ECB and a new UK Prime Minister key this week

ECB and a new UK Prime Minister key this week

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  Weekly Outlook Monday 22ndJuly 2019 by 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. Key Economic Events WHEN: Thursday 25th July, 1245BST LAST: Main refi 0.00%, Deposit -0.40% FORECAST: Main refi 0.00%, Deposit -0.40% Impact: ECB President Draghi was dovish at Sintra and the ECB stands on the brink of a renewed shift to looser monetary policy again. Markets see a move is imminent, maybe a deposit rate cut (-10bps or -20bps), deposit rate tiering, or resuming QE, or a combination. With the Fed on the brink of cutting rates, for the ECB it is a case of not “if” but “when”. The decision is in the balance, but consensus does not expect a move this week. Could it be just a guidance shift to say that rates will “stay at their present or lower levels”? The surprise would be to start easing this week. EUR and Bund yields will be reactive. Date Time Country Indicator Consensus Last Tue 23rd Jul 1500BST US Existing Home Sales 5.34m 5.34m Tue 23rd Jul 1500BST US Richmond Fed Comp +5 +3 Wed 24th Jul 0900BST Eurozone Flash PMIs (Manu / Services / Comp) 47.6 / 53.3 / 52.0 47.6 / 53.6 / 52.2 Wed 24th Jul 1445BST US Flash PMIs (Manu / Services) 51.4 / 51.6 50.6 / 51.5 Wed 24th Jul 1500BST US New Home Sales 659,000 626,000 Wed 24th Jul 1530BST US EIA Oil Inventories -3.2m Thu 25th Jul 1245BST Eurozone ECB monetary policy (1330BST Draghi press) 0.00% / -0.40% 0.00% / -0.40% Thu 25th Jul 1330BST US Durable Goods Orders +0.2% +0.4% Thu 25th Jul 1330BST US Weekly Jobless Claims 217,000 216,000 Fri 26th Jul 1330BST US Q2 Advance GDP +1.8% +3.1% T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 1N.B. Reuters data where possible. Please note all times are now British Summer Time (GMT+1) Macro Commentary Looser monetary policy from the world’s major central banks is already in full flow. Cuts from the central banks of Australia, New Zealand and South Korea have all been seen recently. However, in the next couple of weeks could the big guns also make their move? The Federal Reserve has been rolling out committee members and in a procession of the doves. FOMC chair Powell’s Congressional testimony drove expectations of Fed rate cuts soaring. Although US economic data has held up relatively well recently (payrolls, core CPI, retail sales, industrial production all improving), last week, voting centrists Williams and Clarida alluded to the Fed getting ahead of the curve, to cut as a pre-emptive move. Markets are no longer just expecting 25 basis points at the FOMC meeting at the end of July, but 50 basis points is now a 50/50 probability (something that we believe to be over-priced). This week though, it is the turn of the ECB to make its intentions known. It promises to be a hotly debated meeting of the Governing Council. Analysts are split over what the move will be. Perhaps before the flight of doves on the FOMC, the ECB could afford to keep its powder dry. However, if the Fed cuts after the ECB stands pat, this runs the risk of a jump in the euro, which would hamper the ECB’s attempts to stoke the fires of inflation. Draghi tends to be proactive in these situations. The risk is therefore a surprise cut of the deposit rate for the ECB rather than to just wait until September (which could lead to accusations of being too late). Expect euro volatility. Must Watch for: ECB monetary policy Is the ECB about to cut rates? The German 10 year Bund yield has never been so close to the deposit rate since the rate cuts began back in 2008.
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  Weekly Outlook Monday 22ndJuly 2019 by Richard Perry, Market Analyst Foreign Exchange Looking past choppy daily swings on currency markets, dovish hints from Fed speakers suggest that a rate cut will be seen at the July FOMC. However, traders are tying themselves in knots trying to foresee the Fed intentions. It means we see rather wild fluctuations on the dollar on an almost daily basis. Fed speak has now gone quiet having moved into the blackout period ahead of the July meeting, so watch out for data to move markets this week (Advance GDP especially). US continues to hold up well and we believe the market has gone too far in expecting more than a -25bps insurance cut. With the ECB priced for no move, risk is for a dovish surprise. We view downside risks to EUR/USD as greater. GBP is a volatile play this week too, with Boris Johnson set to be announced as Prime Minister. Would the opposition Labour Party call an immediate vote of confidence on Johnson’s new Government? The timing seems possible as the opportunity for this to happen and hold a General Election before the 31st October deadline is increasingly tight. We continue to view GBP strength as a chance to sell for the low $1.20s (at least). A “no deal” Brexit risks a move below $1.2000. In these contemporary times of trade protectionist/nationalist trends, geopolitical tensions and falling yields, the safe haven currencies (JPY and CHF) will continue to perform well. However, amidst the growing negative trend of the USD, it is interesting to see AUD and NZD breaking to multi-month highs. Can this breakout hold? Pivot supports at $0.7000/$0.7050 on AUD/USD, and $0.6685/$0.6720 on NZD/USD will be key. WATCH FOR: Flash PMIs for Eurozone and US, ECB rates for EUR and Advance GDP for USD T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook GBP/USD Watch for: Rallies continue to be a chance to sell with negative configured technicals Outlook: The technicals continue to suggest that rallies are a chance to sell on Cable. Momentum indicators retain their solidly negative configuration for the medium term outlook. The market continues to trade below all the moving averages which are falling in bearish sequence, whilst RSI struggles between 40/50, MACD lines are below neutral. A near term rally seems to have run into resistance with the lower high at $1.2580 still intact. A retest of the $1.2380 recent low is expected, whilst a move into the low $1.20s should not be ruled out. EUR/USD Watch for: A broad and choppy 300 pip trading band continues, now with a mild negative bias Outlook: A range of the past five months remains intact as the market has traded between support at $1.1110 and resistance coming in around $1.1410. The trending moves have been lost and the market is increasingly choppy on a day to day basis for now. Searching for direction is likely to continue to be the theme, but fundamental events will be key (ECB this week). Technicals are ranging with a slight negative bias to momentum whilst the market trades below the mid-point of the range. Resistance now $1.1265/$1.1285 this week.
