Weekly Outlook March 09 2015
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Transcript of Weekly Outlook March 09 2015
Weekly Outlook
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
9th March 2015 by Richard Perry, Market Analyst
Macro Commentary
Once again a strong Non-farm Payrolls report has sent the dollar soaring higher. The Federal Reserve already views the
labor market as “strong” but with payrolls significantly beating expectations with a robust 295,000 jobs, expectation of a
summer rate hike by the Federal Reserve have been heightened. As a result, according to CME’s “Fed Watch” which looks
at the Fed Funds futures, the chances of a rate hike by the September meeting have improved from 54% to 64%, and by
October improving from 73% to 82%. However, the report was not all positive, labor force participation fell to 62.8%
from 62.9% and was lower than expected, whilst average weekly earnings also remain anchored around 2.0% on an
annual basis. But hang on, isn’t the FOMC looking closely at wage growth? This is where I see the market getting ahead of
itself. Until there is a notable improvement in wage growth, with inflation still anchored and showing little sign of a pick
up (core CPI steady at 1.6%), the FOMC which is heavily weighted with doves has a great excuse to stay lower for longer.
Having said that I see the dollar remaining strong at least until the next FOMC meeting on Wednesday 18th March.
Another miss on retail sales could take the shine off the recent rally, but the way is clear at least for the next week or so.
WHEN: Thu, 12th Mar, 1230GMT
LAST: -0.8% (month on month)
FORECAST: +0.5% (month on month)
Impact: Retail sales have fallen in recent months.
December and January data fell sharply with -0.9%
and then -0.8% month-on-month readings which
are a concern. This concern will be exacerbated if
the February reading misses the +0.5% estimate.
It would continue year-on-year growth of +3.3%
which is well below the growth for much of 2014
which was pushing more towards 5%. With
Consumer Confidence falling back last month
could this reflect a deterioration in the spending
preference by the man on the street? This would
harm sentiment, the US dollar and equities.
Must watch for: US Retail Sales
Key Economic Releases
Date Time Country Indicator Consensus Last
Tue 10th Mar 01:30 China CPI (YoY) +0.9% +0.8%
Tue 10th Mar 14:00 US JOLTS job openings 5.05m 5.03m
Wed 11th Mar 09:30 UK Industrial Production (YoY) +1.4% +0.5%
Wed 11th Mar 14:30 US Crude Oil Inventories 10.3m
Wed 11th Mar 20:00 New Zealand RBNZ monetary policy 3.50% 3.50%
Thu 12th Mar 00:30 Australia Unemployment 6.3% 6.4%
Thu 12th Mar 12:30 US Retail Sales +0.5% -0.8%
Fri 13th Mar 13:30 Canada Unemployment 6.7% 6.6%
Fri 13th Mar 13:30 US University of Michigan Consumer Sentiment 94.5 93.6
Fri 13th Mar 13:30 US Baker Hughes rig count -64
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US Non-farm Payrolls since 2009
N.B. Please note all times are GMT, data source Reuters
Weekly Outlook 9th March 2015
by Richard Perry, Market Analyst
Foreign Exchange
A quick one-two punch from the ECB and then Non-farm Payrolls has sent the euro spiralling lower and driven a huge
breakout on the Dollar Index to levels not seen since late 2003. The factor to consider for dollar traders is that the
strength of the payrolls report has driven an expectation that the Fed may now be pushed into a summer rate hike. We
now have another week and a half to find out what the FOMC thinks about all this as the Federal Reserve releases its
forward projections. This could therefore open the door to further dollar strength in the time being. However, the
potential for a near term technical correction must be growing, with such as huge sell-off on both the euro and sterling in
the past few days, which resulted in a loss of almost 300 pips on EUR/USD and over 350 pips on Cable last week alone. I
would still look to use any near term unwinding moves as a chance to sell. We have also seen key breakdowns on the
Aussie and Kiwi, whilst the remarkable recovery on Dollar/Swiss continues incessantly. The market is behind the dollar
and fighting the market tends to be a risky move.
WATCH FOR: China CPI will have an impact on the commodity currencies (Aussie, Kiwi and Loonie) whilst
the US JOLTS jobs openings data will impact o the dollar. US Retail Sales could be the release that takes the
shine off the dollar bull run if there is a third straight negative surprise in the data.
EUR/USD
Watch for: A technical rally amidst the
weakness
Outlook: We saw an incredible sell-off on
the euro last week on a move that took the
RSI to the low 20s. This may sound
stretched, but during the January decline the
RSI got to 17 so there is still scope for further
downside. When instruments move into this
phase od selling there is a big question of
whether to chase or not. There is little sign
of support, but across the course of this
week the likelihood of a technical rally is
fairly high. I would still look to sell rallies
though, with resistance around $1.1000.
GBP/USD
Watch for: Support around $1.5000 could
house a technical rally
Outlook: The sharp decline on Cable last
week has the bears in full control.
Momentum indicators are bearish across the
board now and not only that but also contain
further downside potential. However there
is a big support band approaching between
$1.4950/$1.5000 which are the January and
February lows, whilst there is also the
potential that the old 7 month downtrend
could provide support on the way down too.
