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S&P 500, DAX Outlook: EU/US Trade War Brewing

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Equity Analysis and News

  • S&P 500: 2900 Barrier Curbs Upside for Now
  • DAX: EU/US Trade War Brewing

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

 Index

Source: Thomson Reuters, DailyFX

S&P 500 | 2900 Barrier Curbs Upside for Now

The S&P 500 clocked marginal gains of 0.5% for the week. Despite the notable events throughout the week, if there is one thing that has been made apparent, is the continued decline in cross asset volatility. Consequently, this may raise eyebrows as to whether investors are becoming complacent in underpricing risk. Nonetheless, the S&P 500 has continued to grind higher is now hovering around the 2900 handle with the upside on Friday underpinned by China’s credit splurge, which in turn raises scope for a potential rebound in Q2. Next week will see the release of China’s GDP report for Q1, which is seen dropping to the lowest level in almost 30yrs. Looking ahead, with earning season now officially started, the S&P 500 may take its cue from key earning reports, although given that it will be a holiday shortened week, price action may be relatively tame.

S&P 500 Price Chart: Daily Time Frame (Sep 2018 – Apr 2019)

S&P 500

Source: DailyFX

DAX | EU/US Trade War Brewing

A relatively quiet week for the DAX, as upside had been curbed at 12000, which also coincides with the rising trendline. With a trade deal between the US and China is expected in the near-term, concerns may soon turn towards a potential trade war between the US and the EU. This week saw the US move towards imposing USD 11bln worth of tariffs on the EU over the current dispute regarding aircraft subsidies. In retaliation to this, the EU have made a list to target around EUR 20bln of US goods. While this may have had a limited impact on the broader market, a step up in rhetoric over potential auto tariffs could be enough to spark a pullback, particularly in the DAX, given Germany’s large exposure. However, much like the S&P 500, the DAX is unlikely to see a notable move with a range of 12,940-12,055 seen.

DAX Price Chart: Daily Time Frame (Dec 2017-Apr 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

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – Australian Dollar Outlook Bearish on RBA. AUDUSD Eyes China Q1 GDP

Crude Oil Forecast – Crude Could Crumble if Growth Concerns Catch Fire Again

British Pound Forecast – GBPUSD Rate Defends Bull Trend Ahead of UK CPI Amid Brexit Extension

US Dollar Forecast – US Dollar Looks to Earnings, Economic Data to Shape Growth Bets

Euro Forecast – Will Data Support EURUSD Break?



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Forex

Brexit Newsflow and Political Manoeuvres

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GBPUSD 2-Hour Price Chart

Sterling (GBP) Price Fundamental Forecast:Neutral

Q3 2019 GBP Forecast and Top Trading Opportunities

No UK Data Next Week Will Leave Sterling Vulnerable to Rumor Risk

Sterling has nudged higher over the week, aided principally by slightly better-than-expected wages, jobs and retail sales data. UK inflation also edged higher and in a world without Brexit, these releases would have the Bank of England discussing whether the current monetary policy was appropriate or if it needed to be tightened. However, as has been the case for many, many months, Brexit is still the driver for Sterling and will remain so until October 31.

Next week there is no market moving hard UK data of note, leaving Sterling at risk of Brexit rumors and news flow. The UK market will also be holiday-thinned next week, leaving GBP potentially exposed to outsized moves in limited liquidity markets.

Brexit news flow continues unabated with the latest batch of headlines suggesting that a cross-party alliance of MPs may come together to form a national unity party if UK PM Boris Johnson loses the expected vote of no-confidence likely to be called in early September. The current Labour Party leader has said that he will act as interim PM is this succeeds ahead of an early general election with the Labour Party promising a second referendum. According to reports, four prominent remainer Conservative MPs are involved in talks with Corbyn.

Sterling technical are covered in a different section but the chart below shows a familiar pattern. Since late-April there have been three occasions when moves lower are met with a quick reversal before the overall bearish pattern takes over. Will the current move prove to be the fourth occasion?

GBPUSD Daily Chart (December 2018 – August 16, 2019)

GBPUSD Price Chart

The IG Client Sentiment Indicator shows retail traders are 75.6% net-long GBPUSD, a bearish contrarian bias. However daily and weekly changes suggest that GBPUSD prices may reverse higher.

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 Gold – 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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Crude Oil Price Outlook Bearish, Eyeing January Lows on Long Bets

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Crude Oil Technical Forecast: Bearish

  • Crude oil prices struggled sustaining upside momentum this past week
  • Technical signals on the daily, 4-hour chart hinting at weakness ahead
  • IG Client Sentiment offering stronger bearish crude oil contrarian bias

Build confidence in your own Crude Oil trading strategy with the help of our free guide!

Crude Oil Technical Outlook

Crude oil prices struggled to sustain upside momentum this past week as US recession fears plagued risk trends and the sentiment-linked commodity. From a technical standpoint, this falls in line with oil’s dominant downtrend since the middle of April when the commodity fell through rising support from the end of last year.

Looking at the oil daily chart, gains during the front-end of the past 5 trading days were tamed by a falling channel of resistance going back to the middle of July (parallel red lines below). Horizontal resistance also held at 57.38, former highs from February. This left crude oil sitting just above the lower boundary of psychological support which is a range between 54.55 and 55.41.

