Traders will be looking towards key central bank decisions this week with the Fed and the BoJ set to announce monetary policy and sure to drive market sentiment. After what seems to have been a sensible approach to the responses of central banks to the impact of Brexit, are we about to see a change of tack?

1. Weekly Outlook
Monday 25th July with Richard Perry, Market Analyst
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WHEN: Friday, 29th July, early morning
LAST: -0.1% deposit rate
FORECAST: -0.2% deposit rate
Impact: Of course the Fed is announcing policy this
week but the BoJ could be on the brink of something
big. At least this is what the market is expecting after
such a huge rally in the past couple of weeks. The BoJ
could be set to announce a package of easing
measures. “Helicopter money” is not expected but
maybe further purchases of ETFs/REITs, and further
cut to negative rates (maybe to -20 bps from -10bps).
Would this be enough though? Expect significant
volatility on the yen on Friday, impacting across safe
havens, the US dollar and equity markets.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 26th July 15:00 US CB Consumer Confidence 95.8 98.0
Tue 26th July 15:00 US New Home Sales 560,000 551,000
Wed 27th July 09:30 UK GDP (Q2 Prelim) +0.5% +0.4%
Wed 27th July 13:30 US Durable Goods (MoM ex-transport) +0.3% -0.3%
Wed 27th July 15:30 US EIA crude oil inventories -2.3m
Wed 27th July 19:00 US FOMC monetary policy (statement only) No change No change
Fri 29th July 09:30 Japan BoJ monetary policy (deposit rate) -0.2% -0.1%
Fri 29th July 10:00 Eurozone CPI (flash YoY) +0.1% +0.1%
Fri 29th July 10:00 Eurozone GDP (Q2 preliminary flash QoQ) +0.3% +0.6%
Fri 29th July 13:30 US GDP (Q2 Advance annualised) +2.6% +1.1%
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1N.B. Please note all times are BST (GMT+1), data source Reuters
Macro Commentary
There has been a relatively sensible response by central banks to Brexit so far. The approach seems to be wait and
see as they assess the impact on the economic data. The Bank of England held fire due to so little evidence being
available, which was reflected in the relatively hawkish rhetoric from MPC member Kristin Forbes. Also, despite the
lowest reading of German ZEW Economic Sentiment since 2012, the European Central Bank clearly did not feel it
had enough data at its disposal to jump the gun ahead of the BoE. However, have the UK PMIs now signalled the
that rot is starting to set in? Both manufacturing and services PMIs dropped sharply for July (the first month of clean
post-Brexit data), with the reading of 47.4 on Services especially concerning given the sector accounts for around
80% of the UK economy. The New Orders component reading of 46.0 was a huge deterioration, a number that also
has a read through on employment. Away from the PMIs, there are signals that new jobs advertised have dropped
off and suggestions that industry indicators reflect an unemployment rate that may have increased to around 5.3%.
The Bank of England meets next week and if these trends are to be believed they will cut rates and surely the ECB
would follow. The statement from the FOMC will be interesting this week, as will the decision of the Bank of Japan
which is expected to announce its own monetary easing. Looser monetary policy, here we come!
Must Watch for: Bank of Japan monetary policy
GBP/JPY
Will there be a sharp move lower on Sterling/Yen on the BoJ?

2. Weekly Outlook
Monday 25th July with Richard Perry, Market Analyst
Foreign Exchange
Are we about to see sterling selling off decisively again? In the wake of the dreadful UK PMIs, sterling fell
sharply on Friday and the markets are now looking to price in the likelihood of easing measure by the Bank of
England in next weeks monetary policy meeting. This could be a volatile week as the Fed announces monetary
policy on Wednesday with the Bank of Japan on Friday. The Fed will again pass up the opportunity to hike rates
(if Brexit had never happened, then this could easily have been a hiking month), but the wording of the FOMC
statement will be important for the prospects of a December rate hike, which is currently c. 45% on CME Group
FedWatch and seemingly in the balance. The sharp correction on the yen (a rally of almost 750 at one stage on
Dollar/Yen) in the past couple of weeks suggests the market is expecting a massive package of monetary
easing to go alongside the prospect of 20 (or even 30) trillion yen of fiscal stimulus. However, the market tends
to over-egg its expectations and it seems as though a lot has been baked into the price. Can the BoJ meet
expectations? The yen has already strengthened again after an interview with the BoJ’s Kuroda that “helicopter
money” was not on the agenda. The interview was recorded pre-Brexit but I think the BoJ will underwhelm and
the yen will strengthen again.
WATCH FOR: It’s all about GDP and monetary policy which will drive markets, with UK, Eurozone and
US GDP, whilst the FOMC and BoJ monetary policy will be the main events.
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FX Outlook
GBP/USD
Watch for: A closing breach of $1.3050 re-
opens the downside
Outlook: The very weak PMIs could be the start
of a string of July data releases that reflect the
deterioration in the UK economy since the Brexit
vote. This has impacted negatively on sterling
which is set to test the support around $1.3050
but also back into the $1.29s this week. The
concern would be that a closing breach of
$1.3060 would also complete a top pattern that
would imply around 320 pips of initial target.
Furthermore, with downside potential renewed
on the RSI and Stochastics, if the sellers build
up momentum there could be some significant
bear pressure this week which could mean the
key 31 year low around $1.2800 could come into
play this week ahead of the Bank of England.
EUR/USD
Watch for: Rallies continue to be a chance to
sell for a test of $1.0909 and then $1.0800
Outlook: Although the ECB remained cautious
on monetary policy the feeling is that it will follow
the Bank of England which is surely set to
loosen monetary policy next week. The selling
pressure is back on for the euro and a decisive
move below $1.1000 has re-opened the post-
Brexit reaction low at $1.0909. However if the
momentum really turns bearish this week, then a
move back to $1.0800 should not be ruled out.
The momentum indicators confirm last week’s
breakdown and any rallies should be seen as a
chance to sell this week. The initial resistance is
around the $1.1050 long term pivot.

