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Revisions to GDP Data to Underscore Weakening Environment

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Euro Forecast: Revisions to GDP Data to Underscore Weakening Environment

Fundamental Forecast for the Euro: Neutral

The Euro ended the week in the middle of the pack again, and there was a clear ‘risk off’ tone to the week given that EURCHF, EURJPY, and EURUSD were the worst performers.

– The first revisions to the Q4’18 German and Eurozone GDP reports should show a greater slowdown in growth than initially measured.

– The IG Client Sentiment Indexshows that traders continue to increase their long EUR/USD positioning as prices hit fresh monthly lows.

See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides.

The Euro had another run-of-the-mill week, gaining ground against three currencies, while losing ground against the other four. A breakdown of the various EUR-crosses showcases a clear shift in risk appetite. EURUSD was the worst performing pair, dropping by -1.17%, followed by EURJPY at -0.96%. Meanwhile, the Euro’s best performance came against the Australian and New Zealand Dollars (EURAUD +1.09%; EURNZD +1.17%). That the three safe haven currencies were the top performers and the three commodity currencies were the worst performers should be a warning sign, one that portends of potentially more weakness to come in risk-correlated, high beta assets.

Revisions to GDP Data to Showcase Weakening Environment

One of the main drivers of Euro weakness in recent weeks has been the widening gap between the European Central Bank’s growth expectations and how actual data have materialized. The coming week’s top economic data releases should further underscore the need for the ECB to keep its extraordinary monetary stimulus in place, despite the Governing Council’s best laid plans to raise rates by sometime around “summer 2019.”

The revision to Q4’18 German GDP is due to show that the Eurozone’s largest economy only grew by +0.8% in 2019, down from the +1.1% rate initially reported. A significant decline in the German reading should weigh down the Q4’18 Eurozone GDP reading, which first checked in at +1.2% (y/y). After last week’s economic figures, the Citi Economic Surprise Index remained deep in the red at -80.1, down from -77.3 at the end of last week, and only slightly higher than where it was one month ago at -88.6.

Brexit, Trade Wars, US Government Shutdown All in Play

While most of the EUR-complex has been trading largely along the lines of global risk dynamics – the safe haven crosses and commodity crosses are moving in opposite directions – two pairs are still under the sway of significant exogenous influences that could cause them to decouple. EURGBP, of course, continues to be guided by Brexit (and for that matter, all of the GBP-crosses are in the same boat). Any single development that materially changes the odds of a no deal, ‘hard Brexit’ will dictate outcomes for EURGBP, regardless of whatever is happening with Eurozone economic data. Elsewhere, EURUSD brief reprieve away from US political influences is now over, with another US government shutdown possible at the end of the week and the deadline for the US-China trade war détente in three weeks.

Euro Weakness Mirrors Decline in Inflation Expectations

Market-measures of inflation expectations remain under significant pressure, which have historically – and currently – been glove-in-hand with a more difficult trading environment for the Euro. The 5-year, 5-year inflation swap forwards (ECB President Mario Draghi’s preferred market-measure) finished last week at 1.440%, a fresh 52-week low. To this end, this measure of inflation peaked in January 2018 at 1.774%. Between the underwhelming GDP figures and ongoing deterioration in inflation expectations, it’s seems if it’s only a matter of time before the ECB takes on a more dovish tone.

Positioning Data Being Released Once More, but Still On a Delay

The US government shutdown from December 23 to January 25 is still having an impact on the release schedule for the CFTC’s COT report. As such, the CFTC’s COT report released on Friday was for the week ended January 8, and it showed that speculators had decreased their net-short Euro positions to 40.5K contracts from 58.5K net-short contracts reported for the December 25 period. The CFTC’s COT report is still not a reliable source of positioning at present time; instead, traders may want to look to the IG Client Sentiment Index.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.