If descending resistance continues to define near-term price action in the commodity, we may see crude oil extend weakness down the road. Prices may eventually end up at the next critical psychological area between 50.41 and 52.08. This range held as support on multiple occasions such as in June and back in January. Meanwhile, near-term technical signals also hint towards downtrend resumption.

Crude Oil Daily Chart

Crude Oil Daily Price Chart

Crude Oil Chart Created in TradingView

Zooming in on the crude oil 4-hour chart below, rising support from August 7 was taken out this past week. As such, a close under 54.55 may pave the way for continued declines. Otherwise, the upside challenge for the commodity is taking out descending resistance from the middle of July which would expose the July 31 high at 58.79 down the road.

For more updates on crude oil, including fundamental developments, feel free to follow me on Twitter here @ddubrovskyFX.

Crude Oil 4-Hour Chart

Crude Oil 4-Hour Price Chart

Crude Oil Chart Created in TradingView

Crude Oil Sentiment Outlook – Bearish

Meanwhile, IG Client Positioning is offering a stronger crude oil bearish contrarian trading bias. Traders are further net long on August 16 than compared to the prior day. To learn more about how you can use this in our own trading strategy, join me every week on Wednesday’s at 00:00 GMT as I uncover what market positioning has to say about the prevailing trends in financial markets.

Crude Oil IG Client Positioning

Oil Client Positioning Chart

FX Trading Resources

— 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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Forex

Into the Jackson Hole Vortex

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Weekly Gold Price Forecast: Into the Jackson Hole Vortex

Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.

Weekly Gold Price Forecast: Into the Jackson Hole VortexWeekly Gold Price Forecast: Into the Jackson Hole Vortex

Weekly Fundamental Gold Price Forecast: Neutral

  • Gold prices (as well as other precious metals) continue to outperform in an environment defined by falling real sovereign yields – that is, inflation-adjusted yields remain in negative territory.
  • Traders shouldn’t be surprised if gold prices spend most of the week trading sideways ahead of the Federal Reserve’s Jackson Hole Economic Policy Symposium.
  • The IG Client Sentiment Index shows that gold prices in USD-terms (XAUUSD) may give back some of their recent gains in the days ahead.

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

Gold Prices Week in Review

Gold prices, no matter how you measure them, had another good week. Not one major currency gained ground against gold, with gold prices in EUR-terms (XAUEUR) leading the way higher with a 2.11% rally. Now, gold prices in EUR-terms (XAUEUR) are quickly approaching the all-time high established in October 2016; for many of the gold-crosses, fresh all-time highs have already been achieved (gold prices in AUD-terms (XAUAUD), gold prices in GBP-terms (XAUGBP), and gold prices in NZD-terms (XAUNZD) come to mind).

But the central focus of most market participants is gold prices in USD-terms (XAUUSD), and that too produced another strong week, adding 1.11%. Gold prices, regardless of the currency basis, have been on a strong run higher in recent weeks in part to the global monetary response to the US-China trade war; we’ll get clarification on the state of global easing this week as central bankers from around the world descend on Jackson Hole, Wyoming for the Federal Reserve’s annual Economic Policy Symposium.

Global Trade War Concerns Keep Gold Prices Elevated

Despite improved trading conditions for global equity markets in recent weeks, not much has changed in a positive manner along the US-led trade war front. Sure, there is a détente in the US-China trade war after the US tariffs at a clip of 10% on $300 billion of imported Chinese goods were pushed back from September 1 to December 15.

Yet there is a strong argument to be made with central banks unveiling more accommodative, dovish policy in recent weeks – a trend that is expected to continue – the fundamental backdrop for gold prices remains bullish in the long-term horizon. Falling sovereign bond yields (particularly German Bunds, UK Gilts, and US Treasuries since the start of May) continue to drop lower, and as a result inflation-adjusted yields remain in negative territory – good news for precious metals.

Volatility Tamped Down Ahead of Fed’s Jackson Hole Meeting

The Fed’s Jackson Hole Economic Policy Symposium this coming week should keep volatility tamped down in the days ahead. Traders typically don’t like to stake out significant positions ahead of the Fed’s annual summit; indeed, at the end of August, many trading desks have been left absent for summer vacation.

Beyond the prospect of an unforeseen development (see: US President Trump’s tweets) in the US-China trade war, the week leading into the Fed’s Jackson Hole Economic Policy Symposium is likely to be a quieter one – even if there are several significant pieces of data set to be released.

Other Top FX Events in Week Ahead

Early in the week, on Tuesday, gold prices in AUD-terms (XAUAUD) will be in focus with the release of the Reserve Bank of Australia’s August meeting minutes. Gold prices in AUD-terms (XAUAUD) are holding near their all-time highs ahead of the minutes. Elsewhere, the commodity currencies will remain in focus with the release of the July Canada inflation report on Wednesday, drawing attention to gold prices in CAD-terms (XAUCAD).

Elsewhere, gold prices in EUR-terms will come into focus with the release of the August Eurozone PMIs, particularly as odds for more easing from the European Central Bank at their September policy meeting have crept higher in recent weeks.

Net-Long Gold Futures Positioning Just Off the Yearly High

Weekly Gold Price Forecast: Into the Jackson Hole Vortex

Finally, looking at positioning, according to the CFTC’s COT for the week ended August 13, speculators decreased their net-long gold futures positions to 290.1K contracts, down slightly from the 292.6K net-long contracts held in the week prior. The market is still the most net-long since September 2016 despite the slight moderation in bullish positioning.

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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