With volatility at elevated levels, December is turning out to be another choppy month for markets. Brexit is reaching a critical stage, whilst fears are growing for the US economic prospects as the bond markets seem to be pricing in for a potential recession further down the line. We look at the impact on forex, equities and commodities markets and what to watch for this week.

1. Weekly Outlook
Monday 10th December 2018 by 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.
Key Economic Events
WHEN: Thursday 11th December, (perhaps c. 1900GMT)
LAST: N/A
FORECAST: Govt defeat of perhaps 150 to 200
Impact: The febrile state of domestic UK politics really is
something to behold. Brexit has drive huge chasms through
the spectrum of UK politics, exposing previously concealed
fissures, to the extent that there is almost no consensus in
Parliament as to how to proceed. Theresa May’s deal from
the EU gets a “meaningful vote” on Tuesday, however,
support seems in short supply and the numbers really do not
stack up and it could be a huge defeat. The question is what
will the impact be both politicallyand on markets. Wow,
almost anything could happen, but Gilts, sterling and FTSE
100 will be volatile as traders try to get their heads around it.
Date Time Country Indicator Consensus Last
Tue 11th Dec 0930GMT UK Unemployment / Average Weekly Earnings 4.1% / +3.0% 4.1% / +3.0%
Tue 11th Dec 1000GMT Eurozone German ZEW Economic Sentiment -25.1 -24.1
Tue 11th Dec 1330GMT US PPI (headline / core) +2.6% / +2.6% +2.9% / +2.6%
Tue 11th Dec c. 1900GMT UK Parliamentary vote on Withdrawal Agreement
Wed 12th Dec n/a US FOMC chair Powell testifies to Congress
Wed 12th Dec 1330GMT US CPI (headline / core) +2.4% / +2.2% +2.5% / +2.1%
Thu 13th Dec 0830GMT Switzerland Swiss National Bank monetary policy No change -0.75% No change -0.75%
Thu 13th Dec 1245GMT Eurozone ECB monetary policy, Draghi presser 1330GMT End APP APP €15bn per month
Fri 14th Dec 0200GMT China Industrial Production / Retail Sales +5.9% / +9.0% +5.9% / +8.6%
Fri 14th Dec 0900GMT Eurozone Flash PMIs (Manufacturing / Services) 51.8 / 53.1
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1N.B. Please note all times are British Summer Time (BST) i.e. GMT +1. Data: Reuters
Macro Commentary
Was Brexit ever going to go smoothly? Parliament has become a source of enormous uncertainty for the future of
politics and economics of the UK. Theresa May’s deal she struck with the EU a few weeks ago does not have
Parliamentary support. As a result of Mrs May’s Government having managed expectations so spectacularly badly,
she now has seemingly lost any prospect of getting her deal past what is a massively divided Parliament. The
question is, what will happen next? If defeated, officially, Mrs May would have 21 days to update the House on her
next move, however, could events takeover? Mrs May could quite possibly face a vote of confidence from her own
party (maybe), or a more likely scenario would be the opposition Labour Party table a motion of no confidence in
the Government (which needs a simple majority and support of the DUP, so is possible). If she survives,
renegotiation with the EU seems to be massively unlikely. Somehow removing the Northern Ireland backstop could
persuade Parliament but the EU would never let that fly. Back to square one? Amendments in Parliament and the
likely ECJ ruling that Article 50 can unilaterally be revoked, suggest that a move towards a much softer form of
Brexit (a Norway style EEA agreement possibly) could now play out. If Parliament becomes a stalemate, a second
referendum is gaining traction as an idea, but surely Article 50 needs to be dealt with. The UK would feel like
purgatory. Expect volatility on sterling and FTSE 100 to be the real winners.
Must Watch for: UK Parliament meaningful vote on the Withdrawal Agreement
Sterling volatility is growing
Three month GBP/USD options volatility has spiked to levels not
seen since the referendum.

