US economic data is key for the dollar rally this week

US economic data is key for the dollar rally this week

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  Weekly Outlook Monday 31stMay 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: Fri, 2nd June 1330BST LAST: 160,000 FORECAST: 161,000 Impact: With the FOMC minutes focusing on improving trend of growth, labor market and inflation and supposedly data dependent, this week’s deluge of tier one economic data will be key. Specifically though the final Employment Situation report before the June FOMC with payrolls and wage growth will be key. The expectation for payrolls to stick around last month’s disappointing level at 161,000 (watch out for revisions too), whilst average hourly earnings will also be key and are expected to maintain the recent improvement to +2.5%. Expect dollar volatility. Key Economic Events Date Time Country Indicator Consensus Last Tue 31st May 13:30 US Personal Consumption Expenditure (core YoY) +1.6% +1.6% Tue 31st May 15:00 US CB Consumer Confidence 96.0 94.2 Wed 1st Jun 02:00 China Manufacturing PMI (official) 50.0 50.1 Wed 1st Jun 09:30 UK Manufacturing PMI 49.6 49.2 Wed 1st Jun 15:00 US ISM Manufacturing PMI 50.5 50.8 Thu 2nd Jun ALL DAY OPEC Bi-annual meeting n/a n/a Thu 2nd Jun 12:45 Eurozone ECB monetary policy (and press conference) 0.00% 0.00% Fri 3rd Jun 09:30 UK Services PMI 52.5 52.3 Fri 3rd Jun 13:30 US Non-farm Payrolls / Average Hourly Earnings +161k/+2.5% +160k/+2.5% Fri 3rd Jun 15:00 US ISM Non-Manufacturing PMI 55.5 55.7 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 Janet Yellen has bolstered expectations of the next move from the Fed coming this summer with a suggestion that the next hike “would be appropriate” if the economic data continues to improve. So big focus then this week on the PCE, ISM data points, and of course Non-farm Payrolls this week, all of which are releases with the next Fed meeting just a couple of weeks away. Not only that, the average hourly earnings will also be key and considering the payrolls are expected to be another tepid 161,000, with the unemployment rate seemingly close to full levels, now is the time for wage growth to pick up the baton of recovery. Discussion will be of the Phillips Curve and NAIRU again. The dollar has been strengthening in recent weeks and is hitting across the major markets now. However the economic data still needs to back up the hawkish comments from FOMC members. However, that is not all, with the European Central Bank set to begin its corporate bond purchases the weakening euro will have come as something of a respite as the Governing Council meets. Another intriguing add to the mix is that OPEC meets for its bi-annual meeting this week. With the oil price having rallied over 90% since the February lows, the desperation facing some of the OPEC members has been reduced, with the oil market closer to balance again. Despite this though these meeting tend to have the capacity to surprise so watch for volatility across markets. Must Watch for: US Employment Situation (Non-farm Payrolls) US Average Hourly Earnings Is wage growth finally finding some upside traction?
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  Weekly Outlook Monday 31stMay with Richard Perry, Market Analyst Foreign Exchange The strength of the dollar has been a feature of recent weeks as the prospects of a rate hike have been dramatically changed from the market pricing in potentially December to now looking likely in the next couple of meetings. This would have come as a relief for both the Bank of Japan and the European Central Bank which have seen both their respective currencies weaken in the past few weeks. The yen is a classic gauge of the market’s view of safe havens and with the 500 pip rally on Dollar/Yen in the past four weeks this has come as general market sentiment has also turned more positive. Forex majors have been underperforming the dollar on a consistent basis throughout May but the interesting best of a bad bunch is sterling. Having previously been hamstrung by concerns over the threat of a Brexit, the opinion polls have been far more supportive for the Remain camp in the last couple of weeks. The market is settling down for the UK to stay in the EU and this has allows sterling to find support again. This clearly brings with it the risk of sterling suffering again in the event of the polls tightening again, but for now sterling is solid and a Remain victory is likely to drive Cable back above $1.5000 once more. There is still room for volatility in the next few weeks to the vote on 23rd June but a repricing for the UK to avoid a Brexit now seems to be able to hold up sterling performance. WATCH FOR: US data driving the dollar including PCE, ISM Manufacturing & Non-Manufacturing, and Non-farm Payrolls. The ECB will be the focus for the euro. Brexit polls will impact sterling. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 2 FX Outlook GBP/USD Watch for: Holding on to the support above $1.4440 maintains an improving outlook Outlook: Cable has ben chopping around with the fluctuations of the Brexit polls, but the performance of sterling has been positive recently. The uptrend revival since the April low around $1.4000 continues and leaving a series of higher lows is helping to improve the medium term outlook. Momentum is positively configured and pressure seems to be building to the upside. Corrections are a chance to buy within the uptrend which supports around $1.4475. The next few weeks will be highly volatile for Cable with the FOMC announcement and the UK’s EU referendum. However technically the improvement continues. EUR/USD Watch for: The long term pivot band around $1.105/$1.1100 is being tested Outlook: A strengthening dollar is a pull lower on EUR/USD with a series of lower highs and lower lows in the past four weeks. This move back from the May high at $1.1615 has now unwound over 500 pips on the pair at the nadir. However now the long term pivot band is firmly back in play. The 50 pip range between $1.1050 and $1.1100 has consistently been a big turning point for the pair in the past 17 months and this is a level which will now be keenly watched. If the strong dollar continues to be a drag, then the outlook will quickly flip negative with the next support not until the Q1 2016 key support around $1.0800. Resistance at $1.1215/$1.1245 will be key this week.
