DAX attacks 11,000 on COVID-19 treatment hopes – sustainable?

May 11, 2020 12:00

Source: Economic Events Calendar May 11 – 15, 2020 – Admiral Markets’ Forex Calendar

DAX30 CFD

In our last weekly market outlook, we noted

[…]But, again: speculations around Remdesivir being a potential and effective Coronavirus treatment are not new and we’d like to emphasize that one should potentially be careful in being too hopeful and optimistic.[…]

Since these speculations did not grow over the last days, the drop back below 11,000 points in the German DAX30 did not come as such a big surprise.

Still, what was surprising, is that after the German Constitutional Court ruled last Tuesday that some ECB actions in regards to asset purchases respectively the QE are unconstitutional and thus not valid in Germany since the ECB decisions are not backed by the EU treaty, the German index consolidated, but did not break substantially lower.

Such a move could have been certainly expected since the ruling covers the PSPP program, NOT the PEPP program to dampen the negative economic impact of the Corona lockdown and which goes even a step further and buying also Greek bonds, not taking the rating of the issuing EU country into account.

While we are not sure if we really should consider that as a bullish sign, it is for sure not a bearish one.

That said, we are still careful in terms of DAX30 CFD long engagements, even though short-term and technically we stay positive as long as the German index trades above 10,300 points and a push back above 11,000 points over the next days stay an option:

Source: Admiral Markets MT5 with MT5-SE Add-on DAX30 CFD Daily chart (between January 23, 2019, to May 8, 2020). Accessed: May 8, 2020, at 10:00 pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the DAX30 CFD increased by 9.56%, in 2016, it increased by 6.87%, in 2017, it increased by 12.51%, in 2018, it fell by 18.26%, in 2019, it increased by 26.44% meaning that after five years, it was up by 34.2%.

Check out Admiral Markets’ most competitive conditions on the DAX30 CFD and start trading on the DAX30 CFD with a low 0.8 point spread offering during the main Xetra trading hours!

US Dollar

When looking at the USD Index Future, the picture hasn’t significantly changed over the last week of trading. In fact, the USD Index Future kept on stabilizing around 100.00 points, despite horrific US economic data from the US labor market with ADP employment change coming in at -20.2 million, wiping out nearly one decade of created jobs in the private sector due to the Corona lockdown in the US alone.

The explanation can be clearly found in the Euro weakness, especially after the ruling of the German Constitutional Court last week of Tuesday (for details, please check the paragraph below).

This in mind keeps us very skeptical in terms of US dollar long engagements, since we expect further monetary and fiscal stimulus from the US government and the Fed, weighing fundamentally on the USD outlook.

But given the current developments especially in the Euro, but also in Emerging markets with capital fleeing these markets and liquidity pouring back into the USD, we still see potential on the upside, making another stint higher with a target around 105.00 points an option.

Source: Barchart – U.S Dollar Index – Weekly Nearest OHLC Chart (between January 2017 to May 2020). Accessed: May 8, 2020, at 10:00pm GMT

Don’t forget to register for the weekly “Trading Spotlight” webinar with presenters including Jens Klatt, every Monday, Wednesday, and Friday at 2 pm London time! It’s your opportunity to follow Jens and others as they explore the weekly market outlook in detail, so don’t miss out!

Euro

Our bearish outlook sharpened over the last week of trading: the German Constitutional Court ruled on Tuesday that some ECB action in regards to Asset purchases respectively the QE is unconstitutional and thus not valid in Germany since the ECB decisions are not backed by the EU treaty.

The court gave the ECB now a 3-month ultimatum to “fix” its QE program. It didn’t take long with the ECB responding, saying that it has taken note of German Constitutional Court ruling and remains fully committed to its inflation mandate.

What’s noteworthy here is that this ruling covers the PSPP program, NOT the PEPP program which goes even a step further and also buying Greek bonds, not taking the rating of the issuing EU country into account.

