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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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Forex

Short-Term Rally May Run Into Resistance

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EUR/USD Price, Chart and Outlook

  • EUR/USD rallies off the 50-day moving average.
  • Any Brexit-boost may see the pair test near-term resistance.

Brand New Q4 2019 USD and EUR Forecast and Top Trading Opportunities

EUR/USD: 50-Day Moving Average – Resistance Turning to Support

The daily EUR/USD chart is showing a few conflicting signals of late, leaving a decisive break unlikely in the near-term. While the rally off the October 1 multi-month low at 1.0879 looks well supported, the pair are starting to run into resistance which should stem further upside. The pair however are benefitting from one technical indicator which may well limit any notable downside.

EUR/USD made a confirmed break above the 50-day moving average (blue line on chart) at the start of this week, for the first time since mid-July. The 50-dma has capped the pair for most of the year, while the 200-dma has acted as even firmer resistance aside from a breakout between June 21 and July 1. The 50-dma now turns to support for EUR/USD, while the 200-dma is the next important upside target.

The recent rally has broken a series of lower highs, confirming the shift in momentum, and a close above the 1.1250 lower high made on August 6 would change the medium-term outlook for the Euro to positive. A cautionary signal from the CCI indicator which shows that EUR/USD is currently heavily overbought.

Looking ahead the economic calendar has some important data releases next week including Eurozone consumer confidence, German and Eurozone PMIs and German IFO numbers. Of more importance will be the latest ECB monetary policy meeting and press conference on Thursday – President Mario Draghi’s last meeting – and the EU Commission Economic Forecasts on Friday, both notable market moving events. Resistance and support levels may come under pressure from any of the events noted above.

DailyFX Economic Calendar

EURUSD Daily Price Chart (January – October 18, 2019)

EUR/USD Price: Short-Term Rally May Run Into Resistance

IG Client Sentiment shows that traders are 51% net-short EURUSD, a bullish contrarian bias.

However recent daily and weekly positional changes give us a mixed outlook for EUR/USD.

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on the Euro and the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.



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EUR/GBP May Rise if Brexit Hopes Continue to Fade

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British Pound Outlook, Brexit, GBP/USD Technical Analysis – Talking Points

  • British Pound may reverse recent gains if Brexit perils undermine confidence
  • UK members of Parliament will be voting on Boris Johnson’s new Brexit plan
  • Will DUP derail Johnson’s plan, and if so, will there be yet another extension?

Learn how to use political-risk analysis in your trading strategy!

The Euro may edge higher against the British Pound if hopes for an orderly Brexit continue to dissolve. On October 17, UK Prime Minister Boris Johnson and European Commission President Jean-Claude Junker jointly announced that a Brexit deal had been reached. Sterling rallied on the news, though its upside movement was curtailed by news that the Irish Democratic Unionist Party (DUP) would not support his plan.

Securing their support is essential if Mr. Johnson wants to pass a deal through the House of Commons. If he fails to do so, it could severely derail plans for an orderly Brexit which would likely see the British Pound reverse a significant portion of its recent gains. However, EU Council President Donald Tusk has not ruled out the possibility of an extension if lawmakers failed to agree on a deal on Saturday.

In Parliament there are currently 287 voting conservative lawmakers which Mr. Johnson will need if his proposal is to survive. He may also have to lean on over 20 former Tory MEPs who switched over to become independents. However, that may not be enough votes which may compel the PM to ask for help across the political aisle.

Market Analysis of the Day: Will the British Pound Reverse its Recent Gains?

Chart showing EUR/GBP

GBP Index chart created using TradingView

FX TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter



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Australian Dollar Firm After China GDP Miss But Trend Aims Lower

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CHINA, GDP, TRADE WAR, AUSTRALIAN DOLLAR – TALKING POINTS:

  • 3Q Chinese GDP registers narrowly worse than expected at 6.0% y/y
  • Industrial production data, US trade talks may have offset the headline
  • Australian Dollar little-changed but overall trend still pointing lower

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

The Australian Dollar found little of interest in mildly disappointing Chinese GDP data. The figures put the on-year growth rate at 6 percent, a hair lower than the 6.1 percent expected by economists. Nevertheless, this marks the slowest pace of expansion in at least 27 years.

Upbeat industrial production readings might have helped offset a soggy headline figure. The rate of on-year growth unexpectedly jumped to a three-month high of 5.8 percent. Early signs of stabilization in retail sales figures may have helped as well.

The report’s limited implications for larger macro themes dominating investors’ attention may likewise explain the tepid response. Extrapolating a view on future Chinese growth seems nearly impossible without greater clarity on trade negotiations with the US, making today’s release appear somewhat moot.

Australian Dollar vs US Dollar price chart - 1 minute

1-minute AUD/USD chart created with TradingView

Assessing the broader landscape, choppy AUD/USD consolidation since early August leaves firmly intact a well-defined downtrend established from late December 2018. Prevailing monetary policy trends suggest it is likely to continue, with longer-term charts setting the stage for deep losses in the months ahead.

Australian Dollar Firm After China GDP Miss But Trend Aims Lower

Daily AUD/USD chart created with TradingView

AUD/USD TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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



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