All eyes on the Fed to drive the dollar this week

All eyes on the Fed to drive the dollar this week

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  Weekly Outlook Monday 13thJune with Richard Perry, Market Analyst Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report. WHEN: Wed, 15th June 1900BST LAST: Fed funds 0.25% to 0.50% FORECAST: Fed Funds 0.25% to 0.50% Impact: Treasury yields have been smashed in the wake of the Non-farm Payrolls report and Janet Yellen comments that have all but confirmed that a June rate hike is not going to happen. Watch for the dot-plots which currently suggest two hikes still in 2016. If this remains the case then the potential for a July hike is much greater (September is difficult in front of the Presidential election), the dollar and Treasury yields will rally whilst equities could also sharply decline. The press conference will also be a key indicator for the rates outlook. Key Economic Events Date Time Country Indicator Consensus Last Tue 14th Jun 09:30 UK CPI (core) +0.4% (+1.3%) +0.3% (+1.2%) Tue 14th Jun 13:30 US Retail Sales (MoM) +0.3% +1.3% Wed 15th Jun 09:30 UK Unemployment / Average Weekly Earnings (x b) 5.1% / +2.1% 5.1% / +2.1% Wed 15th Jun 15:30 US EIA crude oil inventories -3.2m Wed 15th Jun 19:00 US FOMC monetary policy 0.25%/0.50% 0.25%/0.50% Thu 16th Jun 01:00 Japan BoJ monetary policy -0.1% -0.1% Thu 16th Jun 08:00 Switzerland SNB monetary policy -0.75% -0.75% Thu 16th Jun 12:00 UK BoE monetary policy +0.50% +0.50% Thu 16th Jun 13:30 US CPI (core) +1.1% (+2.2%) +1.1% (+2.1%) Fri 17th Jun 13:30 US Building Permits / Housing Starts 1.15m / 1.15m 1.12m / 1.17m T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 1N.B. Please note all times are BST (GMT+1), data source Reuters Macro Commentary Should the Federal Reserve raise rates this week? Yes, as monetary policy needs to be normalised and the longer the Fed’s maintains emergency monetary policy, the longer the economic malaise will last (artificially propping up markets, misallocation of capital etc.). Will the Fed raise rates this week? No, as markets would be completely blind-sided causing a significant shock of selling pressure. Ultimately, the Fed warns the market when it is going to move and following disappointing Non-farm Payrolls and Yellen’s recent speech, according to CME Group FedWatch the probability of a hike at Wednesday’s meeting has fallen to just 2%. The Fed has almost become beholden to the market when it comes to its rate hikes. However, the interest factor could be with the dot-plots again. What if the dot plots continue to say two hikes in 2016? Could there be a significant swing back in favour of the dollar again? Could Yellen use her press conference to signal that July is the meeting to move? If not in July, then it may only be one this year, in December. The proximity of the September FOMC meeting to the Presidential Election (on 8th November) would be deemed too political. The market is currently saying 58% probability for December (July is 25%). With recent data concerns this sounds about right, but in the coming months there will be bouts of dollar strength and dollar weakness according to good/bad data, leading to little overall dollar direction. Must Watch for: FOMC monetary policy US 2 year Treasury yield Will FOMC dot plots keep 2 hikes and spike yields back higher?
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  Weekly Outlook Monday 13thJune with Richard Perry, Market Analyst Foreign Exchange The dollar has been rallying despite the continues downside pressure on Treasury yields. Is this sustainable? The market is taking this move as risk-off and the dollar tends to perform better when risk appetite is lower. However, market concern is highlighted by the outperformance of the yen, which remains the market’s safe haven currency of choice. I do not see the dollar as being able to sustain its strength with the June FOMC looming. A change to the dot plots to two hikes in 2016 would put the dollar under pressure again. However it could also be a chaotic week for forex majors with three other central banks set to announce monetary policy in less than 24 hours. After the Fed kicks off on Wednesday evening, the Bank of Japan announces early on Thursday, followed by the Swiss National Bank early in the European session and finally the Bank of England at 1200BST on Thursday. All are expected to stand pat, but that will not stop the volatility, especially with the threat of Brexit added into the mix. The Bank of Japan is struggling with the strengthening of the yen and inflation that is weakening again so there is an argument for further easing on Thursday, but it remains unlikely with the BoJ set to update on its inflation expectations at the July meeting. Also, the BoJ would want maximum impact from the move and a Brexit threat may reduce its efficacy on the yen. WATCH FOR: Monetary policy decisions dominate the week with the Fed, BoJ, SNB and BoE all announcing. Add in Brexit volatility and inflation for both the UK and US and it could be interesting. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook GBP/USD Watch for: Under increasing pressure following the break of $1.4330 Outlook: The technical breakdown below $1.4330 key support has re-opened the March/April lows around $1.4000/$1.4090. The momentum is increasingly negatively configured momentum indicators reflect the downside pressure and unless the bulls can regain $1.4330 the outlook will remain negative. With the Brexit vote less than two weeks away there is a fear of downside risk not having been factored in yet. The breakdown of support reflects the increased fear and if the momentum accelerates the crucial February support at $1.3833 could be tested. EUR/USD Watch for: Volatility with the Fed but the range play to continue Outlook: There is still a lack of real direction on the dollar despite the near term recovery being seen. Pulling back from $1.1415 has set up for a stronger dollar in the near term but there is significant uncertainty over how the FOMC meeting will pan out and the direction the dollar will take afterwards. The long term pivot band $1.1050/$1.1100 remains key with $1.1215 also supportive. Long term resistance remains around $1.1465. Momentum indicators suggest a choppy range play will continue.