As a result, the Euro took on bearish momentum again, bringing the focus back on the current yearly lows around 1.0630 and making even a significant drop lower highly likely, reason: we already pointed out in our last weekly market outlook that by not raising the size of the ECB emergency bond-buying package (PEPP), but keeping it at 750 billion Euro, we received a “not so positive sign” already since the European economy is highly dependent on a massive monetary and fiscal stimulus program to recover from the Corona-lockdown.

With the ruling of the German Constitutional Court, chances of a significant raise of PEPP became probably even unlikelier, leaving the Euro vulnerable to further losses, even against the also weak US dollar.

Technically, only recapturing 1.1000 would brighten the picture a little:

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between March 11, 2019, to May 8, 2020). Accessed: May 8, 2020, at 10:00 pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EUR/USD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, 2018, it fell by 4.4%, 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.

JPY

The performance of the USD/JPY has not been very spectacular over the last days, even though we stay with our overall bearish outlook on the USD/JPY currency pair.

That is probably especially true after last week’s US economic data sets from the labor market which came in at “catastrophic” levels with the ADP seeing a print at -20.2 million and the NFP’s on Friday seeing a print at -20.5 million.

And even though we didn’t see much in terms of volatility, since these data sets could be expected at such low levels, especially after initial jobless claims showing a number of over 30 million over the course of the last seven weeks, it underlines one aspect from our last weekly outlook: here we pointed to the last Fed statement and the willingness of the Fed to take further monetary action in a worsening economic situation.

And since the economic outlook keeps on worsening in the US and given the ongoing massive monetary and again and again emphasized fiscal stimulus from the US government to fight the economic impact of the Corona lockdown, a test of the region around 105.00 and even a push lower seems a realistic option in the days and weeks to come in the USD/JPY:

Source: Admiral Markets MT5 with MT5-SE Add-on USD/JPY Daily chart (between March 18, 2019, to May 8, 2020). Accessed: May 8, 2020, at 10:00pm GMT

In 2015, the value of the USD/JPY increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.

Gold

Even though US economic data sets from the labor market came in at “catastrophic” levels with the ADP seeing a print at -20.2 million and the NFP’s on Friday seeing a print at -20.5 million, Gold presented itself all in all quite stable and the overall picture didn’t significantly change.

The main reason for the all in all unspectacular performance in the yellow metal despite these bad data sets is most likely that these could be expected at these levels, especially after initial jobless claims showing a number of over 30 million over the course of the last seven weeks.

Given the massive monetary and fiscal stimulus from the US government and the Fed to fight the economic impact of the Corona lockdown, a next sharper leg up remains a serious option and brings the region around 1,750 USD back into focus in the days to come.

Still, the bearish divergence in the RSI(14) on a daily time-frame (orange) is still a topic and would be confirmed with a break below 1,660 USD, making a deeper corrective move as low as 1,630/35 USD possible.

Source: Admiral Markets MT5 with MT5-SE Add-on Gold Daily chart (between January 31, 2019, to May 8, 2020). Accessed: May 8, 2020, at 10:00 pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of gold fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, in 2019, it increased by 18.9%, meaning that after five years, it was up by 28%.

Discover the world’s #1 multi-asset platform

Admiral Markets offers professional traders the ability to trade with a custom, upgraded version of MetaTrader 5, allowing you to experience trading at a significantly higher, more rewarding level. Experience benefits such as the addition of the Market Heat Map, so you can compare various currency pairs to see which ones might be lucrative investments, access real-time trading data, and so much more. Click the banner below to start your FREE download of MT5 Supreme Edition!

Disclaimer: The given data provides additional information regarding all analyses, estimates, prognosis, forecasts, or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

1. This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
3. Each of the Analyses is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s personal estimations.
4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for the prevention and management of conflicts of interest.
5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer to any past performance is not a reliable indicator of future results.
6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies herein or that losses in connection therewith mayor shall be limited.
7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
8. The projections included in the Analysis may be subject to additional fees, taxes, or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.

Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.