Weekly Market Outlook: DAX with a fake out above SMA (200), GBP/CAD as an attractive seasonal Short?

Key Economic Events 6 August – 3 August 2018

Source: Admiral Markets' Forex Calendar

Equities

DAX

Even though Apple could convince many with its numbers for the second quarter of 2018, the Equity markets took a hit, and especially the DAX, which fell back below its 200-SMA on a daily basis. Currently it seems as if the market is losing its positive attitude, mainly due to the fact that after Apple's recent earnings release, there seems be no further positive driver out there which could outstrip the fears around the escalation of a trade war between the US, China, and the EU.

From a technical perspective, nothing bad has happened to the DAX so far. However, this is only true as long as the DAX is capable of holding the level around 12,400 points. A drop below makes a quick and dynamic test of the June and July lows of around 12,100/130, which are likely. And if bulls can't hold the 12,100/130, further losses and a test of the yearly lows around 11,700 points should be inevitable.

Is there anything positive to expect for the DAX in the upcoming days?

Not really… To brighten the picture up the bulls need to push the DAX back above 12,900, which seems to be nearly impossible with no game-changing data to be expected.

Source: Sunday 5 August 2018 1:45pm CEST - Admiral Markets MT5 with MT5SE Add-on

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US-Dollar

The economic data coming in the last days from the US has been very solid, and underpinned the statement of the FED on Wednesday that economic growth is still strong, favouring further gradual rate increases. The Non-Farm Payrolls on Friday disappointed, which came in with 157,000 (where the expected number was around: 193,000), this is well below the average monthly gain of 203,000 over the prior 12 months. On the other hand, the numbers for May and June were revised higher (combined +59,000) and the Average Hourly Earnings came in as expected (at 0.3%).

All in all, the data set can be considered "solid", and so it comes with no big surprise that the USD Index Future still eyes the region of around 95,00/30, with a serious attack in the upcoming week seeming likely. That said, and by taking a look at the Euro, which holds 58% of the overall weight in the basket against the USD, a push towards 1.1500 and new yearly lows in the EUR/USD seems like something to keep in mind.

Prepared for such a move and anticipating a break in the USD higher, big speculators may hold onto their biggest net Long position in the USD Index Future in the Commitment of Traders Report during the last 18 months:

Source: Sunday 5 August 2018 1:45pm CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

But again, and as already mentioned in last week's weekly market outlook: even though it seems as if there is little chance that the USD won't break higher in the short-term, one should always remember that Donald Trump emphasized several times that he is not happy with an excessively strong Greenback, and every aggressive push higher in the USD could be countered with a tweet from the US president, to at least deceleration into bullish USD momentum.

Don't forget to register for the "Admiral Markets' Weekly Market Outlook" weekly webinar with Jens Klatt, every Friday at 12pm London time! It's your opportunity to follow Jens as he explores the weekly market outlook in further detail, so don't miss out!

Euro

As already mentioned around the outlook for the USD, the picture for the Euro hasn't changed, and it seems as if the Euro may remain a clear short against the USD in the upcoming week(s). As mentioned previously, an attack of the region around 95.00/30 in the USD Index Future should go hand in hand with an attack of the region around 1.1500 in the EUR/USD. With a break below 1.1500, a simple projection of the consolidation area between 1.1500 and 1.1800 suggests a projected price target of around 1.1200 USD:

Source: Sunday 5 August 2018 1:45pm CEST - Admiral Markets MT5 with MT5SE Add-on

In this context it is also worth mentioning again that selling pressure can and should be expected from the speculative side. The Commitment of Traders Report still shows a Long position in the Euro, and if the EUR/USD breaks below 1.1500, a more significant push thanks to aggressive Short sellers entering the market should be expected:

Source: Sunday 5 August 2018 1:45pm CEST – EuroFX Future (E6) - Weekly Nearest OHLC Chart: Barchart

GBP

After the Bank of England delivered, as expected, a rate hike by a 25 basis point, which occurred on Thursday, with the GBP being sold off. "As expected" one might say, since last week a dovish hike was the most likely outcome mainly due to the lethargic Brexit negotiations. Well, the thing is that the hike of the BoE was anything but dovish, and the GBP was still sold off in the hours afterwards.

Additionally, the decision of the MPC was unanimous with a vote of 9 - 0, but the Monetary Policy Committee also agreed that more rate hikes will be needed, and that there is very limited slack in the UK economy, while the labour market is tightening. This is the complete opposite of "dovish", but the GBP couldn't profit from the hawkish stance, leaving Pound Sterling vulnerable to further losses on a broad front in the next week(s) of trading, potentially through a further negative economic outlook based on the lethargic Brexit negotiations.

In combination with the potential bullish breakout in the USD index mentioned above, GBP/USD could see a significant drop below 1.3000, targeting for 1.2750/2800.

Source: Sunday 5 August 2018 1:45pm CEST - Admiral Markets MT5 with MT5SE Add-on

CAD

In the upcoming week, there are some interesting news events for the "Loonie". The Canadian Dollar faces not only the Ivey PMIs on Tuesday, but also data for the employment situation on Friday. In this context it is probably worth nothing that swap markets are currently pricing in a higher than 70% chance that the Canadian central bank, BoC, is expected to hike rates by 25 basis points at least once till the end of 2018. This means from a trading perspective: if the incoming data surprises on the upside, or comes in at least as expected, the CAD should be expected to profit on a broad front, probably especially against the GBP.

Based on the bearish reaction from the (quite hawkish) rate hike from the BoE last Thursday, and the overall more hawkish outlook for the CAD, this makes GBP/CAD an interesting candidate for a Short engagement. When looking at the technical picture one can spot a break of a quite significant technical level, making a test of the yearly lows of 2018 likely.

On top of that, within the time span from 7 August 2018 till 13 August 2018, over the last 23 years, and within 19 years (=83%) GBP/CAD traded lower with an average gain of 187 pips, an average loss of 79 pips, and a maximum loss of 115 pips. That said, GBP/CAD seems to be an attractive short candidate for the upcoming days:

Source: Sunday 5 August 2018 1:45pm 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.