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  Weekly Outlook Monday 13thJune with Richard Perry, Market Analyst Equity Markets Bond yields across the world are under pressure as the threat of stagnant growth and deflation remain key factors for investors. With the Fed likely to put off another rate hike, markets are beginning to look with great concern at a bigger picture of struggling corporate revenue growth, earnings expansion that has been driven by cost cutting. Is this an environment to be owning equities with markets still at elevated valuations? Add in the fears over a Brexit and risk appetite is very much under pressure. The DAX is a market that is eared towards international growth and the constant underperformance as the markets come under pressure is a concern. The accelerating sell-off is now approaching a test of the key May support around 9737, a break of which would change the outlook from a sequence of higher lows and higher highs, to a lower high (at the June high of 10,365 which is below the April high at 10,474) and lower low. That is classic Dow Theory and suggests that further weakness would be seen in due course. However for now the support at 9737 remains intact. The FTSE 100 is seemingly managing to outperform the DAX, with the market being helped through its exposure to oil. However, the key multi-month support at 6036 is once more back in range and a closing breach would complete a huge top pattern. Wall Street has though been the standout performer of the major indices and has only just pulled back from multi-month highs. It has a long way to go back towards its equivalent support at 2022, but watch for the near term pivot at 2085 this week as a breach would signal further correction. WATCH FOR: Continued weakness on Treasury yields would be negative, whilst the FOMC will also set the tone for Wall Street. Brexit volatility will also be an issue for FTSE 100. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 German DAX Watch for: Continue to see this as a range play, but the May lows is under threat Outlook: Will the selling pressure drive the DAX lower to confirm a breach of 9737 this week? This is the key May low and a close below the support would be a significant medium to longer term outlook shift. Already an uptrend since February has been broken. There are a few technical indicators to watch that might give an early warning signal. In the past three months, the 89 day moving average has been a good gauge and but support at 9835 has been broken, and the RSI which has previously managed to bottom around 40 has also broken down. A closing breach of 9737 opens 9500 and a negative outlook. S&P 500 Watch for: The pivot support at 2085 is key for the near term outlook this week Outlook: A correction finally seems to be setting in after three weeks of consisting but creeping gains. The concern is that corrections after a period of painfully slow upside can often be far quicker as markets can take the escalator up but the lift back down again. That means that a pivot band of support at 2085 which has been in place for the past 6 weeks is key this week. Momentum indicators remain positively configured and could actually do with a healthy correction, but preferably with a nice orderly move. A move below 2085 could quickly result in the 2022 lows coming back into play. Index Outlook
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  Weekly Outlook Monday 13thJune with Richard Perry, Market Analyst Other Assets: Commodities & Bonds The gold price had been showing signs of a near term correction on Friday morning, however that was before declining risk appetite spiralled lower and the flight to safety kicked in. This comes ahead of the Federal Reserve meeting this week which if the Fed takes an even greater dovish shift, could pull the gold price higher towards the key resistance at $1303. Gold would thrive is a low risk, dovish Fed environment. However, do not forget silver too which is also in sharp recovery mode. The underperformance that was driven through the dollar strength of May is being unwound quickly and we now find the precious metals outperforming all of the forex majors since June began. The oil price correction may have now set in, but this looks to be technically driven rather than a sustainable correction. It should provide another chance to buy on support this week. The decline on global bond yields to record levels reflects the huge concerns that traders have over the prospects for global demand and growth. Remarkably, the German 10 year Bund yield is now within sniffing distance of going negative. As the BoJ continues to plough into the JGBs market, the Japanese 10 year yields are also falling to record lows in negative territory. Furthermore, even the US which is apparently on a tightening cycle of monetary policy has the 10 Year Treasury yield at multi-month lows. The bond markets show concerns and are decidedly risk off. WATCH FOR: Fed monetary policy will be key, but also watch for the BoJ too driving sentiment. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: Resistance could come under pressure if the momentum is maintained Outlook: A near 6% rally in the past six completed sessions has quickly turned around the outlook. The price action on gold this week could be the difference between a breakout and another trading range continuation. The FOMC decision could be key (it depends upon how dovish the FOMC is), but I expect this range to continue. Daily chart momentum remains strong but there is now the considerable band of overhead supply from the key turning points of March, April and May to overcome. I am still expecting another peak to come under the $1288 high, but if this is breached then there could be a move on $1303 this week. Support is between $1234/$1248. Markets Outlook Brent Crude oil Watch for: A short correction finding support $48.65/$50.50 remains another chance to buy Outlook: Near term corrections remain a chance to buy on oil and after a couple of days of consecutive correction we find Brent Crude coming back to this sort of opportunity. The strong momentum indicators are just now looking to unwind which should help to renew upside potential for the next leg higher. There is the initial band of support between $48.65/$50.50 which would be an ideal buy-zone this week, whilst more considerable support comes in at $47.40. The support of the 5 month uptrend comes in between $45.90/$46.90 this week but I would not expect the correction to go that far.
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  Weekly Outlook Monday 13thJune with Richard Perry, Market Analyst T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 5 Risk Warning for Financial Promotions This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. Trust Through Transparency Hantec House, 12-14 Wilfred Street, London SW1E 6PL T: +44 (0) 20 7036 0850 F: +44 (0) 20 7036 0899 E: [email protected] W: hantecfx.com