Key Economic Events 20 – 24 August 2018
Source: Admiral Markets' Forex Calendar
The combination of a "near" collapse of the Turkish economy with USD/TRY trading as high as 7.1100 (remember: Goldman Sachs drew the line in the sand at 7.1000, where Turkish banks were potentially not capable of running out of their USD reserves) and the losses of the large German chemistry company Bayer (which makes nearly 10% of the German DAX30), where the subsidiary Monsanto faced a $289 million fine in the Roundup weed-killer court trial, lead to a test of the region of the June/July lows around 12,100/130 points in the DAX during the last week of trading.
While a break didn't occur, the overall technical picture suggests that there are still fears around an escalation of the trade war between the US and especially China (the Yuan Renminbi last week fell to its lowest levels against the USD since January 2017, equalling to aggressive capital outflows of China) is still negative, and a near term break seems likely. The moment the DAX30 breaks below 12.100/130 points, the chances of a near term test of the yearly lows around 11,700/730 appear to be very likely. For the picture to brighten up, the bulls still need to push the DAX back above the SMA(200), on a daily time frame and above 12,870/900 points.
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After a significant break above 95.00/30 last week on Friday, the US Dollar Index Future continued to move higher, falling short of reaching the projected minimum target on the upside at 97.00 points. Since the potential for further upside moves seems limited, the upcoming week should see two potential scenarios for the US-Dollar:
- We get to see a consolidation at an elevated level in the region between 96.00 to 97.00 points.
- We get to see a pullback towards the breakout region at 95.00/30 points.
Since the economic docket is quite thin in the upcoming week of trading (the FED Minutes on Wednesday shouldn't deliver anything new around the monetary policy path in the upcoming months: there will be one definite rate hike in September, and another with a high likelihood in December), volatility in the US-Dollar should mainly come from further developments around capital outflows out of emerging markets. This is especially the case when looking at the situation concerning Turkey. A release of pastor Brunson from his house arrest could be a catalyst of a relief rally and could leave the US-Dollar vulnerable to a short-term correction.
But whatever happens in the next few days, the overall outlook for the US-Dollar is definitely bullish for the upcoming week, with speculative interest hitting its highest net-long level in the Commitment of Traders Report within 15 months:
Source: Sunday 19 August 2018 1pm CEST - U.S Dollar Index - Weekly Nearest OHLC Chart: Barchart
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While the US-Dollar nearly reached its projected target, the Euro only tested the level around 1.1300, but didn't break lower, and did not reach its projected target around 1.1200. With the scepticism around further bullish momentum in the US-Dollar, chances seem to be good that a re-test of the breakout region around 1.15000/1530 occurs before pushing towards the projected target region around 1.1200.
The driver for another significant push on the downside can be found in the fact that big speculators were still net-long in the Euro in the Commitment of Traders Report last week, this week showing a slight net-short position of "only" 1,800 contracts.That being said, and with an overall bullish outlook for the US-Dollar in the near term, and with scepticism for the Euro based on rising trade war fears, but also based on the exposure of European banks in struggling emerging markets, it seems only to be a matter of time before big speculators start to aggressively build their short positions on the Euro and push EUR/USD lower:
Source: Sunday 19 August 2018 1pm CEST - Euro FX Index - Weekly Nearest OHLC Chart: Barchart
The outlook for Pound Sterling stays bearish, but not only because of the weak outlook for the GBP to the positively correlated Euro:
Source: Sunday 19 August 2018 1pm CEST - Correlation Matrix - Admiral Markets MT5SE Add-on
Pound Sterling failed again during the last week of trading, to take on bullish momentum and start a corrective move, even though UK datasets came in as expected (the employment situation and inflation both presented a solid and clear positive "touch") and significantly above expectation (Retail Sales on Thursday showed year-on-year growth of 3.5%, the largest increase since April 2017). With this in mind, and looking at the week GBP reaction on a broad scale, GBP can clearly be considered weak and GBP/USD still has a good chance to see 1.2600 sooner rather than later.
Nevertheless: GBP/USD could, similar to the Euro, and with the neutral to bearish outlook for the US-Dollar, start a corrective move in the next few days which could take on some dynamic movement if a push back above 1.2830/2850 happens, thereby activating 1.2960/3000. But any Long positions in GBP should probably be taken with a reduced position size, since GBP showed some clear inherent weakness on overall positive comments and datasets:
Gold took a serious hit last week, breaking below 1,200 USD, and falling as low as 1,160 on Thursday night. This came as a surprise to many traders, since Gold is known to be a classic safe haven, and usually profits from nervousness, as seen in the equity markets, and around rising turbulences and capital outflows out of emerging markets. While one argument covered the possibility that Turkey is aggressively selling Gold to stabilize their currency, especially with the Yuan Renminbi finally finding a bid on Thursday and Gold trading higher too, it seems as if the positive correlation between Gold and the CNH is the main reason for the losses in the yellow metal over the last few days:
Source: Wednesday 15 August 2018 11:00am CEST – Correlation Gold(white)/CNH(yellow): Bloomberg
With this in mind, it seems to become obvious what is necessary for Gold to catch a bid: a stabilised respectively corrective move lower in USD/CNH. If this finally happens, chances are good that Gold will make back most of its losses over the last few days and weeks. The reason: Gold still finds itself in a very one-sided market environment, where the Commitment of Traders Report shows that the position of the non-commercials is now net-short for the first time since 2002.
Source: Sunday 19 August 2018 1pm CEST - Gold - Weekly Nearest OHLC Chart: Barchart
On top of that, between 14August and 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 being said, Gold remains an attractive (anti-cyclical) long candidate for the upcoming days and weeks, and a short term trigger for the beginning of a stronger higher/corrective move can be found around 1,198 | 1,200 USD/ounce.risks.