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Indices Show Signs of Vulnerability

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Dow Jones & DAX 30 Forecasts:

Dow Jones & DAX 30 Forecasts: Indices Show Signs of Vulnerability

The Dow Jones slid lower on Tuesday, damaged by a deterioration in US-China trade talks following an announcement by the Chinese Commerce Ministry. Consequently, the likelihood of a trade deal has diminished and was undercut further when the United States announced it would add another 28 Chinese companies to the entity list. The decision marks yet another instance in the US-China trade war where the two sides have traded immaterial improvements and empty optimism for concrete escalations.

The previous instance of material escalation was on August 23 when President Trump announced the entirety of tariffed goods would be subject to a 5% increase, resulting in a 30% tariff on $250 billion in goods and a 15% tariff on $300 billion in goods – scheduled to go into effect on October 1 and December 15 respectively. The tariffs effectively cover the totality of Chinese exports to the United States. At the time, some market participants viewed the decision as mere posturing ahead of the October trade talks as each side looked to gain ammunition for the negotiating table.

Download our Free Quarterly Forecasts for the Dow Jones, DAX 30, US Dollar, Gold and more.

Now, the trade talks have arrived, higher tariffs are in place, and the United States just added another list of Chinese companies that are barred from buying US technology. Despite the substantial increase in levies and blacklisted companies, the Dow Jones has climbed 1.3% since August 26 – enjoying the benefit of a Fed rate cut in September. Still, it begs the question: to what degree has the escalation been priced into the market versus the unfounded optimism?

Average Vix by Month Chart

I would argue the market has underestimated the impact of the higher levies, and given October’s penchant for volatility, the Dow Jones could be positioned for a period of contraction. In turn, the resultant price action could see the Industrial Average test the 200-day moving average which has helped to keep price afloat since early 2018.

Dow Jones Price Chart: Daily Time Frame (January 2018 – October 2019) (Chart 1)

Dow Jones Daily Price Chart

Chart created with TradingView

Currently residing around 25900, the DJIA trades approximately 300 points higher – meaning a daily decline of just 1.5% could see the Index reach the key level of support. If broken, the Index could look to test subsequent support – around 25200 – which is marked by the various swing lows throughout the last 20 months.

DAX 30 Forecast

The DAX 30 finds itself in a similar position. Given that it shares a statistically significant correlation with the Dow Jones, the German Index could become the victim of wider risk aversion. While the DAX 30 negotiates the adverse impact of a potentially weakened Dow, it will have to simultaneously ward off recession fears and a US-EU trade war that could decimate Europe’s largest economy.

DAX 30 Price Chart: Daily Time Frame (March 2017 – October 2019) (Chart 2)

Dax Daily Price Chart

Chart created with TradingView

With that said, the country’s dismal manufacturing data has helped pressure the Index into close proximity with the 200-day moving average. Like the Dow Jones, the Index now threatens the formation of a death cross signal – a signal recently offered on the Russell 2000. Thus, while the situation in the United States equity market is precarious, the DAX’s may be direr. If support at 11800 fails, subsequent buoyancy may be offered by the Fibonacci level around 11565, before the door is opened to test August lows around 11275.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Stock Market Q4 Forecast: The Weight of Trade Wars May Finally Crack the Dow Jones



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US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

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Singapore Dollar, Indonesian Rupiah, Malaysian Ringgit, Philippine Peso, Indian Rupee – Talking Points

  • US Dollar trade flat against ASEAN currencies last week
  • Bank of Indonesia intervened to support the Rupiah again
  • US-China tensions risk complicating an economic recovery
  • Indian Rupee is vulnerable, 1Q GDP may dramatically slow

US Dollar ASEAN Weekly Recap

The US Dollar experienced a broadly neutral week against its ASEAN counterparts such as the Singapore Dollar, Philippine Peso and Malaysian Ringgit. As anticipated, ASEAN currencies spent most of their time following investors’ risk appetite. Optimism for a coronavirus vaccine from Moderna earlier in the week was then overshadowed as China imposed more stringent control over Hong Kong, plunging the Hang Seng.

A notable standout was the Indonesian Rupiah, which managed to gain about one percent against the US Dollar. The Bank of Indonesia unexpectedly left rates unchanged as it reiterated the need for market intervention to defend its currency. The latter has been a key sticking point as of late, likely boosting IDR as expected. USD/IDR was also absent from trading towards the end of the week due to local market holidays.

