This week’s weekly market outlook will provide insights for DAX30 CFD, the US Dollar, the Euro, the Canadian Dollar and Gold.
Source: Economic Events Calendar 26 November – 30 November 2018 – Admiral Markets’ Forex Calendar
The DAX30 CFD made new yearly lows last week, even though it didn’t break below 11,000 points. The main pressure resulted from the US technology sector where Apple shares saw an extension of their losses to over 20% from their all time highs, marked on 3 October 2018, whipping out more than USD220bn in market cap within six weeks (note: this is more than the annual GDP of Portugal for 2017).
This comes as a surprise since, historically, November usually is the second strongest month of the year for the DAX30 CFD after March.
With this in mind, and looking at the price action in the DAX30 CFD after it broke lower to new yearly lows (with finding some aggressive buyers which stabilised the DAX30 CFD above 11,000 points and started to form a bullish divergence on a daily chart in the RSI (14)), chances seem good that next week is the starting point of at least a small relief rally.
Nevertheless, it is way too early to cheer up for the bulls: as long as the DAX30 CFD can’t push back above 11,670/700 points, there is still the chance that we push below 11,000 points, then aiming for 10,800 points.
Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 29 August 2017 to 23 November 2018). Accessed: 24 November 2018 at 9:00 AM GMT
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After becoming more sceptical about the US Dollar for the last weeks of trading in 2018 in last week’s weekly market outlook, the picture hasn’t changed dramatically.
10-year US Treasury yields stabilised above 3%, but if volatility stays elevated in the days to come and market participants keep on reducing their long exposure, especially in US tech shares, more and more market participants could start wondering whether the FED will hike rates at their December meeting.
This becomes an option if US GDP data for the third quarter on Wednesday comes in below the current estimate of 3.5% (QoQ).
While the FED would remain the most restrictive central bank in the G7 FX universe, giving the US dollar a significant yield advantage especially against the Euro, an unwind of USD long bets could result in some heavy USD selling driven by a push below 3% in 10-year yields.
And such heavy selling pressure could be initiated after a push below 95.70/96.00 points in the USD Index Future, and a start of long positions being unwound by large speculators, which still keep their highest net long exposure in the Commitment of Traders Report in around 18 months.
Source: Saturday 24 November 2018 9am CET – U.S Dollar Index – Weekly Nearest OHLC Chart: Barchart
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While the fundamental and technical picture for the USD Index Future hasn’t changed much over the last week of trading, the same is true for the Euro.
That said, the situation around the Italian budget for 2019 between Brussels and Rome is still tense, the same is true in regards to finding a deal on the Brexit.
Even though Prime Minister May says that the by the EU signed deal is the ‘best deal possible’, she still has to convince an let the deal make it through the UK parliament which will be a very difficult task to achieve.
From a technical perspective, the outlook for EUR/USD stays bearish as long as we trade below 1.1500 and a push towards and below the current yearly lows around 1.1200 is a serious threat to Euro bulls.
Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 6 November 2018 to 23 November 2018). Accessed: 24 November 2018 at 9:00 AM GMT
When looking at the large speculators in the Commitment of Traders Report, it is clear that the net short exposure in the EuroFX future (E6) is still subdued and any escalation around Brexit, but also the Italian budget, could trigger some heavy selling pressure from large speculators loading up their Euro Short positions.
Source: Saturday 24 November 2018 9am CET – EuroFX (E6) – Weekly Nearest OHLC Chart: Barchart
While many FX traders enjoyed a calm weekly close with Thanksgiving and Black Friday, Loonie traders looked excitedly at Canadian inflation data.
Even though numbers came in at 2.4% an above expectation, market participants still don’t seem to see a higher probability of the BoC hiking rates in the near-term, since the CAD couldn’t really profit from the reading.
That said, a push towards the current yearly highs in USD/CAD around 1.3370 seems likely in the days to come.
If the USD/CAD re-conquers the mark of 1.3400, further gains in the weeks before Christmas are likely, especially if WTI Crude Oil, which is positively correlated with the CAD, stays under pressure and can’t make back its lost ground.
The pictures brightens up for the Loonie if USD/CAD drops back below 1.3130. But this not only needs a weaker USD (as written above in the USD paragraph), but also a solid Canadian GDP data set on Friday.
Source: Admiral Markets MT5 with MT5SE Add-on USDCAD Daily chart (between 09 November 2017 to 23 November 2018). Accessed: 24 November 2018 at 9:00 AM GMT
After having read the paragraph around the US Dollar above and knowing about the negative correlation between the Greenback and Gold, it shouldn’t come as a big surprise that the picture for Gold (even though we didn’t see high volatility over the last week in the yellow metal) still looks promising, if not even better.
From a technical perspective, the picture in Gold looks short-term positive as long as the yellow metal trades above 1,180 USD/ounce while a push above 1,244 USD is still necessary to confirm the bottom forming against 1,160 USD/ounce.
A potential driver higher for Gold can still be found in a potential drop in 10-US-year yields below 3%, not only and potentially pushing the USD lower, but also pushing Gold higher.
Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 19 April 2018 to 23 November 2018). Accessed: 24 November 2018 at 9:00 AM GMT
In addition to the technical and fundamental side, the Commitment of Traders Report, with its potential sentiment, is another indication pointing to a rather than later short squeeze in Gold and a significant push higher.
Source: Saturday 24 November 2018 9am CET – Gold Future (GC) – Weekly Nearest OHLC Chart: Barchart
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