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Forex

Dow Jones, DAX 30 and FTSE 100 Technical Forecast

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Dow Jones, DAX 30 and FTSE 100 Technical Forecast:

  • The Dow Jones faces considerable nearby resistance
  • The DAX 30 enjoys nearby trendline support, but must surmount a Fib level to press higher
  • To the delight of technical traders, the FTSE 100 will have to unravel two conflicting candlestick patterns

Dow Jones, DAX 30 and FTSE 100 Technical Forecast

Amid a whirlwind of trade war developments, equity markets across the globe had to negotiate significant volatility. After the S&P 500 posted its largest gap lower since 2009 on Monday, US equities had their work cut out for them – but were able to recoup most losses. In the days to come, equity markets will continue to struggle with the same themes. Expect technical levels to be strained, especially if volatility persists.

Dow Jones Technical Forecast: Bearish

The Dow Jones ended the week marginally lower than it closed the Friday prior. More importantly however, the Index resides beneath two nearby Fib levels – the 61.8% retracement from March to May at 25,775 and the 78.6% at 23,823. Each level will look to provide resistance early next week. If those levels are surpassed, the 50% level at 25,952 will come into play. The area rebuked prices multiple times last week and should play a similar role next week.

Dow Jones Price Chart: 4 – Hour Time Frame (February – May) (Chart 1)

DJI

How to Day Trade the Dow Jones

With considerable topside resistance, the Industrial Average will once again have its work cut out for it. If attempted rallies are curtailed, the 78.6% level around 25,523 may fortify prices. Beyond that, the 25,400 area should provide further buoyance, despite a break lower on Monday. The area marks March’s lows and provided moderate support last week.

DAX 30 Technical Forecast: Bullish

After a considerable surge last week, the German DAX seems to have its sights set on a continuation rally. Luckily for bulls, the 23.6% Fib level at 12,169 and an ascending trendline from December’s low will look to provide nearby support. The trendline previously marked the lower bound of the ascending channel the Index found itself in during the first-quarter rebound. Should the support hold, the channel may become pertinent once more.

DAX Price Chart: 4 – Hour Time Frame (April – May) (Chart 2)

DAX

Should the index continue higher, highs from last week – around 12,300, should pose initial resistance. Secondarily, the 61.8% Fib level at 12,331 will come into play. If both those levels are surmounted, subsequent resistance will be offered by the upper-bound of the channel and at 12,437 – the full extension of the Fib level from March’s lows to May’s highs.

FTSE 100 Technical Forecast: Bullish

The FTSE 100 closed Friday’s session to leave a perfect hanging-man candlestick on the daily chart. Although shorter time frames are typically better suited for weekly forecasts, the candlestick patterns are too clear to ignore. A hanging man candlestick at the top of an uptrend generally precedes a trend reversal, but what precedes the Friday candle may carry more weight.

FTSE 100 Price Chart: Daily Time Frame (February – May) (Chart 3)

UKX

Prior to the hanging man, the candlesticks from the Tuesday through Thursday sessions form three white soldiers – in this case green soldiers. This candlestick pattern offers a bullish signal, usually preceding further gains. With the conflicting candlestick signals, technical traders will have a lot to look for next week.

That said, the most likely outcome – in my opinion – is a brief retracement early in the week to fulfil the hanging man prophecy and to consolidate. In this scenario, the 23.6% Fib level at 7,296 would pose as critical support. Once the consolidation is underway, the three white soldiers may drive the FTSE 100 higher as the week progresses. For follow up on these technical patterns, or to ask any questions, follow @PeterHanksFX on Twitter.

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

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Gold Price Plummets, Seeks Technical Support Near May Lows

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Looking for a fundamental perspective on Equities? Check out the Weekly Equity Fundamental Forecast



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S&P 500, DAX Fundamental Forecast

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Equity Analysis and News

  • S&P 500 | Trade War Tensions Dictating Price Action
  • DAX | EU/US Trade Dispute is Delayed, Not Resolved

FTSE

Source: Thomson Reuters, DailyFX

S&P 500 | Trade War Tensions Dictating Price Action

The S&P 500 is on course to drop over 0.5% for the week as investor angst over US/China trade wars continues to weigh on risk appetite, most notably in the US benchmarks. However, while a mid-week bounce has seen losses pared slightly since the escalation with the S&P 500 now down 3% (Prev. -5.4%), the trade sensitive sectors have maintained their losses with the US Semiconductor Index down 10% (Prev. -11%). Consequently, focus will continue to remain trade wars.

