With just six weeks to go until the UK referendum, the Brexit debate is becoming increasingly tense.

1. Weekly Outlook
Monday 16th May with Richard Perry, Market Analyst
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WHEN: Tue, 17th May 1330BST
LAST: +2.2% YoY
FORECAST: +2.1% YoY
Impact: The CPI data may not be the Fed’s preferred
measure of inflation (that is Personal Consumption
Expenditure) but it certainly impacts on the market.
According to Reuters, the core year on year reading is
expected to dip back to +2.1% in a move similar to the
Mach core PCE, whilst the PPI also dipped back on
Friday which suggests that recent increases in inflation
may just be pausing for now. This may put the breaks
on the dollar rally, but the average hourly earnings
growth picking up to +2.5% (in the payrolls report) may
encourage for an upside surprise.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 17th May 02:30 Australia RBA meeting minutes n/a n/a
Tue 17th May 09:30 UK CPI (core) +0.5% (+1.4%) +0.5% (+1.5%)
Tue 17th May 13:30 US Building Permits / Housing Starts 1.13m / 1.13m 1.09m / 1.09m
Tue 17th May 13:30 US CPI (core) 1.1% (+2.1%) +0.9% (+2.2%)
Wed 18th May 00:50 Japan GDP (Q1 prelim) +0.1% -0.4%
Wed 18th May 09:30 UK Unemployment / Average Weekly Earnings (ex) 5.1% / +2.3% 5.1% / +2.2%
Wed 18th May 15:30 US EIA oil inventories -3.4m
Wed 18th May 19:00 US FOMC meeting minutes n/a n/a
Thu 19th May 02:30 Australia Unemployment 5.8% 5.7%
Thu 19th May 09:30 UK Retail Sales (core YoY) +1.9% +1.8%
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1N.B. Please note all times are BST (GMT+1 after the European switch to summer time), data source Reuters
Macro Commentary
As the weeks go by, the Brexit debate is increasingly hotting up. The Remain camp seem to be on fairly solid
ground with the economic argument. Major international organisations and players such as the US President
Obama, French Finance Minister Michel Sapin and organisations such as the IMF are all recommending the UK
remains in the EU. However the big news of the week was an absolutely explicit assertion from the Bank of
England that the UK would be worse off out of the EU. Warning of “material lower path for growth and a notably
higher path for inflation” whilst also warning of increased unemployment, both sides were quick to pounce upon the
views. The Bank of England is independent and supposedly free of political views but the MPC meeting minutes do
appear to stretch that independence to the limit. The Bank also suggests that around half of the 9% sterling
weakness in the past six months is due to Brexit fears. Add in the expectations of a potential 20% decline in sterling
on a vote to leave the EU, this would certainly suggest that whichever way the result ends up there will be sizeable
volatility. Currently the market does not appear to be pricing in much chance of a Brexit, but this may have to
change in the coming weeks if the polls continue to converge. Remain may appear to have the economic argument
pretty much sown up, immigration is almost as important in voters minds. It is going to be a close run thing.
Must Watch for: US CPI (core)
US Core CPI – with Reuters forecasts

2. Weekly Outlook
Monday 16th May with Richard Perry, Market Analyst
Foreign Exchange
After a brief pause, the dollar rally showed signs of renewed momentum late last week. Fed speakers have
been lining up to talk up the prospects of two rate hikes in 2016. The usual suspects have been there, with
Dennis Lockhart and John Williams, joined of course by the Fed’s only official hawk Esther George (the only
FOMC member to vote for a hike at the last couple of meetings). However Eric Rosengren (usually dovish) is
also talking about two hikes. This is rather similar to what happened in March when Janet Yellen’s dovishness
subsequently hit the rallying dollar. However, the strong retail sales have been a boost for the dollar and key
levels are now either being tested or broken on major pairs such as EUR/USD, USD/JPY and GBP/USD. We
also find strong momentum in the bear trend of the Aussie dollar and the breakdown in the Kiwi is also
confirming its move. Since the FOMC meeting at the end of April, the dollar has outperformed all of the forex
majors, with one exception, the Japanese Yen. After an initial disappointment, the dollar has been positive
throughout May so far and is performing the best against the Aussie and then the Canadian loonie. The
concern is that there is a significant underperformance of risk. Aside from the yen, the currencies performing
the best are the euro and Swissy. It will be interesting to whether US inflation halts the rally this week.
WATCH FOR: Inflation data dominates for the US and UK with CPI, but also the UK has average weekly
earnings which will impact on sterling. Japanese prelim GDP will also be keenly watched.
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FX Outlook
GBP/USD
Watch for: Medium term bulls have lost control
and below $1.4300 opens $1.4000 again
Outlook: What had looked to be a pullback
within a medium term bull run has turned into a
significant, outlook changing correction. The
support that had been holding around $1.4400
has been breached and this puts the pressure
squarely on the next support at $1.4300. This
support is now the only real reaction low that
would prevent a full retracement back towards
the March/April lows at $1.4000/$1.4050. The
momentum indicators confirm now that the bulls
have lost control and there is now a definite
negative outlook near term, a move that would
turn significantly bearish on a medium term
outlook if the RSI drops below 40. The reaction
high at $1.4540 has become the key resistance
now.
EUR/USD
Watch for: A retreat to the April low at $1.1215
looks likely this week but $1.1140 is also a risk
Outlook: The dollar rally continues as the near
term sell-off gathers pace. The breakdown of the
near term pivot at $1.1330 has re-opened the
key April low at $1.1215. Once more the pivot
band of $1.1050/$1.1100 will come back into
play if the sell-off can gather momentum this
week. The daily momentum indicators certainly
confirm the bearish break with the RSI dropping
to a 10 week low. Whilst the dollar continues to
strengthen, with the MACD lines in positive
configuration there is little reason yet to see this
as anything more than a pullback towards the
long term pivot at $1.1100. For now though we
see near/medium term dollar strength.

