​Midterm dust settles: USD bullish in the weeks to come?

  • master
  • 13.11.2018
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This week’s weekly market outlook will provide insights for DAX30 CFD, the US Dollar, the Euro, the Aussie Dollar, and Gold. We’ll review the impact of last week’s US midterm elections, along with the effect of the Australian House Price Index on the market down under.

Source: Economic Events Calendar 12 November – 16 November 2018 – Admiral Markets’ Forex Calendar

DAX30 CFD

Overall, the last week of trading was quiet for the DAX30. Nevertheless, on Wednesday, the day after the US midterm elections one could clearly spot a bullish tendency.

One of the main reasons seems to be that now that the democrats have a majority in the house of representatives, it has stabilised the overall political climate in the US, as the democrats now have a better chance to block or at least delay decisions from the Trump administration.

Interestingly enough, the DAX30 underperformed the US equity markets with the SP500 CFD, for example, being up nearly 2% in the last week, while the DAX30 CFD was nearly unchanged on the week.

So, while US equity indices are entering one of the most bullish periods in years during a midterm election, and even though the DAX30 CFD will also profit from a positive performance in US equity markets due to the overall positive correlation, it seems a very long way to go to re-conquer the mark of 12,000 points into the yearly close.

But in combination with the thinning out economic calendar not only into the yearly close, but also during the next week, the path of the least resistance is most likely to be found on the upside.

From a technical perspective, a re-test of the region around 11,850/900 points over the next days is an option, probably a re-test of 12,000 points will be seen.

But as long as the DAX30 CFD trades below 12,500 points respectively its SMA(200) the bears have the advantage on their side and another push down towards the yearly lows around 11,050 is a realistic option.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 03 November 2018, 9:00 AM CEST

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US Dollar

As already pointed out, last week had the clear visible stamp of the US midterm election.

As written in our technical piece on Wednesday morning, where it read it did not take very long on Wednesday and Thursday for the US Dollar to make back most of its losses against the Euro, but also the JPY, mainly driven by a push in 10-year yields to its current multi-year high around 3.25%.

And after the FED rate decision on Thursday stated didn’t provide any surprises in regards to a rate hike or a significant switch in the rhetoric of their statement (to put it clearer: no dovishness with a hint towards the bigger drop in US equities in October could be spotted), the US Dollar seems to have a solid bullish yearly close ahead of it, at least as long as we keep on trading above 93.00 points and preparations for a stint towards 1.1300 against the Euro or towards 114.50 against the JPY in the next week wouldn’t come with a surprise.

That view seems to be shared by large speculators, too, which still keep their highest net long exposure in the Commitment of Traders Report in around 18 months.

Source: Saturday 10 November 2018 9am CEST – U.S Dollar Index – Weekly Nearest OHLC Chart: Barchart

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Euro

In general, the overall outlook for the Euro hasn’t changed much over the last days. It should still be seen as a positive sign that the Euro didn’t break below 1.1300 on the conflict between Brussels and Rome around the Italian budget and the brewing political uncertainty in Germany.

But after the US Midterm election last week and the Euro giving back most of the gains it made against the Greenback, another attack at the current yearly lows around 1.1300 seems likely and possible in the next days.

As already pointed out in our Wednesday market analysis, from a technical perspective the picture stays bearish on a daily chart below 1.1600/1630 and if US yields not only stabilise above 3%, but take on momentum again going for a push above 3.25%, new yearly lows are a serious option.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 10 November 2018, 9:00 AM CEST

Selling pressure in the Euro could be also expected from bigger sellers entering the scene again on a widening Euro-US-yield differential: as one can see in the Commitment of Traders Report below, large speculators are still quite reluctant in terms of their net-short exposure with being short only 46.8k contracts.

Source: Saturday 10 November 2018 9am CEST – EuroFX (E6) – Weekly Nearest OHLC Chart: Barchart

AUD

As pointed out in last week’s weekly outlook last Monday, the Aussie caught a break on the downside and saw a serious attack the region around the September highs around 0.7300/7330.

One reason was probably the rhetoric of the RBA around the Australian housing market in an all in all unspectacular RBA statement.

While the RBA pointed to easing conditions in the housing market (note: the House price index in Australia dropped by 0.7 percent QoQ in the three months to June of 2018, at the same pace as in the previous quarter. It was the second straight quarter of fall in the index, as prices continued to decline in Sydney, Melbourne, Perth and Darwin), they didn’t seem to be worried about them, which can be considered hawkish rhetoric (even though it was just hinted.

Source: Tradingeconomics.com

If the Aussie bulls can now continue to hold the current momentum and push AUD/USD above 0.7300/7330, further gains up to a first target around 0.7400 USD become likely.

If, on the other hand, AUD/USD fails to break sustainably above 0.7300/7330 another push lower seems possible, even though before the current yearly lows around 0.7030 a solid short-term support on the downside can be found around 0.7150.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 10 November 2018, 9:00 AM CEST

Gold

The picture in Gold hasn’t changed much after the US midterm election. Initially, and going hand in hand with the drop in the US Dollar after it became clear that democrats would gain back control in the house of representatives, it looked as if Gold goes straight for another attempt to break above its October highs around 1,244 USD/ounce.

After the USD stabilised, thanks to stabilising 10-year US yields, Gold lost most of its momentum and the expected breakout attempt failed.

Instead, the precious metal closed the week at 1,212 USD/ounce, which darkens the bullish short-term outlook. If bulls can’t regain control of the price action quickly into the start of the new week of trading, an overall switch of the mode to neutral and a push down towards 1,180 USD/ounce becomes an option.

On the other hand: as long as Gold continues to trade above 1,180 USD, another attempt to break above the October highs around 1,244 USD/ounce is at least from a technical side an option, then with a first target on the upside being seen around 1,260 USD/ounce.

Source: Admiral Markets MT5 with MT5SE Add-on, Accessed: 10 November 2018, 9:00 AM CEST

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.