
Nevertheless, in general, we tend to believe that any signs of ongoing negotiations between the two countries could be interpreted as positive, leaving DAX bulls with the chance of another attack of the current yearly highs around 12,450 points.
In fact, with the expected calmness in the second half of the week (The 4th of July is a bank holiday in the US, Independence Day) and with US Equity markets closing at 5pm GMT Wednesday, a drift higher due to lower volatility seems likelier than a sharp drop lower in the DAX30 CFD.
Still, the week closes with a potential market mover: the NFPs. In general, it seems difficult to draw a concrete conclusion of which direction Equity markets will most likely react after a positive or negative reading, even though we favour an Equity-bullish outcome on good NFPs, since a dovish Fed in the next 6 month period is already expected, and a good NFP reading won't significantly impact this hawkish expectation.
Technically, a break to new yearly highs levels the path up to 12,600 points and 12,870/900 points.
Only a drop below 11,600 points and the SMA(200) would be considered a bearish sign and seems unlikely, at least for now:
Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD daily chart (between March 5, 2018, to June 28, 2019). Accessed: June 28, 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 outlook for the US dollar hasn't significantly changed from our weekly market outlook from last Monday.
10-year US-Treasury yields stabilised around 2%, but still around their lowest level before Trump's election in November 2016.
The potential main reason, therefore, seems to be found in the comments from James Bullard on Tuesday when he mentioned in a Bloomberg interview that a 50bp rate cut in July would be overdone. That is, in fact, interesting since the Fed Watch Tool showed earlier that day that market participants expect a 0.5% cut at the next Fed meeting by nearly 40%.
That this delivers short-term fuel for a USD stabilisation is, in our opinion, a perfect illustration of how likely a very dovish Fed in the months to come is and that the advantage in the USD can still clearly be found on the short-side, even though from a technical perspective the mode in the USD index Future stays at least neutral above 95.00 points on a weekly time-frame.
While the bank holiday next Thursday (4th of July, Independence Day) slightly increases chances of a stabilisation in UST yields and the USD Index Future above 95.00, disappointing data from the US economy could, especially with the NFPs on Friday, could trigger a next wave of selling the US dollar and leave the currency vulnerable to a serious attack of the important support region around 95.00:
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between May 2016 to June 2019). Accessed: 28 June 2019 at 10:00 PM GMT
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Euro
The last week didn't deliver anything really new for the European currency, and here the EUR/USD.
While we stay cautious in regards to Long engagements in the EUR/USD after ECB president Draghi made further monetary stimulus from the ECB a topic at a speech in Sintra, Portugal, which resulted in a sharp shift in the markets implied probability of an ECB rate cut by September from initially 40% on Monday to 87% last Tuesday and fears among Euro bulls of another round of trade war escalation between the US and EU and tweets of US president Trump, a stint up to 1.1450/1500 still stays an option.
The reason can be found in the paragraph around the US dollar above: even with some solid incoming US data (e.g. positive NFPs next Friday), the market clearly shows that a more hawkish stance from the Fed shouldn't be expected - which leaves EUR/USD to some extent in a win-win-spot: while good US data won't necessarily trigger a push lower towards and below 1.1300, disappointing data, on the other hand, could result in a dynamic push higher up to 1.1500:
Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between March 19, 2018, to June 28, 2019). Accessed: June 28, 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 EURUSD 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
After the G20 summit in Osaka/Japan, and with several important US economic indicators being published in the days to come, the USD/JPY is of serious interest in the days to come.
While a further escalation of the trade war between the US and China seems to be off the table for now and both countries will rather sooner than later resume with their negotiations based on the information being gathered after Trump and Xi met on Saturday, the USD/JPY stays technically bearish on a daily time-frame below 108.70/109.00.
If in the days to come economic data from the US (ISM, NFPs) continues to disappoint and bringing UST yields under pressure again, a push lower, bringing the region around 106.80/107.00 into our focus again, seems likely with a break lower levelling the path down to the Flash Crash lows from January around 105.00:
Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between March 29, 2018, to June 28, 2019). Accessed: June 28, 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 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
In our several technical pieces and weekly market outlooks over the last weeks, we saw Gold with serious bullish potential if the multi-year-resistance zone around 1,360/365 USD triggered by a very dovish interpreted Fed on June 19.
And we weren't disappointed. Over the last week, the precious metal continued to storm higher and hit a first potential target on the upside around 1,440 USD, a high being marked in September 2013 and currently acting as a potential stop-over up to the long-term target at 1,700 USD.
Nevertheless, with the mode looks a little extended with the RSI(14) on a daily-time-frame hitting its highest level since February 2016. From that perspective, the risk-reward for long engagements seems to become a little unattractive and any solid, probably better than expected US data set like the ISM data on Wednesday or the NFPs on Friday could trigger a deeper correction, even though we still consider a dip as low as 1,360/365 very optimistic.
On the other hand and based on our experience, we know Gold being quite trend-stable and even if the mode looks quite extended, Gold could continue to trade even higher without looking back.
This seems especially true if the incoming US data continues to disappoint in the days to come. That said, further gains up to 1,480/490 USD, a high from May 2013, are a serious option, too:
Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between March 19, 2018, to June 28, 2019). Accessed: June 28, 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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