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  Weekly Outlook Monday 31stMay with Richard Perry, Market Analyst Equity Markets It might have taken them a while to get going in May, but equities have performed well in the past month. So does this mean that “Sell in May and go away” has not worked this year? The data for the old market adage that advocates shutting up shop for the summer is rather mixed and certainly this year actually saw gains in the month of May (unless there is a huge late sell off this afternoon). However, this is likely to be more a part of a choppy range in stocks rather than the resumption of any strong trend higher. With the comments from Janet Yellen last Friday failing to dispel any myths of the more hawkish FOMC members, we are led to believe that the Fed is closing in on its next rate rise. A hiking Fed would be a headwind for equities if it drives a stronger dollar. This comes as the S&P 500 is not far off its highs for the year. The S&P 500 is trading on around 19.7x but on a cyclically adjusted basis this is over 26x (where over 25x is considered to be increasingly stretched). Can equities continue to run higher in this environment? The oil price rally has certainly bee supportive and is a gauge of improved market risk. However, equities appear to have lost their positive correlation to the oil rally in recent weeks (at least for the time being). In Europe, the technicals have been positive of late but the medium to longer term signals are rangebound and once more this suggests that there is limited upside. The one big variable for the FTSE 100 though is the EU referendum. Remaining in the EU would be supportive for UK equities and this could break the shackles at least in the near term. WATCH FOR: US economic data driving Wall Street, whilst Brexit opinion polls could be set to impact on FTSE 100. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 3 German DAX Watch for: Key Fibonacci levels are still a key reference Outlook: The strong run in the past week could be considered to be the bulls gaining control, however the technicals continue to look as though this is a move higher within in a medium term consolidation range. The Fibonacci retracements of the big bull run 8355/12,390 have been key for the DAX for months now and once more the rally has hit the overhead barrier of a Fib level (this time 50% Fib around 10,370). However the RSI is now at a level where previous moves higher have struggled (c. 60) and with key resistance at 10,475 is this time for a pause and some profit-taking? FTSE 100 Watch for: Expect further trading around the 6200 pivot Outlook: The rally through 6235 was a key near term move, but this level could now be ready to take on more of a pivot level within what seems to be forming as a medium term range play. The FTSE 100 has spent the past three months trading between 6036 (which remains key support) and 6427 (the key April high). In the middle of this band lies old support/resistance line around 6235. Momentum indicators have picked up I the past week but the RSI is again rolling over around the 60 level and the Stochastics are also losing steam. Above 6235 is a positive outlook but there seems to be a lack of conviction that will constrain the bulls. This is likely to continue at least until the EU referendum. Index Outlook
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  Weekly Outlook Monday 31stMay with Richard Perry, Market Analyst Other Assets: Commodities & Bonds With the Fed moving towards a potential rate hike, the strengthening dollar has been a drag on precious metals. This has been to the extent at which silver has been a drastic underperformer (if it was considered to be a major currency), with the gold price not too far behind. At its nadir, gold had lost over $100 of value in the course of four weeks. Any economic data that will add to the arguments for the hawks now will be a drag on gold. The oil price rally has been consistent in the past few weeks as a series of supply disruptions (Canada oil sands, Venezuela, Nigeria) have helped to bring supply and demand back into balance. The OPEC meeting this week adds extra spice and volatility, with traders looking out for comments on issues over supply. However the rally has taken the urgency out of supply caps/reductions so this meeting could be less focused. With the shorter end of the Treasury yield curve reacting to the potential for a hike, yields have gone up. However the longer dated end of the curve looks far more towards growth potential and in the past month there has been a far more muted reaction which suggests there is still some concern over future growth prospects leading to a somewhat flatter yield curve. UK yields have been constrained by the threat of a Brexit, but there is more of a confidence at the shorter end of the curve, and the opinion polls will be a driving factor in the coming weeks. WATCH FOR: US data is key this week with PCE, ISM and Non-farms all driving volatility. T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com 4 Gold Watch for: The support at $1190 is crucial, with a break inducing a negative outlook Outlook: As the correction has continued on gold the price is at a very real risk of breaking through a crucial support at $1190. In the first quarter of the year a band of support was formed between $1190/$1208 but this is under significant threat now. A two day closing break of this support would confirm a large medium term top pattern that would continue the retracement of the December to May bull run. Momentum indicators suggest that there is a mounting negative configuration in which rallies are seen as a chance to sell. Below $1190 opens an old pivot band around $1165. Markets Outlook Brent Crude oil Watch for: A near term correction would remain another chance to buy Outlook: The uptrend may be slow but it is a steady run higher with a series of higher lows and higher highs in place consistently since the January low. The breach of the psychological $50 level has re-opened the November high at $50.90 but also increasingly a full retracement to the October high at $54.05. The OPEC meeting this Thursday could drive volatility but any weakness will continue to be seen as a chance to buy. The initial support at $47.40 becomes the first key reference for the bulls now, whilst the uptrend channel for the medium term support does not come in until $44.50 this week.
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  Weekly Outlook Monday 31stMay 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