However be careful because support is not
guaranteed and the sentiment is now
extremely bearish.
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FX Outlook
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Weekly Outlook 9th March 2015
by Richard Perry, Market Analyst
Indices
Once again, the key macro drivers of last week (the ECB and Non-farm Payrolls) showed there to be a huge difference in
the performance of the Eurozone indices (DAX and CAC) and the US/UK markets (S&P 500 and FTSE 100). The easing
measures put in place by the ECB could be extended if the inflation targets are nor met in 2016, so this will underpin the
DAX in the coming months. It would appear that valuation is beginning to hold back the S&P 500 and FTSE 100, trading on
20 times historic earnings according to Reuters), whilst the DAX only trades on 16 times. Furthermore, traders might also
be viewing US earnings season as a bit of a disappointment with around 55% of the S&P 500 beating estimates on
earnings (usually between 60%/70%) whilst revenue beats of 49% is also lower than usual. Also, earnings growth
continues to wilt, with a strong correlation between corporate earnings growth and US GDP. With the market increasingly
convincing itself that there will be a Fed rate hike potentially in Q3 (although I remain sceptical), this could be causing
traders to question how much further this bulls run on Wall Street can possibly go.
WATCH FOR: The strong payrolls report will retain a legacy into the new week with little data on Monday.
The JOLTS data will give further impression of the US labor market. A downside surprise in China inflation
would drive expectation of further PBOC easing and be positive for risk. The US Retail Sales on Thursday is
the week’s key data point and a strong number could drive equities higher.
FTSE 100
Watch for: Underperformance versus the
DAX to continue
Outlook: After several weeks of threatening,
the FTSE 100 finally achieved a closing level
above the 1999 peak of 6950. Essentially
there is still a positive outlook on the FSTE
100 but the dramatic underperformance of
FTSE versus the Eurozone indices on Friday
is a concern. Trends remain positive and the
lure of 7000 still remains. However, the
longer this slog through the mud of a bull
run continues the less enthused I am
becoming by it. Key near term support is at
6862.
DAX Xetra
Watch for: The DAX continues to make gains
Outlook: The technical outlook on the DAX
remains remarkably positive. Clearly Mario
Draghi and the ECB have underpinned the
support for the DAX with QE and this is
driving strong outperformance versus the
S&P and also FTSE 100. The RSI is a touch
stretched up at 75 however momentum is
positive and the strength of the trend
suggests this is reflective of the sentiment
behind the bulls. The latest breakout means
that initial support comes at the breakout
level at 11,465 however the significant
support now comes in at 11,193. Buying into
weakness looks to be a good strategy.
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INDEX Outlook
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Weekly Outlook 9th March 2015
by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
A negative correlation between the US dollar and precious metals remains strong as a stronger dollar has negatively
impacted on metals prices. Gold and silver have both broken sharply lower on the strong Non-farm Payrolls report, whilst
platinum was also weaker to move to the brink of a breakdown. Gold and silver are now eying a full retracement of the
January bull runs. Throughout the dollar strength the oil price has remained remarkably stable. What makes this even
more interesting is that the US oil stocks gave a big upside surprise and yet WTI remained supported.
Macro fundamentals have driven sharp moves on the bond yields in the past week. Eurozone sovereign yields have
plummeted to record lows after the announced that it would buy sovereign debt as part of its QE programme even into
negative yields up to the bank’s -0.20% deposit rate. The German 2 year is trading around -0.2% and this will put a floor
on the yield. The strong Non-farm payrolls report resulted in a sharp steepening of the US yield curve, with the 10 year
yield pushing well above 2.2% for the first time in 2015.
WATCH FOR: A surprise on the US JOLTS could impact Treasuries, the dollar and subsequently
commodities, but there is little to impact on the prevailing trends until the big data release, US Retail Sales
Gold
Watch for: Rallies to be sold into for
further downside pressure
Outlook: The move may look near term
stretched as a breach of the January low
at $1168.25 has bounced from $1163.45.
It is likely now that with momentum
indicators reaching stretched levels that
this is merely an oversold reaction and
that overhead resistance levels will be
seen as a chance to sell again. Therefore
watch for $1180.70 (old key historic floor)
and $1191 to become key points of
resistance (old support is new resistance)
this week as a chance to sell.
Brent Crude oil
Watch for: Continued consolidation on
Brent Crude
Outlook: The strong recovery which has
seen Brent Crude rally over 39% from the
bottom to the recent peak is now
undergoing a period of consolidation.
Breaking the recovery trend does not
necessarily mean that the rally will now start
to correct, it may be just that this move is
seeing a pause for breath. Watch the
momentum for negative signals, with the
falling Stochastics an initial slight concern.
The support at $57.80 now takes on an
important role as a breach could signal a top
pattern. Expect the consolidation to
continue this week though.
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COMMODITIES & BONDS Outlook
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Weekly Outlook 9th March 2015
by Richard Perry, Market Analyst