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Long Term Forecast Reports

It's important to look at the big picture no matter what markets, and what time frame you are trading. There's no difference in trading Forex. Sometimes, one may wonder why a short term trend halts and reverses at a certain level before knowing that it's an important long term support/resistance, or a projection level in play. On the other hand, forex traders are always advised to pay attention to fundamentals like inflation forecasts, growth and monetary policy in medium to longer terms.

DAX 6 Month Outlook 2016 H2 Print E-mail
Long Term Forecasts | Written by MarketPulse | Aug 18 16 14:12 GMT

DAX 6 Month Outlook 2016 H2

What impact has Brexit had on Germany?

It's still too early to determine what the economic impact of Brexit will be on Germany - and the eurozone on the whole for that matter - both in the near-term and beyond. On the one hand, the U.K. conducts a lot of trade with the E.U. with the latter actually being a net beneficiary of this. On the other hand, the remaining E.U. countries now have an opportunity to conduct more trade with each other and even chip away at U.K. industries - financial services being the most notable - something that would have caused significant friction had the U.K. voted to remain.

An early casualty of the vote was sentiment, with the ZEW economic sentiment - a survey of the 6-month economic outlook for 275 institutional investors and analysts - for July dropping to the lowest level since November 2012. Other sentiment readings haven't fared so badly, with the manufacturing PMI, Ifo business climate and Gfk consumer surveys dipping slightly and the services PMI actually rising in July.

What can we expect going forward?

The outlook for the German economy hasn't changed too much in the near-term. With the U.K. indicating that it doesn't expect to trigger article 50 this year, the next six months could pass by with relatively little disruption. The initial hit to sentiment on the back of the Brexit vote was likely a knee jerk reaction and once the dust settles, assuming nothing else drastic happens, this may well pick up again.

Central banks have appeared eager to pre-empt any negative consequences of the vote by providing further monetary accommodation to cushion the blow, although at the time of writing only the Bank of Japan has actually acted and even this was not well received in the markets. Ultimately though, it will be down to the governments to support the economy with more expansionary fiscal policies if they do in fact view Brexit as a significant threat to the fragile economic recovery in the eurozone.

The benefit of further monetary stimulus from the ECB is that it could provide support for the equity markets in the meantime and help repair the damage done to sentiment by the Brexit vote. The flip side to this is that markets were not particularly impressed by the ECBs "bazooka" back in March so even if we got more stimulus, it doesn't necessarily mean investors will approve.

It's also worth noting that Brexit isn't the only risk to the Germany economy or stock market. The eurozone remains a ticking time bomb and while the risks may currently be among the lowest they've been for eight years, there is always something bubbling under the surface that could trigger the next crisis. The one that stands out currently is the issues in the banking sector, particularly in Italy where the size of the non-performing loans in certain banks has raised major concerns.

The other risk that stands out is China. Back in August, panic sparked by the depreciation of the yuan - but in reality caused by many underlying concerns with the economy - caused the DAX to plummet by almost 20% in just under two weeks. This happened again in January this year when the DAX again fell by almost 20%, this time in the space of six weeks. There is no reason why this couldn't happen again and clearly, the DAX is very vulnerable to such moves. Potentially due to its tight trade connections with China.

What does this mean for the DAX?

At the time of writing, the DAX has finally in recent days moved back above the pre-Brexit levels, a move which would suggest the initial panic is relation to the vote is passing. That's not to say that it won't return, possibly once article 50 is triggered, but it certainly appears to have passed for now and it could remain that way for some months. It's also worth noting that expectations for ECB stimulus have grown considerably since the referendum which is likely helping to support or even drive the rally.

The DAX has currently broken through resistance around 10,350-10,500 which was quite bullish given the streak it was already on. Should investor sentiment remain buoyed in the coming months and the biggest risks not materialise - particularly those mentioned earlier in the article - we could see the index challenging the highs from the end of last year around 11,433.

DAX Weekly

It's worth noting that substantial downside risks remain for the index and the higher it gets in the meantime, the higher these risks could become. Given that we've seen a close to 20% decline on the last two occasions that China has shaken global markets, we can't write that off as being a possibility again. That said, it is again worth noting that we had a significant depreciation of the yuan over the last three months or so and investors were relatively unshaken by it. Perhaps the Brexit vote took the attention away from this or maybe as with everything in the markets, this has evolved and the next trigger will be different to the last two occasions. Either way, we must remain vigilant.

