Q1 2020 Global Markets Outlook

Market Outlook Q1

Currencies

• The outlook for the Euro remains mixed; the economy of the Eurozone continues to recover in a slow pace, and the ECB is unlikely to rise rates in the near-future. A continuation of the consolidation between 1.10 and 1.13 might be likely in Q1.
• The pressure on the British Pound could increase again. While the outcome of the General Election in December has reduced the uncertainty somewhat, it is still unclear how the trade deal between the UK and the EU will look like, assuming both parties will be able to reach an agreement.
• Geopolitical tensions and other political risks should keep demand for safe havens stable – meaning the strength of the Japanese Yen and Swiss Franc may continue in Q1.

Equities

2019 ended up being an amazing year for stock bulls, but the question many investors are asking themselves now is: Is it time to book profits or will the rally continue in 2020? There are plenty of risks that could slow the rally down or even trigger a correction. Some of the major themes are:

• A global economic slowdown – even in the US, which has enjoyed relatively high growth rates in recent years
• Uncertainty around the trade talks between the US and China – while Phase One of the trade agreement might be signed off later this week, there will still be multiple points of issue that would remain unsolved
• Valuations remain at historical extremes, which makes equity markets more vulnerable to a correction

However, sentiment remains bullish, and should Washington DC and Beijing agree on signing off Phase One of the trade deal, it would at least reduce the risk of a full-blown trade war.

The S&P 500 is marching towards a new record high. The German DAX30 has been lagging behind its US counterparts recently, but might soon catch up and reach the current record high at 13,596 points as sentiment is improving. Key support is seen at 13,283 points, followed by the major area of support between 13,081 and 13,100 points.

Precious Metals

Gold has seen increased volatility in the recent weeks, mostly due to geopolitical tensions in the Middle East. Given that the instability in the Middle East is likely to persist for some time, and other uncertainties such as the Brexit process and the on-going trade talks between the US and China keeping traders on their toes, should keep demand for the precious metal intact in Q1.

The charts suggest that the uptrend remains intact, although the Daily RSI is still showing slightly overbought conditions. Strong support can be expected ahead of the 21 DMA – around $1520.

Meanwhile, Gold bulls will be looking for a clear break above the $1600 level to confirm that the rally has not run out of steam yet. With plenty of risks still present in the market, and the rally in equities starting to look somewhat stretched, an extension of the rally beyond $1600 may occur in Q1 of 2020.

Oil

Oil traders were seeing whipsawed price action following the recent clash between the US and Iran. Prices for WTI jumped to $65, only to fall back below $59 at today´s open. The market sees the risk of an escalation of the Iran crisis as low, as both countries want to avoid a war. Furthermore, recent data from the US Energy Information Administration (EIA) agency showed a surprising increase in US oil inventories.

Further position covering from Oil bulls might lead to an extension of losses, but solid support is seen at the 200 DMA around $57.70. A clear break below that level could signal that the short-term downtrend is not over, and potentially pave the way for a test of the $55 support level.

Meanwhile, the risk of further conflicts in the Middle East remains relatively high, and traders should be prepared for sudden spikes in volatility.

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