SPX

Markets Pricing in Fed Rate Cuts

The Federal Reserve have continued to maintain the mantra that they will be on hold for the foreseeable future and that there is little reason to provide a cut. However, bonds markets have continued to price in Fed easing, with money markets fully priced for a rate reduction in December. Alongside this, the 3M/10yr US yield curve has continued to dip into inversion amid the rising trade war tensions. The upcoming week will see commentary from Fed Chair Powell, however, with markets pricing in a dovish Fed, the bar is high for Powell to match those dovish expectations as was evidenced in the post monetary policy decision speech on April 24th, in which the Chair noted that soft inflation was “transitory”.

FED

Source: DailyFX, Thomson Reuters

DAX | EU/US Trade Dispute is Delayed, Not Resolved

A firm week for the DAX, which recorded gains of over 1%, among the major factors behind this had stemmed from source reports stating that the Trump Administration were to delay imposing auto-tariffs on EU imports for an additional 6-months (full story), which in turn saw the European auto names surge. The decision to delay could largely be attributed to the fact that US/China tensions have escalated. However, this is merely a delay and not a resolution. Noteworthy calendar events: ECB Draghi & Praet (Thurs), Eurozone PMIs (Thur).

DAX Price Chart: Daily Time Frame (Jan 2019May 2019)

DAX

RESOURCES FOR FOREX & CFD TRADERS

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

Looking for a technical perspective on Equities? Check out the Weekly Equity Technical Forecast



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Euro Weakness to Remain the Theme

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EURUSD Technical Highlights:

  • Euro looks headed towards the April low or worse
  • 4-hr chart has a developing structure to pay attention to

Check out the DailyFX Trading Guides page for intermediate-term forecasts, educational content aimed all experience levels, and more.

Euro looks headed towards the April low or worse

To be clear, trading EURUSD lately hasn’t been an easy endeavor as low volatility conditions continue to be a headwind for traders. We’ve seen some movement in other majors (GBPUSD in particular) but not in the most widely traded pair. That will eventually change, but until it does we have to continue to take what is presented to us and be patient with set-ups.

With that said, the general trading bias remains the same as it has for months – lower. Trend and price action continue to be supportive of this bias. A run on the April low at 11109 or worse looks to be in store sometime in the coming sessions, but the path could be a little shaky.

Dialing in a bit closer to the 4-hr time-frame, a channel is becoming visible even if it isn’t perfect, with candlestick wicks clouding the picture. A small bounce from the lower parallel may make for the best scenario, as the lower parallel’s importance is further cemented and a nearby low is created in the process.

A bounce and subsequent breakdown could offer a solid structure (see 4-hr chart) for would-be shorts from both a probability and risk/reward standpoint. Selling right here at support puts one at risk of a bounce with good stop placement difficult to determine.

A bounce that carries the euro beyond 11225 will give pause to sellers and bring into play the area around 12265 (recent highs/trend-lines) and possibly become an even more attractive spot to short. The bottom line is that the Euro looks headed lower, but it may pay to sit tight and wait for a better look before entering new positions. If currently in a short from higher levels, then one could use the aforementioned highs and trend-lines to manage risk accordingly.

Check out the IG Client Sentiment page to find out how changes in positioning in major markets could signal the next price move.

EURUSD Daily Chart (April low, 11000s could be soon)

EURUSD

EURUSD 4-hr Chart (Channel/Bear-flag)

EURUSD

Helpful Resources for Forex Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Looking for a fundamental perspective on The Euro ? Check out the Weekly EUR Fundamental Forecast



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