3. Weekly Outlook
Monday 16th May with Richard Perry, Market Analyst
Equity Markets
Equity markets have made very little progress in either direction over the course of the past week. The rally on
Wall Street seems to have hit the buffers in recent weeks as the S&P 500 has reversed from 2111.
Disappointing earnings have certainly held back any rallies in recent days, however there is a band of support
between 2022/2040 which has prevented a much deeper sell off. A move below the key late March low at 2022
would open the next key low at 1969. However, right now the markets seem to be beset by mixed signals and
uncertainty. Will the Fed hike rates in June? Will the UK leave the EU? These are issues that are still driving
indecisive market moves. Despite this though the VIX Index is between 13/15 which tends to be coincident with
the levels of complacency which come with key market highs. Are we on the brink of a big sell-off? There are
key support levels on the European markets that are holding for now, but that seem to be well within range of a
breakdown. The FTSE 100 has been a consistent underperformer during the market rallies in recent weeks and
is flirting with the key March low at 6036. A breakdown of this support would confirm a breakdown in the
recovery since February and open the initial support at 5845. The French CAC is flirting with the key April low at
4229 which would then open 4117. The DAX seems to have more of a buffer back to the key April low around
9500. At around -7.1%, earnings for US stocks is better than the -9.0% initially feared, though is little to be
overly impressed by.
WATCH FOR: Brexit is tending to be a drag on the FTSE 100, whilst the DAX remains the most volatile
on news of global growth. Fed minutes and US inflation will impact on Wall Street.
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DAX Xetra
Watch for: A breakdown below 2022 would spell
danger across major equity markets
Outlook: Will the S&P 500 be the trigger that
sends global markets into a big corrective
phase? The support band 2022/2034 has been
added to in the past week with a low a 2040,
however as with many markets, the momentum
indicators have already called a breakdown of
these key supports and the outlook is under
increasing pressure. Wall Street tends to be the
best performing of the major markets and a
breakdown would not bode well for the European
indices. Sub 2022 opens 1969.
FTSE 100
Watch for: Losing support at 6036 remains the
big risk and could open the floodgates
Outlook: The FTSE 100 continues to send out a
raft of mixed near term signals as the day to day
uncertainty continues. However this is all taking
place just above the key support that lies in
place at 6036. However the big concern is the
fact that the momentum indicators have already
broken their equivalent levels with the RSI,
MACD lines and Stochastics all around
respective three month lows. This suggest that
the bullls will have a significant battel on their
hands to prevent a key downside break this
week. The breach of 6036 opens 5845. The old
resistance around 6200 is once again pivotal
and the bulls will be eying a move above to start
generating some positive momentum once more.
However the outlook is increasingly concerning.
Index Outlook

4. Weekly Outlook
Monday 16th May with Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The gold rally has stumbled as the dollar has recovered some lost ground in May, however is this the end of the
line for the gold bugs. US CPI inflation is announced this week and will generate volatility for gold. Negative real
interest rates are supportive for gold and the longer the Fed holds off from a rate hike the more positive it is for
gold. If inflation is slightly lower as expected then gold could find support, but higher than expected would drive
the dollar strength and hit gold. The stronger dollar has also helped to stop the rally in the oil price in the past
couple of weeks. The surprise inventory draw helped to support oil and adds to the supply disruptions that
underpin the recent gains. However the stronger dollar means that oil could find it difficult to substantially
continue the rally.
The 2 year Treasury yield picked up strongly on Thursday and Friday last week moves were bolstered by the
stronger than expected consumer data. Along with the hawkish FOMC member comments, does this put a June
hike back on the table? The lack of reaction from the 10 year yield (hence flattening of the curve) suggests
there is still some scepticism, however this does now put the focus on the inflation data this week. A strong CPI
number on Tuesday would really drive the 2 year yield higher and the uncertainty over a June hike would
increase.
WATCH FOR: US CPI and FOMC meeting minutes will drive yields and commodities this week
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Gold
Watch for: Near term corrective move keeping
the medium term bulls at bay
Outlook: The breakout above $1282.50 has
now seen a couple of weeks of sliding correction
from the high at $1303. However the technical
outlook remains strong with moving averages all
rising and momentum indicators in bullish
configuration. The rising 55 day moving average
is a basis of support around $1247/$1248 this
week , coinciding with the support of a six week
uptrend, so corrections still look to be a chance
to buy. However the strength of the dollar is drag
on the gold price and this could mean that the
near term correction continues. Breaking back
above $1282.50 this week would reassert the
bulls. With the two trends converging we will
know a lot more of the enduring outlook by the
end of the week.
Markets Outlook
Brent Crude oil
Watch for: A decisive breach of the 76.4% Fib
opens the $54 highs again
Outlook: The rally on the dollar has been
keeping the shackles on the rally on oil, but the
strong gains from the support around $43.54 has
once more maintained the uptrend channel and
the bulls remain in control. From a technical
basis, the Fibonacci retracements of the sell-off
from $54.05/$27.10 have been a good gauge
recently and if Brent Crude can trader clear of
the 76.4% Fib level at $47.70 then the way is
open for a full 100% retracement at $54.05. Next
resistance above $48.50 is at $50.90. The trend
channel support is $42.20/$43.40 this week.

5. Weekly Outlook
Monday 16th May with Richard Perry, Market Analyst
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