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  Weekly Outlook Monday 22ndJuly 2019 by Richard Perry, Market Analyst Equity Markets The slip back on Wall Street seems to have been seen as a buying opportunity, but for how long will be dependent not on any positives from earnings season, but on the Fed. It was a feature of the first real week in earnings, that the big banks were beating earnings estimates, but cautioned on their net interest margins due to prospective Fed rate cuts. The reaction of Wall Street to the dovish rhetoric from the Fed’s Williams and Clarida was key. Both were talking about the Fed getting ahead of a downturn, with insurance cuts. If this is the case and the Fed can act as a “soft landing” for the economy, then rate cuts will be taken as market positive. However, if rate cuts come as a result of fear and panic over a slowing economy, then the medium term outlook is far less positive for Wall Street. Bond yields will remain subdued at best but could potentially fall further. Cash sucked out of equity markets around all-time highs, does not bode well for upside potential. It is interesting to see that European markets are looking less well positioned. We have talked previously about the corrective potential of the DAX under 12,440 but this would accelerate into more of a medium term move lower on a close under 12,190. As for FTSE 100, the outlook is incredibly clouded in Brexit uncertainty. The prospect of a “no deal” Brexit from a likely Prime Minister Johnson’s hard stance would certainly initially hit FTSE 100 hard. However, it could just be the beginning of a wild ride. Sharp sterling selling would act as a boon for the 70% of FTSE 100 earnings generated in foreign currency. A big kick lower would likely quickly swing higher again. WATCH FOR: US earnings season, a new UK Prime Minister T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 DAX Xetra Watch for: With 12,465 as a near term lower high, a close below 12,190 opens the next corrective phase Outlook: The medium term pivot at 12,440 played a key role in capping the upside last week and resulted in a lower high formation at 12,465. The bearish gap fill and negative configuration on momentum indicators suggests that corrective momentum is building. The next phase of this unwinding move would take hold were there to be a close below the June higher low at 12,190. That would complete that the momentum indicators are calling for as a further correction and open the 11,988 next support. The key medium term support band is between 11,620/11,845. FTSE 100 Watch for: A corrective unwinding move continues but seems to be contained for now amidst Brexit uncertainty Outlook: There is an interesting consolidation that has formed on FTSE, with conflicting impacts of a negative correlation with sterling (FTSE positive) and the negative drag of Brexit concerns. A mild drift back from the recent multi- month high at 7622 just looks to be an unwinding move for now seems to be contained for now as the breakout support band 7470/7529 is holding. Unless the 7370 pivot band were to be breached, then the outlook will remain fairly strong. However, the truth is that Brexit is a crucial swing factor here for the market and this is simply the calm before the storm later in the year. Index Outlook
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  Weekly Outlook Monday 22ndJuly 2019 by Richard Perry, Market Analyst Other Assets: Commodities & Bonds Gold pulling into new multi-year highs should be something that traders get used to. Both the technicals and fundamentals are in alignment in pointing to gold moving higher and corrections should be seen as a chance to buy. The FOMC is about to begin a rate cutting cycle, whilst the ECB will also loosen monetary policy either this meeting or next, global real yields are falling whilst trade disputes and a global slowdown drives underlying support for gold. Oil has fallen sharply to a new one month low. The two main factors for oil direction are the global slowdown fears (hitting demand) and the US/Iran geopolitics of oil sanctions (impacting on supply). Oil traders are busy pricing in the negative drag of the US/China dispute (Trump taking about further tariffs is never great). However, how the US/Iran negotiations develop will be a swing factor especially given the downing of another drone. If the sanctions were to be lifted it would add back 3.5m barrels per day into global supply and be strongly oil negative. A technical breakdown for a one month low suggests the markets are pricing for more positive relations between US/Iran. Care is needed as newsflow remains fluid. Bond yields are testing lower again as major central banks are set to loosen monetary policy. The ECB move will certainly have a big impact on Bund yields, but US GDP data is key for Treasuries this week.. WATCH FOR: US growth numbers impacting on USTs. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: The uptrend is supportive as corrections are a chance to buy. Outlook: The breakout to new highs slipped back on Friday, however, corrections on gold should now be seen as a chance to buy. The breakout highs between $1326/$1339 are a decent area of demand that mark a near term buy zone. However, if any corrective move gathers momentum, the bulls will be keen to hold the six week uptrend support from $1410 and the 21 day moving average basis of support (around $1415 early this week). The momentum indicators have a strong positive configuration but also with renewed upside potential. Expect a retest of $1452 whilst moving back towards $1500 in due course. Markets Outlook Brent Crude oil Watch for: The 38.2% Fibonacci retracement is a key gauge for how rallies will be treated now. Outlook: The break under the key higher low at $62.20 marked a shift in the outlook and suggests that rallies will struggle now. Although the market is unwinding some of the near term selling pressure (driven by geopolitical newsflow) a technical rally into the 38.2% Fibonacci retracement at $64.00 marks an interesting near term gauge. The market is still trading under all the moving averages, with momentum indicators suggesting that rallies are struggling for traction. The bear cross on MACD lines is the first since the market topped out at April. Will the newsflow change the outlook?
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  Weekly Outlook Monday 22ndJuly 2019 by 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