Last full week of trading in 2018 – All eyes on the FED

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  • 18.12.2018
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his week’s weekly market outlook will provide insights for DAX30 CFD, the US Dollar, the Euro, the Pound and Gold.

Source: Economic Events Calendar 17 December – 21 December 2018 – Admiral Markets’ Forex Calendar

DAX30 CFD

After the last week started on Monday with new yearly lows in the DAX30 CFD, bulls recovered a little over the following days, yet still failed to make it back above 11,000 points.

From a pure technical perspective, the DAX30 CFD stays bearish as long as we trade below 11,700 points, a level which is far out of reach for bulls in the last complete week of trading in 2018.

But now the good news: into the last complete week of trading there is in fact only one major event – the FED rate decision on Wednesday.

While market participants see another hike of 25 basis points a done deal, after the turbulence in US Equity markets in October and November and fears still high that the truce between the US and China is not sustainable, a dovish hike seems the most likely option, leaving chances on the table that a short relief rally in US equities could also drive the DAX30 CFD higher and help in regards to a yearly close above 11,000 points.

But bulls shouldn’t be overly optimistic about a friendly year-end-close, as the start to 2019 could see the next wave of heavy selling, making a push below 10,000 points a serious option.

Source: Admiral Markets MT5 with MT5SE Add-on DAX30 CFD daily chart (between 23 November 2017 to 14 December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

Please Note: Forecasts such as this are not a reliable indicator of future results, or future performance.

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US dollar

In the last complete week of trading there is one key economic event that could not only trigger some heavier volatility in all financial markets, but will most likely also level the path especially for the US Dollar into the start of 2019 – Wednesday’s FED rate decision.

Currently, not only the majority of market participants, but also the FED dot plot shows a 75-80% chance of the FED hiking rates a fourth time by 25 basis points in 2018.

But, what will be of higher interest is: what will the rhetoric of the FED statement be? After FED chairman Jay Powell said that rates are currently “just below” the neutral range, chances seem high that a hike from the FED on Wednesday will be a dovish one.

If the FED dot plot only suggests only one, probably two rate hikes in 2019, the USD could be hit by a bigger wave of selling, driven by big speculators reducing their net long exposure in the USD Index Future, which has seen only a small pullback in the last week.

On the other hand: if the FED comes out with no big change in its statement to the last FED meeting in September, and the dot plot suggest three further hikes in 2019, the USD could be set for a small year-end rally and a yearly close in the region around 98.00 points.

Source: Barchart – U.S Dollar Index – Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

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Euro

The picture in the EURUSD hasn’t changed dramatically over the last week from a technical perspective. The EURUSD is still range-bound between 1.1200 and 1.1500 and it seems likely that we won’t see an attempt to break higher or lower before 2019.

Nevertheless, the weak PMIs, especially coming in from France, make a test of the region of the yearly lows around 1.1200 a little more likely. But whether such a test will occur depends on the rhetoric of the FED and its planned actions for 2019 on Wednesday.

While the PMIs definitely favour a stint lower, we should keep in mind that the ECB and the potential budget deficit solution between Brussels and Rome are positive signs for the Euro.

While the ECB didn’t deliver anything special last Thursday at its last rate decision in 2018, cutting its 2019 growth and inflation forecast and marked another year of sub-target inflation (< 2%) and at the press conference, Draghi warned that risks are moving to the downside and uncertainties (obviously a hint towards Italy, but also France) are building, nevertheless, the ECB will end her QE program from January 2019 onwards.

That said, the overall rate decision and the statement can be called neutral, which comes as a surprise when looking at the political instability building in France. So, Euro bulls might consider this stance hawkish.

And with Italy offering a 2.04% budget deficit target to Brussels, it also seems as if these tensions will soon start to fade.

If, on top of that, UK prime minister Theresa May negotiates a Brexit deal with Brussels that will make it through the UK parliament in the first half of January 2019, the Euro will find several stabilising components in the days to come.

So, even though the weekly close can be considered weak, EUR/USD still has a serious chance to push back to and above 1.1500 in the weeks to come. But this is only true as long as EUR/USD does not break below 1.1200.

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between 07 December 2017 to 14 December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

Please Note: Forecasts such as this are not a reliable indicator of future results, or future performance.

GBP

GBP/USD saw new yearly lows over the last week of trading after a complete mess around the Brexit: on Monday UK prime minister May postponed the parliament vote on her Brexit deal. The simple reason is that May wanted to avoid a defeat, and it was clear that her deal wouldn’t make it through parliament.

The cancellation led to a vote of no confidence on Wednesday which May survived, even though the result of 200 – 117 shows the diminishing support of May in her own party while still having no Brexit deal to present to the parliament, which will avoid a “no deal” scenario in the end.

But, it gave May some time and will most likely result in a stabilisation of Pound Sterling into the year-end close.

Nevertheless, the picture for GBP/USD is still not very bright in the days and weeks to come and into the start of 2019. With May’s Brexit deal nearly dead and little more than three months until the Article 50 deadline on March 29 is triggered, there is no reason for market participants to be optimistic on Pound Sterling respectively the UK economy.

That said and even if GBP/USD can stabilise into the next two weeks, another push lower into the start of the new year seems likely. From a technical perspective on a daily chart this is true as long as we trade below 1.3270/3300 and a push towards 1.2000 and lower is on the table.

Source: Admiral Markets MT5 with MT5SE Add-on USD/GBP Daily chart (between 27 November 2017 to 14 December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

Please Note: Forecasts such as this are not a reliable indicator of future results, or future performance.

The reason for that scepticism and bearish outlook can also be found in the Commitment of Traders Report and the still not very extended net-short exposure of big speculators which has plenty of room to increase – especially if a “no deal” scenario is on the horizon.

Source: Barchart – British Pound (B6) – Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

Gold

Even if Gold didn’t push higher over the last week of trading, the outlook for the precious metal stays positive over the next days with the FED rate decision on Wednesday.

As already pointed out in the section on the US dollar, chances for a dovish rate hike seem very high, leaving Gold in a favourable spot with potential to reach 1,265 USD/ounce, probably even higher up to 1,285/1,300 USD.

But not only the FED, also the situation around the truce in regards to the trade war between the US and China could trigger some Gold bullishness in the days to come. If we see a successful attempt in USD/CNH to break below 6.8200, thanks to the positive correlation between Gold and the Yuan Renminbi, Gold could see some significant bullish momentum.

Source: Admiral Markets MT5 with MT5SE Add-on Gold Daily chart (between 24 November 2017 to 14 December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

Please Note: Forecasts such as this are not a reliable indicator of future results, or future performance.

In addition to the technical and fundamental side, the Commitment of Traders Report, with its potential sentiment extreme among large speculators, is another indicator pointing to a short squeeze in Gold and a significant push higher.

Source: Barchart – Gold (GC) – Weekly Nearest OHLC Chart (between January 2016 to December 2018). Accessed: 15 December 2018 at 9:00 AM GMT

MT5

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