Will the DAX30 CFD re-test 11,000?
This week's market outlook will provide insights for FED chairman bullish statement, uncertainties of the Brexit deal and the impact on GBP and more.
Source: Economic Events Calendar 07 January – 11 January 2019 - Admiral Markets' Forex Calendar
DAX30 CFD
Even though the year for DAX30 CFD started with only three days of trading, it seems that a rough conclusion can be drawn already.
After the first wave of selling on Wednesday morning abated, the DAX30 CFD saw a relief rally which accelerated on Friday after China cut the RRR by 1%, NFPs beat expectation with a reading at 312,000. Especially after FED chairman Powell delivered a bullish statement for equities when he said that the FED is listening carefully to markets, that it can change its policy and is prepared to adjust it quickly and flexibly.
Now looking at a daily chart, from a technical perspective we are still far away to call the bearish action to be over, as long as we trade below 11,000 points. After the bulls reconquered the region around 10,660/680 points further gains up to and also slightly above 11,000 points become a serious possibility.
But still, if the momentum fades away and bears take over again (probably triggered by another delay of the Brexit vote in the UK parliament, currently expected to be hold on the January 14), with a drop below 10,280 points there is no serious support to be found which could hold the DAX30 CFD above the psychologically relevant level of 10,000 points:
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 29 September 2017 to 04 January 2019). Accessed: 04 January 2019 at 10:00 PM 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%.
US Dollar
With the NFPs on Friday coming in at 312,000 and significantly above expectation (177,000), the US Dollar could stabilise above 96.00 points after the first (shortened) week of trading in 2019, even after the comments from FED chairman Powell (details in the paragraph above for the DAX30 CFD), which can fairly be interpreted as dovish.
That said, the overall picture for the US Dollar hasn't changed from our weekly market outlook last Wednesday and is not really prosperous.
In our last report not only we pointed out the dovish hike of the FED on the December 19 with the FED dot plot suggesting only two rate hikes in 2019 after three hikes in the dot plot from September, but also the still elevated Long exposure of big speculators in the USD Index Future.
Source: Barchart - U.S Dollar Index - Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 04 January 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
Well, you might say now that this CoT-report is a little outdated and we still have to wait until after the US shutdown to get new data on the positioning of the large speculators. But right there you have another reason to be sceptical around the Greenback and that is the US shutdown and politically unstable situation around US president Trump.
We already saw in early trading last Thursday with the Flash Crash in JPY crosses that the situation is currently very tense in all financial markets with a tendency to reduce carry trades.
That means, if such a risk-off market environment materialises we should expect capital backflows to the zero-yield JPY and capital outflows of high-yield currencies. One of those high-yield currencies in the G7-currency universe, is currently the USD which offers the most attractive yield here and could see naturally some heavier capital outflows.
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Euro
In last week's market outlook, we pointed out that "the Euro will probably start out strong into 2019, especially against the US Dollar and will start an attempt to re-conquer the mark around 1.1500." And indeed, EUR/USD traded as high as 1.1496, but instead trying to go for a sustainable break, the Euro was aggressively sold afterwards, mainly driven by German bund yields dropping like a stone to its lowest levels in two years.
This is especially interesting, since the ECB has now halted their QE program and redemptions above reinvestments. Usually, you'd expect yields to rise on such a development. Seeing aggressive buying of German bunds, a favoured safe haven among investors, is usually not a very good sign for asset classes like equities in the midterm.
But also the Euro, with all uncertainties around the Brexit and the overall rising political tensions, bringing the fragmented landscape of the European Union unfiltered to its surface, will most likely suffer with such an outlook.
From a technical perspective the outlook in EURUSD stays neutral between 1.1200 and 1.1500, but after the price action in the first days of trading in 2019 and knowing about the usually weak seasonality in the first quarter in the Euro over the last 20 years, another test of the region around 1.1200 in the days to come seems a serious option.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 04 January 2018 to 04 January 2019). Accessed: 04 January 2019 at 10:00 PM 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%.
GBP
In last week's market outlook, we pointed out that "GBP/USD will most likely see a quite start into the first week of trading of the year". Well, it would have been one, but it is usually difficult to foresee a Flash Crash in FX markets…
Interesting enough, it was a Flash Crash in JPY, spilling over to other currencies, especially those currently facing uncertainties like GBP is facing uncertainties around the Brexit, dropping below the 2018 yearly lows and trading as low as 1.2430 USD at the lowest level since April 2017.
As of writing these lines, it is not quite clear if such uncertainties around the Brexit will vanish in the next few days.
In fact, there is a serious chance that Prime minister Theresa May will delay the vote on her Brexit deal in the UK parliament on the January 14, mainly because chances are still high that she will lose such a vote.
With this in mind, being long in the GBPUSD may not be such a good idea from a risk-reward perspective, but also from a technical one as long as we trade below 1.2800/2830 on a daily time frame.
Instead, another push towards and below last week's lows around 1.2430 is an option, with the GBPUSD then most likely targeting the region around 1.2100.
Source: Admiral Markets MT5 with MT5SE Add-on GBPUSD Daily chart (between 04 December 2017 to 04 January 2019). Accessed: 04 January 2019 at 10:00 PM GMT
Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the GBPUSD 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
Right now, there is not much more to add the thoughts around Gold from our last weekly market outlook: after December ISM manufacturing index came in at only 54.1 vs 57.5 expected and compared to November 5.2 points lower, Gold seems still to be attractive for midterm Long engagements.
The reason is that such drops of more than 5 points in the ISM in a month have so far only occurred during recessions, an environment in which Gold is usually a good choice.
And while some market participants might argue that Fridays strong NFP numbers could act as a counterweight, also from a short-term perspective, Gold bulls seem to have an advantage.
That said, we want to recall a seasonal pattern which starts today, on the January 7, which is valid till the January 18.
Over the last 20 years, during the January 7 until January 18, the price of Gold has increased for 15 years and averaged a profit of 22.16 USD/ounce. In those five years that Gold price fell, it showed an average loss of 10.98 USD with a maximum drawdown of 23 USD.
With this pattern in mind, the advantage can clearly be found on the upside and a push above 1,300 USD/ounce has a good chance, from a technical perspective as long as we trade above 1,233 USD on a daily time frame.
Nevertheless, when taking Gold long engagements into account, remember that the overall trend is still a little extended on the upside and short-term corrective moves are an option.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 21 November 2017 to 04 January 2019). Accessed: 04 January 2019 at 10:00 PM 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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