Indian Rupee and the RBI Emergency Rate Cut

Meanwhile, the USD/INR rose after the Reserve Bank of India (RBI) unexpectedly slashed benchmark lending rates in an unscheduled meeting on Friday. Local government bond yields tumbled as the repo rate was cut by 40-basis points to 4.00%. The central bank also extended a moratorium on bank loans for an additional 3 months to help provide relief for businesses amid the coronavirus outbreak as credit spreads widen.

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Last Week’s US Dollar Performance

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

ASEAN-Based US Dollar Index averages USD/SGD, USD/IDR, USD/MYR and USD/PHP

External Event Risk – US-China Tensions, Consumer Confidence

USD/SGD, USD/IDR, USD/MYR and USD/PHP may continue focusing on market sentiment in the week ahead. On the next chart below, you can see the inverse relationship between my ASEAN-based US Dollar index and with the MSCI Emerging Markets Index (EEM). While the 20-day rolling correlation has been becoming less inversed, US-China tension woes may reinvigorate this dynamic.

The Greenback saw steady appreciation when the US-China trade war picked up pace not long ago. If tensions escalate further and perhaps lead to a reintroduction in tariffs, this may complicate the economic recovery from the coronavirus. That may further cool expectations of a robust rebound in GDP as another 2 million Americans are anticipated to have filed for unemployment claims last week.

In the background, expansion in the Federal Reserve’s balance sheet has been noticeably slowing as of late. That could be making it increasingly difficult for equities to find further upside momentum in these uncertain times. Conference Board and University of Michigan sentiment data will cross the wires in the week ahead. Gauges of confidence in a consumer-oriented economy will be critical to watch for the trajectory of sentiment.

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ASEAN Event Risk – Singapore and Indian GDP

Focusing on Southeast Asia economic event risk, Singapore and Indian GDP data will cross the wires on Tuesday and Friday respectively. The former will be a finalized revision which may show that the first-quarter contraction may have been less aggressive at -8.2% q/q versus -10.6% estimated.

Indian growth meanwhile is anticipated to drop down to +1.0% y/y in the first quarter from +4.7% prior. This could be a historical print as the RBI envisions fiscal-year 2021 economic growth to turn negative. The Rupee is looking vulnerable here, especially as India faced the threat of stagflation prior to the virus outbreak.

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ASEAN-Based USD Index Versus MSCI Emerging Markets Index – Daily Chart

US Dollar May Rise as SGD Falls on US-China Woes, Indian Rupee at Risk

Chart Created Using TradingView

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter



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Crude Oil Prices May Be Plotting a Return to $40/Barrel WTI

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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices rebuild link with broader sentiment trends
  • Technical setup hints a test above $40/bbl might be ahead
  • Gold prices edge down, struggle to make good on breakout

Crude oil prices edged up against the backdrop of a cautious improvement in risk appetite at the beginning of the trading week. The WTI benchmark paced a rise in S&P 500 index futures. The correlation between the two has been rebuilding recently, suggesting that idiosyncratic factors – notably, the recent struggle to extend the OPEC+ output cut scheme – are giving way to broader sentiment as the main driver of price action.

Gold prices likewise echoed the broader market mood. The metal inched lower as Treasury bond futures flagged higher yieldsagainst the risk-on backdrop, undermining the appeal of non-interest-bearing assets.

On balance, this seems to set the stage for sentiment to continue to drive. A dearth of noteworthy event risk hints that the pro-risk tilt already in play faces relatively few discernible roadblocks, opening the door for follow-through. True trend development may prove elusive howeveras news-flow dries up and volumes dwindle in thin holiday trade. Pace-setting markets in the UK and the US will remain shuttered.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are consolidating gains after clearing resistance at 32.81, the 50% Fibonacci retracement. This level has held up to being retested as support, suggesting the next move might be a further foray to the upside. Resistance is in the 40.56-42.40 area, with a daily close above that exposing former support clustered around the $50/bbl figure. A turn back below the 38.2% Fib at 25.07 is probably a prerequisite for neutralizing immediate upward pressure.

crude oil price chart - daily

Crude oil price chart created using TradingView

GOLD TECHNICAL ANALYSIS

Gold prices are struggling to find upside follow-through after breaking out of a bullish Symmetrical Triangle pattern. Negative RSI divergence suggests upside momentum is ebbing, which may set the stage for a reversal lower. Taking out minor support at 1715.15 exposes a seemingly more durable barrier at 1679.81, followed by the 38.2% Fibonacci retracement at 1645.40. Invalidating topping cues probably requires a daily close above the May swing top at 1765.30.