3. Weekly Outlook
Monday 25th July with Richard Perry, Market Analyst
Equity Markets
Although there is clear a range of differing performances amongst the major equity markets, there is a
suggestion that the rally seen over the past couple of weeks seems to be running out of steam. The DAX and
CAC have been far more fluctuating in their moves in the past week, however this is more classically seen in
the slowing of the rally on the S&P 500. This comes as earnings season really begins to ramp up. The
economic data in the US is rather middle of the road of late, however the run higher on equities seems to have
been helped somewhat by two factors. Firstly that the Fed will have to push back on its tightening of monetary
policy and secondly that there is very little alternative for investors in the hunt for yield (with bond yields so low).
The latter may not be about to change any time soon, but the Fed policy this week could impact on the S&P
500 depending on how dovish the FOMC statement is. The outperformance of the FTSE 100 could return if
sterling begins to fall away again. Already this trend was seen on Friday as Cable fell sharply after the
disappointing PMIs suggested the BoE was likely to cut rates and/or engage QE at next week’s meeting. Any
continued weakness on sterling can be expected to be supportive for FTSE 100 due to the proportion of
overseas revenue being over 70% and many of the heavyweights paying dividends in dollars. Generally
speaking though, a strong dollar and support for safe havens again would not be positive for equities.
WATCH FOR: The impact of any sterling weakness on the FTSE 100. Growth data for the UK, Eurozone
and the US will impact on sentiment but the FOMC on Wednesday and the Bank of Japan on Friday will
also drive risk appetite.
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S&P 500
Watch for: Is the rally running out of steam as
the uptrend begins to consolidate?
Outlook: In this world of seemingly ever more
accommodative monetary policy it still seems to
be a risky game betting against the Fed. The
rally on the S&P 500 has certainly been
decelerating in the past week, but is this just a
pause for breath of the start of a retracement?
The Fed could decide the next move on
Wednesday as the rally has come as markets
have reacted to the expectation of less tight
monetary policy. The run to all time highs on the
S&P 500 has slowed and the RSI and
Stochastics have started to stall. A correction
back towards the support band 2120/2134 would
be healthy.
FTSE 100
Watch for: Technicals on FTSE remain positive
but a correction would be healthy
Outlook: The FTSE 100 has moved into more of
a choppy consolidation phase in the past couple
of weeks. Although the near term indicators are
more uncertain this has come as the medium to
longer term momentum indicators have become
extended. However this means that sell signals
should be taken as near term corrective moves. I
am a buyer of the FTSE 100 into weakness and
any correction ahead of the Bank of England will
be seen as such ahead of what is likely to be a
program of easing measures in the coming
meetings. There is still good support around
6612 this week and I expect further gains
towards 6800/6900 in due course.
Index Outlook

4. Weekly Outlook
Monday 25th July with Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Commodities are varied in their performance with a couple of variables at the moment being the strength of the
US dollar and the preference for safe havens. The US dollar is pushing higher and this is driving a near term
correction on gold and silver. However I continue to see both as simply retreats within medium to longer term
bullish trends. The dollar may be strengthening but the Fed will not be ready to hike rates at least until
December or even beyond and this will help to support the precious metals. The increasingly negative yield on
sovereign bonds (likely to be exacerbated by the BoJ on Friday) leaves gold as a viable alternative and a
corrective move will be of interest to the longer term players. The questions over global growth which
resurfaced in the wake of Brexit is still a concern for the oil price. The EIA oil inventory drawdowns continue to
spike the price higher near term but this also continues to be seen as a chance to sell.
Treasury yields may have risen in the last couple of weeks as risk appetite has improved, however these rallies
will be tested if the FOMC retains a dovish outlook in the statement this week. The ECB may have shied away
from extending its purchase of sovereign debt last week, but with the German Bund yield curve flattening to the
extent that the ECB can not longer buy anything with a duration of less than 7 years (because of the -0.4%
threshold), the universe of what the ECB can buy is ever shrinking. The BoJ will have to further diversify too.
WATCH FOR: FOMC and BoJ will be key for both commodities and bond markets this week.
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Gold
Watch for: The correction beginning to settle
down could be a trigger to buy around the $1306
support again
Outlook: The strength of the selling pressure on
gold has reduced in the past week as the price
has moved back closer to the support of the
longer term breakout at $1306. The technical
indicators are also closing in on the levels that
the bulls would be prepared to buy again, with
the RSI around 50 and the MACD lines
beginning to settle just above neutral. Could this
be the week where the bulls return again?
Additional easing measures from the BoJ could
be a supportive element to gold. The near term
resistance is $1335 whilst the bulls would be
confirmed in control again above $1347.
Markets Outlook
Brent Crude oil
Watch for: Lower highs and lower lows as the
bears finally break the support.
Outlook: The corrective move in the past six
weeks has now resulted in Brent Crude
unwinding over 14% from the $52.86 high. There
is a series of lower highs and lower lows during
that period as Brent has left the latest key
reaction high at $48.57. The momentum
indicators continue to suggest that rallies are a
chance to sell, however the bears would be
looking for the RSI to fall below 40 to be the icing
on the cake. Despite this, last week’s breach of
support at $45.90 finally re-opened the downside
and means that the key May low at $43.33 is
firmly within sight this week.

5. Weekly Outlook
Monday 25th July with Richard Perry, Market Analyst
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