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Weekly Market Outlook: EUR/USD breaks 1.1500, target: 1.1200; Gold an attractive seasonal Long against 1,200?

August 13, 2018 12:31


Key Economic Events 13 – 17 August 2018

Source: Admiral Markets' Forex Calendar

Equities

DAX

With rising fears around an escalation of the situation in Turkey, and capital outflows spilling over on other emerging countries, the DAX is at serious risk in terms of testing at least the region around the June/July lows of about 12,100/130 points in the upcoming days. For the picture to brighten up, the bulls need to push the DAX back above the SMA(200), in a daily chart and above 12,870/900 points, but at the moment with geopolitical tensions rising and the earnings season drying out, it is difficult to spot a driver for the bulls to take on serious momentum.


Source: Sunday 12 August 2018 11:30am CEST - Admiral Markets MT5 with MT5SE Add-on

If the Dax has piqued your interest, make sure to check out Admiral Markets' most competitive conditions on the DAX30 CFD and Dow Jones CFDs. Begin trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!

US-Dollar

As expected, the US-Dollar Index Future went for a break in the region around 95.00/30, driven by a run below 1.1500 in the EUR/USD, while GBP/USD was pushing significantly below the 1.3000 mark. The question for the upcoming week of trading is whether the break is sustainable, and whether the USD can take on further momentum, going for, at least, a test of the projected target around 97.00/50 points.

What will be interesting is which factors will drive optimism, and induce bullish momentum in the US, since the economic docket is looking quite thin in the upcoming trading days. One potential driver can surely be found in a reversal of capital flows back from emerging markets into the US-Dollar. Another can be found by looking at the Commitment of Traders Report. Even though speculative interest has built over the last few weeks and months, pushing the net-long position in the CoT to its highest level in 18 months, the net long position can still be considered moderate, and has room for further momentum on the upside, possibly resulting in potentially stronger demand for the USD:

Source: Sunday 12 August 2018 11:30am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

On the other hand: Donald Trump and the White House have made it clear more than once in the past that a significantly stronger USD counters the positive economic growth outlook, and needs to be addressed. That said, the break higher in the USD Index Future could be short-lived, Long positions in the US Dollar probably favour a more aggressive stop management, after which the USD momentum starts to diminish after the first acceleration higher.

If you'd like to experience the Weekly Market Outlook in a more interactive way, make sure 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 Euro finally broke below the 1.1500 against the USD last Friday. The question for the next few days now is whether the break is sustainable, and if EUR/USD will take on further bearish momentum. With the fears of a economic collapse of Turkey, and the fact that Spanish, Italian and French banks have quite significant ties with Turkish banks, a bankruptcy of Turkey could negatively spill over to the Euro zone and drive the Euro lower.

Another potential bearish driver from a fundamental perspective in the upcoming days could be found in the GDP data on Tuesday, which is already expected to come in significantly below the last reading (expected: 2.1%, previous: 2.5%). That said, numbers are expected to come in at the lowest level since Q1/2017, showing clear signs of "toppishness" in terms of economic growth within the EU:


Source: Sunday 12 August 2018 11:30am CEST - Tradingeconomics

With this in mind, a release below 2% could further trigger Euro weakness, based on speculation that a rate hike of the ECB in 2019 could only be seen (if at all) in Q4/2019. From a technical perspective the break below 1.1500 still delivers, thanks to a simple projection of the consolidation area between 1.1500 and 1.1800, with a projected price target of around 1.1200 USD:

Source: Sunday 12 August 2018 11:30am CEST - Admiral Markets MT5 with MT5SE Add-on

GBP

As expected in last week's weekly outlook, GBP pushed below 1.3000 after the very weak reaction on a (surprisingly) hawkish hike of the BoE on 2 August. When considering the positive correlation between the Euro and GBP, and after drawing a quite bearish picture for the Euro above, it definitely makes sense to extend the bearish target in GBP/USD from 1.2800 down to around 1.2600.


Source: Sunday 12 August 2018 11:30am CEST - Admiral Markets MT5SE Add-on

Potential triggers from the fundamental docket next week could bring a weaker than expected employment report on Tuesday, but especially the inflation rate coming in below expectation of 2.6% on Wednesday. This is especially true, since a reading below 2.6% would counter to some extent, the hawkishness in the statement of the BoE, and could potentially trigger further weakness in the GBP.

Source: Sunday 12 August 2018 11:30am CEST - Admiral Markets MT5 with MT5SE Add-on

Gold

Even though volatility dried out in Gold over the last week(s) of trading, and that Gold is also making new yearly lows, while the USD showed some serious strength, an attractive risk-reward for (speculative) long engagements is still given. However, this is not only warranted by the least net long position of the non-commercials in the CoT by over one year…

Source: Sunday 12 August 2018 11:30am CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart

… or by the bullish divergence in the 14-RSI on a daily basis, thereby indicating that the bearish momentum is clearly diminishing:

Source: Sunday 12 August 2018 11:30am CEST - Admiral Markets MT5 with MT5SE Add-on

But from next week on Tuesday 14 August onwards, there is also a seasonal pattern entering the spot light to be positive for Gold: in fact, during the time span from 14 August till 7 September over the last 20 years, and within 15 years (=75%), Gold traded higher with an average gain of 29.77 USD/ounce, an average loss of 14.70 USD/ounce, and a maximum drawdown of 55.24 USD/ounce. That said, Gold becomes a more and more attractive (anti-cyclical) Long candidate for the upcoming days and weeks.

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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