Gold price chart - daily

Gold price chart created using TradingView

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter



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US Dollar, Dow Jones, Australian Dollar, Crude Oil

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US benchmark stock indexes – such as the S&P 500, Dow Jones and Nasdaq Composite – aimed cautiously higher this past week. Yet, Wall Street has been struggling to find material upside follow-through since late April with the aggressive pace in gains since March noticeably ebbing. The sentiment-linked Australian Dollar and New Zealand Dollar were unable to follow equities.

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Most of the upbeat tone occurred early on in the week as Moderna reported degrees of success in a virus vaccine trial. Yet investors’ confidence waned after this was critiqued and as China unveiled a national security law on Hong Kong that sent the Hang Seng tumbling 5.56% on Friday. The haven-linked US Dollar and similarly-behaving Japanese Yen cautiously rose this past week.

Growth-oriented crude oil has been on the rise, suggesting markets may be looking forward to gradual lockdown easing measures across the globe. Central bankers have been warning about the long-term impact on growth, particularly if additional virus waves unfold. Over 38 million citizens in the world’s largest economy have filed for unemployment claims. This may top 40m ahead.

Conference Board Consumer Confidence and University of Michigan Sentiment data will reveal how attitudes are shaping in a nation where 2/3 of GDP is in consumption. Australia’s Prime Minister speaks to the National Press Club in Canberra as tensions with China brew. These woes may bring back trade war fears, complicating efforts to economically recover from the virus.

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Fundamental Forecasts:

Euro Forecast: EUR/USD Outlook Lifted Long-Term by Recovery Fund Plan

The long-term outlook for the Euro has been boosted significantly by a Franco-German proposal for a €500 billion coronavirus Recovery Fund, even though an agreement is not yet close.

Gold Price Outlook Bearish on GDP Data, US-China Tension and Covid-19

Gold prices may face heightened liquidation pressure as US-China tensions over Hong Kong heat up ahead of US GDP data amid the coronavirus pandemic.

Australian Dollar Faces Data Drought, RBA Silent so Covid Will Drive

The Australian Dollar market is headed for a bare domestic data cupboard which will once again leave overall market risk appetite in charge. This may well mean it remains stuck in its current range.

USD/MXN Outlook: Downside Pressure Continues as Investors Cheer Drug Hopes

The possibility of a Covid-19 cure by year end keeps market sentiment high despite ongoing political tensions

US Dollar Outlook: US-China Tensions Complicate Virus Recovery Bets

The US Dollar may find some strength if tensions between the US and China keep rising, adding an extra layer of uncertainty to the global economic outlook amid the coronavirus outbreak.

S&P 500, Nasdaq 100, DAX 30 Forecast for the Week Ahead

The S&P 500 and Nasdaq will look for developments in US-China tensions while the DAX 30 awaits a string of regional data. Possible coronavirus vaccines may also influence sentiment in the week ahead.

Technical Forecasts:

GBP/USD Forecast: Pound Weakness to Persist Amid Break of April Low

The British Pound has depreciated against all of its major counterparts so far in May, and the weakness may persist as GBP/USD takes out the April low (1.2164).

Crude Oil Weekly Outlook: Rally Runs Into Resistance as Risk-On Appetite Stalls

Crude oil sold-off Friday on news that China is looking to introduce stringent new security laws in Hong Kong, damaging global risk appetite.

S&P 500, FTSE 100 Technical Outlook For Next Week

S&P 500 faces pivotal resistance, while FTSE 100 continues to trade in rangebound fashion.

Gold Price Trend May Reverse as the Rally Loses Steam Near $1800 Gold prices

have enjoyed impressive gains in recent weeks but momentum seems to ebbing on approach to $1800/oz. A reversal downward may be brewing ahead.

US DOLLAR WEEKLY PERFORMANCE AGAINST CURRENCIES AND GOLD

US Dollar Weekly Performance vs currencies and Gold



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