by Richard Perry, Market Analyst

Transcription

1 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. Macro Commentary For weeks, markets have been on tenterhooks, waiting for data (delayed by the Government shutdown) to fill in the blanks on whether the US economy was outperforming in the midst a slowing global economy. Fed chair Powell continues to espouse patience but the Fed is definitely data dependent. Last Thursday s positive surprise on Advance GDP has impacted with higher Treasury yields and, by association, a stronger US dollar. A corner has been turned, but for now it looks to simply be part of the big multi-month consolidation (which has been expected to turn into a dollar correction through 2019). Looking at the trade weighted Dollar Index, there is a trading range of the past five months, broadly between 95.0/97.7 and a near term buy signal has been posted, around 96.0, in the middle of the range with a bullish key one day reversal. This now opens for a near term dollar strength and another rally towards the range highs. This comes as the US 10 year Treasury yield has pulled 10bps higher in a few days (including a bullish key one day reversal) to its highest level for a month. However, a key pivot on the 10 year yield at 2.80% is likely to restrict a dollar rally again. There will be more tier one US data this week, with ISM Non- Manufacturing and Non-farm Payrolls. If the US economy continue outperform, then rising yields could drive this dollar rebound in the coming days. With dollar strength renewed this could mean $ camping back below $ again, whilst a decisive change in outlook on gold has come with a $1300/$1310 pivot now resistance. Must Watch for: European Central Bank monetary policy WHEN: Thursday 4 th March, 1245GMT LAST: FORECAST: -0.4% deposit, 0% main refi) -0.4% deposit, 0% main refi Impact: Will the ECB respond to the deterioration in Eurozone data of recent months. The expectation is that growth projections will be revised lower, but the key will be how the ECB balances perceptions of being seen to panic or being behind the curve. Also expectations of a new round of TLTROs (long term liquidity) for banks is growing, but still probably too early this time. More likely that it will hint towards TLTROs in April or June. Also whether forward guidance on the horizon for the deposit rate hike later in 2019, but again could be too soon. Watch bund yields and the euro. German 10 year Bund yield Bund yields have increased by around 10 basis points in the past week, but the key level to overcome is the pivot at 0.275%. Key Economic Events Date Time Country Indicator Consensus Last Tue 5 th Mar 0330GMT Australia RBA monetary policy +1.5% (no change) +1.5% (no change) Tue 5 th Mar 0900GMT Eurozone PMIs (final Services / Composite) 52.3 / / 51.0 Tue 5 th Mar 0930GMT UK Services PMI Tue 5 th Mar 1500GMT US ISM Non-Manufacturing Wed 6 th Mar 1315GMT US ADP Employment change 190, ,000 Wed 6 th Mar 1500GMT Canada BoC monetary policy +1.75% (no change) +1.75% (no change) Thu 7 th Mar 1000GMT Eurozone GDP (final Q4) 1.2% 1.2% (1.6% final Q3) Thu 7 th Mar 1245GMT Eurozone ECB monetary policy (press conf 1330GMT) -0.4% deposit (no change) -0.4% deposit (no change) Fri 8 th Mar 0200GMT China Trade Balance (Exports / Imports) +$26.4bn (-4.8% / -1.4%) +$39.2bn (+9.1% / -1.5%) Fri 8 th Mar 1330GMT US Non-farm Payrolls / Average Hourly Earnings 180,000 / +3.3% 304,000 / +3.2% N.B. Please note all times are British Summer Time (BST) i.e. GMT +1. Data: Reuters 1

2 Foreign Exchange Look out for central banks and tier one data. Neither the RBA nor Bank of Canada will move on rates. Expect a neutral stance from the RBA on subdued growth, inflation and wage concerns. Also the Bank of Canada, will keep its powder dry for now as US/China trade negotiations play out and Canadian growth underwhelms, however, with support for oil the BoC is still likely to hike later in the year. The ECB could give a lead for the path of potential tightening on the deposit rate later this year. If staff projections are slashed dramatically for both growth and inflation, it is very difficult to anticipate a situation where the ECB can be in a position to push forward in its tightening. However, there are signs on forward looking PMIs that economic deterioration in the Eurozone may at least be stabilising. The ECB may therefore look to cut a fairly neutral line, which could help further support the euro. Watch for EUR/XXX pairs to maintain a recovery path. The Japanese yen continues to be an underperformer. Hit hard last week on the dollar strength but the perpetual dovish stance of the Bank of Japan also continues to drag. BoJ Governor Kuroda notes last week that the chances of hitting the March 2021 inflation target of 2% were low and that easing measures such as the ETF purchases were necessary and further easing measures would be taken if the economy loses momentum. Consumer confidence continues to fall and the Manufacturing PMI fell into contraction last week. Sterling has been on a tear on an expectation of a less hard Brexit. This moves appears to have played out for now and a drift back could be seen. WATCH FOR: US/China trade story; RBA, BoC, ECB monetary policy; Services PMIs and payrolls FX Outlook EUR/USD Watch for: The old key floor around $ looks set to come under renewed pressure Outlook: The recovery on the euro has rolled over in recent days and with the dollar strength renewing. This maintains the negative outlook within the medium term range between $1.1215/$ RSI and MACD lines turning back below their neutral levels maintains this too. This suggests a move back towards the range flows this week $1.1215/$ The resistance of the 2019 pivot around has also been bolstered and is now a key ceiling to keep an eye on as this range develops. It is the limit between holding a negative view and positive view within the medium term outlook. GBP/USD Watch for: Holding on to the recovery above $1.3110/$ maintains a view of a likely softer Brexit outcome. Outlook: Cable recently broke to multi-month highs above $ but the move has just stalled for now. However, although the bulls have been unable to break decisively clear of the medium term range. However, there is a band of support with the old highs above $ and the recent breakout above $ Whilst this band of support holds then it would suggest the sterling bulls remain confident of a positive outcome in Brexit. Technical momentum indicators remain strongly configured with RSI above 60 and MACD lines rising. This suggests that dips into $1.3110/$ are a chance to buy. 2