AUD/USD Australian Dollar 6 Month Outlook 2016 2H Print E-mail
Long Term Forecasts | Written by MarketPulse | Aug 02 16 15:28 GMT
The RBA seems to be little concerned by Brexit and believes it's far too soon to pass judgment on the effect of the 'leave' Europe June vote on the U.K economy, implying that a weaker sterling (down -11% since June 23) could temper the economic fallout. The RBA's Governor Stevens and his fellow policy makers have noted that the direct effect of Brexit on Australia was "likely to be quite small" given the small trade ties with the U.K.
WTI Crude Oil A Year Ahead - Trends And Expectations 2016 Print E-mail
Long Term Forecasts | Written by MarketPulse | Dec 24 15 11:45 GMT
The second half of 2014 saw a sharp drop in the price of WTI Crude Oil, which had traded at $105 a barrel in July. By January 1, 2015, the price of crude had fallen by almost 50%, to $54.45 a barrel. Oil prices rebounded in April, reaching a high of $62. However, this rise was short-lived, as crude dropped sharply in July and dropped below $38 in August. Oil prices hovered close to $45 in September and October, but have since weakened. Currently, crude oil is trading at $37.32, the yearly low, and could easily set new lows for 2015 before the end of December.
DAX Year Ahead – Trends And Expectations 2016 Print E-mail
Long Term Forecasts | Written by MarketPulse | Dec 24 15 11:11 GMT
It has been another testing year for the German economy but once again it has shown the kind of strong resilience that it has become synonymous with throughout the global financial and eurozone debt crises. The first half of the year in the eurozone was dominated by questions over whether Greece could remain within the eurozone, something that once again called into question the apparent irreversibility of the euro project.
British Pound Year Ahead - Brexit To Dominate 2016 Print E-mail
Long Term Forecasts | Written by MarketPulse | Dec 22 15 12:49 GMT
This has been something of a turnaround year for the UK in which unemployment has fallen back to pre-financial crisis levels, wage growth has accelerated and falling energy and food prices have supported a strong consumer driven recovery. Growth has cooled a little in 2015 after peaking at 3.2% in the middle of 2014 but this was to be expected against the backdrop of slowing global growth, a sluggish recovery in the euro area - the UK's largest export market - and a strong pound which created big challenges for UK manufacturers.
Gold for Bear Market? Print E-mail
Long Term Forecasts | Written by Merk Hard Currency Fund | Oct 13 15 13:23 GMT
A "bear market" is frequently defined as a decline of at least 20% in the S&P 500 index. Trouble is that by the time pundits provide their seal of approval that we are indeed in a bear market, the index has already lost 20% from its peak. Many of them will likely have told investors to buy the dips all the way down.
Euro Area Outlook for 2015: Impact of Broad-Based QE Print E-mail
Long Term Forecasts | Written by Danske Bank | Jan 17 15 03:46 GMT
The expected ECB QE programme will support economic activity through a number of channels and hence it strengthens our view of a stronger recovery. A very important part of a large scale QE programme would be the signal that the ECB is committed to its mandate as this supports inflation expectations. Government bond markets will be affected by the direct purchase effect and the 'hot potato effect', which drives investors out on the curve and into riskier assets. Around 28% of the EGB market is currently yielding negative.
When Will the Bank of England Hike Rates? Print E-mail
Long Term Forecasts | Written by Wells Fargo Securities | Aug 16 14 08:33 GMT
In the first report of a two-part series on the outlook for Bank of England (BoE) monetary policy, we discuss the timing of the expected first rate hike since 2007. The Monetary Policy Committee (MPC) has explicitly pledged not to hike rates until spare capacity is more fully absorbed. Not only is spare capacity not observable, however, but it can also conceivably vary over time. Therefore, we think that market participants should watch wage growth closely in coming months when attempting to discern the timing of the first rate hike. With average weekly earnings more or less flat on a year-ago basis, we do not think wages will accelerate so much as to prompt a rate hike this year.
Growth in China Appears to Be Stabilizing Print E-mail
Long Term Forecasts | Written by Wells Fargo Securities | Jul 19 14 08:05 GMT
The year-over-year rate of real GDP growth in China edged up to 7.5 percent in Q2 from 7.4 percent in Q1. Modest relaxation in credit restrictions in recent months led to some stabilization in investment spending growth. We look for the rate of real GDP growth in China to edge lower in coming quarters. Although Chinese authorities may relax policy at the margin to allow some fine-tuning of the economy, they are not about to embark on a wholesale easing of policy that would delay the necessary rebalancing of the economy away from its heavy reliance on investment.
FX Forecast Update: Negative Rates and Liquidity Tools to Weaken the Euro Print E-mail
Long Term Forecasts | Written by Danske Bank | Jun 14 14 03:24 GMT
The ECB delivered more easing than expected at its rate meeting in June by cutting both the refi and deposit rates by 10bp, the latter into negative territory, and introduced a four-year targeted LTRO (TLTRO). While it remains uncertain how much excess liquidity will be boosted by the new LTRO, we expect the combination of a negative deposit rate in addition to the various liquidity measures to be overall euro negative and in general we have penciled in a bit more euro weakness in our forecast.
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