This week’s weekly market outlook will provide insights for DAX30 CFD, the US Dollar, the Euro, the Canadian Dollar and Gold. In particular, we will be looking at US FED chair Powell’s announcement about interest rates being “just below” neutral, and how this has affected the major instruments for the week.
Source: Economic Events Calendar 03 December – 07 December 2018 – Admiral Markets’ Forex Calendar
The DAX30 CFD finds itself in a very difficult position into the first week of trading in December.
While the bullish divergence we pointed out in last week’s market outlook seemed to stabilise the index above 11,000 points, bulls failed to take on further momentum.
This comes with a surprise after FED chair Powell commented last Wednesday that there is no pre-set policy path for the FED, and that US interest rates are currently “just below” the neutral range. These comments delivered a solid fundamental push back above 11,400 points, which would make a re-test of the region around 11,700 points in the days to come a possibility.
However, this didn’t happen, most likely due to rumours that Trump has renewed threats to impose tariffs on imported cars from cars out of the EU, especially Germany. These rumours have been sparked after General Motors announced job cuts and plant closures last Monday.
But after US president Trump and Chinese prime Xi agreed on truce over the weekend in Argentina at the G20 summit, chances seem good that we get at least a short-term relief rally with market participants hoping that such fears around tariffs for cars from the EU will not materialise in the next days.
This could mean that we get to see the push back above 11,000 points and a stint towards 11,700 points within the next days.
Nevertheless, as long as we trade below 11,700 points, another attack at the current yearly lows around 11,000 points stays an option.
Source: Admiral Markets MT5 with MT5SE Add-on, DAX30 CFD daily chart (between 07 November 2017 to 30 November 2018). Accessed: 01 December 2018 at 9:00 AM GMT
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Even though we pointed out for several times in the last weeks and months the possibility of a dovish tone of the FED due to obvious tensions between US president Trump and the FED’s ongoing rate hike cycle, FED chair Powell’s comments last Wednesday nevertheless came as a surprise.
As mentioned earlier, Powell said rates are currently “just below” the neutral range. On October 4, shortly before US equity markets sold off and yields of 10-year US Treasury Notes hit their highest level since 2011, Powell said that rate are “long way below neutral”, suggesting that the FED has plenty of room for further hikes in 2019.
Whatever the reason for this change in rhetoric, when looking at big speculators currently holding long positions in the USD Index Future, a drop back below 3% in 10-year US Treasury Notes could trigger a wave of selling. This might then push the Greenback significantly lower, with a first important support coming in around 96.00 points.
Source: Saturday 01 December 2018 9am CET – U.S Dollar Index – Weekly Nearest OHLC Chart: Barchart
In this context, any economic news in the upcoming days, especially around the employment situation on Friday (Non-Farm Payrolls), will be carefully watched.
In general, after the comments from Powell, the rule of thumb will likely be: any good news will be USD positive, while any reading below the market’s expectation could trigger USD weakness.
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With the fundamental picture having changed against the USD since FED chairman Powell’s comments last Wednesday, the Euro will see, if at all, a delayed positive reaction in EUR/USD.
If the situation around the Brexit agreement relaxes over the next days, chances rise that UK prime minister May will get the Brexit agreement through her parliament on December 11. In this case, the EUR/USD could see an attack at the region around 1.1500 USD.
Such a push higher could be driven by an unwinding of short positions of large speculators in the Commitment of Traders Report.
Source: Saturday 01 December 2018 9am CET – EuroFX (E6) – Weekly Nearest OHLC Chart: Barchart
And if not… then the only reason not to see EUR/USD attack its current yearly lows around 1.1200/1220 before Christmas is the expected weakness in the US Dollar described earlier.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 28 November 2017 to 30 November 2018). Accessed: 01 December 2018 at 9:00 AM GMT
The upcoming week of trading will be very interesting for Loonie traders. After Canadian inflation came in above expectation on November 23, it only seemed to be a question of when new yearly highs would be marked.
However, the CAD had trouble profiting from this data last week, with the USD/CAD still trying to break above its current yearly highs around 1.3380/3400. Such a reaction to a solid economic reading can usually be considered a sign of weakness, but comments from FED chairman Powell could encourage the CAD to jump off from such a push lower – at least in the short term.
Even though the outlook for the Greenback doesn’t look very promising after Powell’s comments, the USD/CAD could nevertheless see new yearly highs over the next days if the Bank of Canada does not hint towards a more restrictive monetary policy path in 2019. Such an approach would be justified by the massive drop in oil prices, which dampens the inflationary outlook for the Canadian economy.
That said, the outlook for USD/CAD stays bullish and with a break above 1.3400, a next target around 1.3800 (2017 yearly highs) would be activated.
From a technical perspective such a break higher stays an option as long as USD/CAD trades above 1.3100/3130.
Source: Admiral Markets MT5 with MT5SE Add-on USDCAD Daily chart (between 09 November 2017 to 30 November 2018). Accessed: 01 December 2018 at 9:00 AM GMT
While we have pointed out the negative correlation between Gold and the US Dollar several times in the past, after the comments from FED chairman Powell last Wednesday, the outlook for Gold into the yearly close improved once again.
A potential driver higher for Gold can still be found in a potential drop in 10-year US Treasury yields below 3%. This would not only push the USD lower, but also pushing Gold higher.
From a technical perspective, the short-term picture for Gold looks positive, as long as the yellow metal trades above 1,180 USD/ounce. A push back above 1,230 USD would activate the region around the October highs around 1,244 USD.
If the bulls re-conquer this region, further gains towards 1,300 USD into the yearly close seem likely.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 11 December 2017 to 30 November 2018). Accessed: 01 December 2018 at 9:00 AM GMT
In addition to the technical and fundamental side, the Commitment of Traders Report, which shows the slight majority of speculators being in short positions, is another indicator pointing to a sooner rather than later short squeeze in Gold and a significant push higher.
Source: Saturday 01 December 2018 9am CET – Gold Future (GC) – Weekly Nearest OHLC Chart: Barchart
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