3 Equity Markets The glass is certainly half full on equities. This comes on an increasingly sanguine view of the US/China trade negotiations. Near term moves seem to be driven on a daily basis by various voices involved in the US/China trade talks. President Trump seems to be positive, even if he had a very public disagreement with Robert Lighthizer (his trade representative) over the prospective Memorandum of Understanding with China. Lighthizer himself is more of a hawk over China, whilst Steve Mnuchin (Treasury Secretary) and Larry Kudlow (economic advisor) seem to be more positive. Various voices mean various impacts on market sentiment, but the general rule seems to now be that the negatives are absorbed fairly serenely, whilst the positives are pounced upon by the bulls. This is reflected in the continued recovery across equity markets, whilst consolidations/corrections are a chance to buy. Wall Street momentum has tailed off slightly in the past couple of weeks, but the key for the S&P 500 this week will be how the bulls respond to the resistance band between 2800/2816, an old pivot area from 2018 which capped the November and December rallies. Breaking through this would release the shackles for a return to the all time highs again. Whilst the S&P 500 has already rallied 20% off its lows, in Europe the gains are less strong. The French CAC is the best technically set up, driving 16% from its lows, whilst the DAX is 13% off its December low (but now needs to negotiate the huge resistance band 11,725/11,865). FTSE 100 is a mere 9% higher, restricted by a bit sterling rally (and a negative correlation) with softer Brexit prospects. WATCH FOR: US/China trade negotiations progress, Services PMIs, Payrolls and the ECB Index Outlook DAX Xetra Watch for: The big overhead supply between 11,725/11,865 is key for the recovery Outlook: Consolidations and corrections remain a chance to buy the DAX as the recovery continues to break to higher highs. The strength of momentum indicators is impressive on a medium term basis now and the support band 11,415/11,567 will be seen as an area of key underlying demand. However, the big test is overhead, with the supply of stale bulls in the old long term key breakdown band between 11,725/11,865. How the recovery reacts in this key trading zone will be a crucial signal for how the bulls are positioned over the longer term basis. FTSE 100 Watch for: Holding support at 7041 is key but resistance between 7200/7300 is significant Outlook: The corrective momentum on FTSE 100 has seen the market really suffer on an absolute basis (due to the negative correlation with a resurgent sterling) but also relatively (as global markets have broken to multi-month highs). The market is picking up (as sterling slips back), but the more defensive nature of the index (banks, pharma and utilities heavy weighting) is likely to mean continued relative underperformance. The reaction low at 7041 will be seen as key for the bulls this week, and if this can hold then then the unwinding move on momentum indicators will have renewed upside potential. The key barrier remains the key resistance band between 7200/

4 Other Assets: Commodities & Bonds The medium term recovery on gold has turned into reverse for now amidst a strengthening outlook on the US dollar and perceived geopolitical tensions between Pakistan and India subsiding. With US data holding up relatively well in the perceived global slowdown, Treasury yields have pushed higher and the dollar has gained ground. This move into the dollar is hitting gold. Breaking below the long term pivot band $1300/$1310 has shifted the outlook on a near to medium term basis and put the brakes on the recovery. The rally on oil continues remains on course as corrections continue to be bought into. A surprise drop in EIA inventories helped last week, but the production cuts from OPEC are helping to drive the market higher. According to Reuters, OPEC oil supply fell to a four year low to 30.68m barrels per day last month (down 300,000 barrels on January) as Saudi Arabia over-delivered on production cuts (OPEC achieving 101% of the pledged cuts in February) and Venezuelan output is hit from the sanctions. Hopes over the US/China trade talks also help the outlook for demand. G4 Bond yields have ticked higher. US Treasury yields up on relatively strong US data, better risk appetite (US/China expectations, lower geopolitical risk) is unwinding overstretched Bund yields, whilst a likely softer Brexit is positive for Gilt yields. Reaction to economic data is again key, yield differentials will be watched. WATCH FOR: Services PMI and Non-farm Payrolls to drive risk appetite and yield differentials Markets Outlook Gold Watch for: The long term pivot band between $1300/$1310 has been broken Outlook: The correction has broken a 14 week uptrend and also below the long term pivot band $1300/$1310. This has ended the immediate prospects of the recovery and puts pressure on the key reaction low at $1276. The longer term trends are all still positive, but a deeper correction would set in below $1276. This is key now as a breach would imply a move back towards the much shallower uptrend and the 144 day moving average (c. $1244 currently). The pivot band $1300/$1310 is now a key basis of resistance again and only a close back above would put the bulls back in control. Brent Crude oil Watch for: The neckline support at $63.75 is now a key staging post for the bulls Outlook: The uptrend recovery of the past two months is being questioned as a consolidation has set in over the last couple of weeks. However, the market has held above $63.75 which is now a key support. This was the old neckline resistance of a big base pattern is now supportive, whilst the 38.2% Fibonacci retracement is around $64. Momentum indicators remain positively configured on a medium term basis and corrections remain a chance to buy. The resistance initially comes in at $67.75 whilst the 50% Fib is $68.35 and the key medium term pivot is $

5 Trust Through Transparency Hantec House, Wilfred Street, London SW1E 6PL T: +44 (0) F: +44 (0) E: W: hantecfx.com 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 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. 5