2. Weekly Outlook
Monday 10th December 2018 by Richard Perry, Market Analyst
Foreign Exchange
According to one week implied volatility of GBP/USD options, this could be the most volatile week for Cable
since the EU referendum in June 2016. There is a crucial vote in the House of Commons over Mrs May’s deal
on Tuesday at 1900GMT which could potentially send sterling either plummeting, or (highly unlikely) soaring.
However, there is also another consideration, that the arithmetic surrounding this vote in Parliament has been
widely anticipated and it looks like a heavy defeat. But how could sterling react? The market already knows this
and it could mean that it pushes the likelihood of a sharp sterling sell-off which then rebounds sharply as it
increases the prospects of a softer Brexit option that may be more palatable to Parliament. The only caveat to
this significant volatility would be that Mrs May pulls the vote for fear of the humiliation. To be honest, absolutely
anything is possible and nothing should be ruled out. The dollar had a fairly settled week considering the turmoil
of the falling yields and the implications of curve flattening/inverting. However, the outlook for continued dollar
strength is beginning to crumble away and this is only likely to continue if the Fed does indeed give a “dovish
hike” in December. How the ECB plays its hand this week will also be intriguing. The expectation is that the
ECB will put a halt to its asset purchase program, but exactly how it conveys this move given the recent growth
and inflation disappointments could shape the euro path for weeks to come.
WATCH FOR: UK Parliament vote on Withdrawal Agreement, US CPI for USD, ECB for the EUR
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FX Outlook
GBP/USD
Watch for: Brexit remains a key driver. As
volatility ramps up a decisive move could be
seen
Outlook: Where sterling trades this time next
week is anyone’s guess. One thing to be sure is
that politics will be the driver. The perception of
the Commons defeat will be everything for
sterling. Does a massive defeat equal a softer
Brexit? The volatility could mean an initial sell-off
but then possibly even a sterling rally. However,
if Mrs. May resigns it would trigger a likely hard
Brexit candidate to take her place and this would
hit sterling. The $1.2660 floor looks tenuous and
below opens $1.2585 and $12350. Anything
above $1.3000 would come on the perception of
a softer Brexit.
EUR/USD
Watch for: Is the euro positioning for a decisive
upside break this week?
Outlook: The downtrend channel of the past two
months has been broken amidst a consolidation
and ultimately the building of support on the
euro. The outlook in recent weeks have become
increasingly less negative as pressure has
mounted on the falling trend and momentum
indicators have become less negatively
configured. This sets the euro bulls in a decent
position to have a go at the resistance overhead
this week. Pressure is growing on the band
between $1.1400/$1.1470 and the bulls will be
eyeing a close above $1.1470 to really suggest
upside traction is forming. The support of the
higher low at $1.1265 is solidifying.

3. Weekly Outlook
Monday 10th December 2018 by Richard Perry, Market Analyst
Equity Markets
The past few weeks have contained huge volatility for equity investors as the bears seem to increasingly be
winning the battle. There are many reasons to be negative at the moment and very few positive. The trade
dispute between the US and China seemed set to take a path of improvement (and could still do) but the arrest
of such a high profile Chinese executive of Huawei makes the path significantly more unsteady. Growth fears
have been mounting for some time but the bond markets are now taking a dimming view on the US growth
prospects. Looking at how Wall Street reacted last Thursday shows just how markets will be intrinsically linked to
the outlook for Fed policy in the coming months. Just a hint that the Fed may be prepared to take its foot off the
gas pedal on tightening (or perhaps even pause on rate hikes) was enough to send Wall Street sharply into
recovery mode. The trouble is that Fed chair Powell’s most recent assessment is that “the economy is
performing very well overall” and it is unlikely that any substantial row back will be seen. Friday’s payrolls report
pretty much means that there would have to be a considerable deterioration in conditions in the next nine days
for the Fed to not hike in December. It is far more likely to be a dovish hike, scaling back the dots from three
hikes in 2019 closer to the market’s current pricing for just one. That sounds positive for equities (and could still
help generate a Santa Clause rally), but the fundamental driver behind this move would still be negative. The fact
is that for now, European markets are price takers, not price makers. The moves on Wall Street are everything
for market sentiment and will remain so will whilst options volatility is elevated.
WATCH FOR: Yield curve inversion fears driving Wall Street, Parliamentary vote drive FTSE volatility.
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DAX Xetra
Watch for: The pivot band 11,400/11,460
remains a key barrier.
Outlook: Closing below 11,725/11,865
completed a huge top pattern that implied a
retreat towards 10,150 in the next year.
However, the way the market continues to fall,
this time horizon may be shorter than that. The
plummet in the market last week once more took
the DAX to two year lows and the outlook on
momentum is extremely bearish. The MACD
lines crossing lower again but with downside
potential sets up for continued downside. There
is an old consolidation band 10,175/10,800 from
late 2016 which is supportive, but huge
overhead supply means 11,000/11,200 is a sell
zone this week.
FTSE 100
Watch for: Can the bulls continue to recover this
week or will any rally simply fade again?
Outlook: The huge breakdown below 6851 took
FTSE 100 to a new two year low and confirms
that has been a huge top pattern. The medium
to longer term momentum indicators have been
increasingly corrective but given the fact that the
MACD lines have only just turned lower, with
further downside potential, the outlook is
increasingly bleak. Friday’s sharp rebound will
have given the bulls some hope but can this
hold? On a medium term outlook 6850/6900 is a
basis of resistance of overhead supply now, but
essentially it would need a move above 7200 at
least to consider a real recovery is underway. A
period of struggle looks to be ahead.
Index Outlook

4. Weekly Outlook
Monday 10th December 2018 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold continues to pick up as corrections find buyers at higher levels. Falling bond yields along with huge
volatility on equities has hit risk sentiment, which is gold supportive. Add in the growing potential for a correction
on the US dollar and this is another gold positive argument. As for silver, concerns over global growth may
mean that the gold/silver remains stretched for now.
Oil has been falling on the concerns over demand and the impact of oversupply. The demand side remains
questionable as global growth fears continue to dominate, however, the supply side of the equation picked up in
the wake of the OPEC meeting last week. The importance of Russia as a perceived linchpin has grown and
their participation in cuts is key. However, a cut of 1.2m barrels per day agreed by “OPEC+” is less than 1.5m
perhaps needed to drive a rally but could now stabilise the price. It will be demand driven prices move now.
Bond yields are once more crucially important as the US yield curve started to invert (between 2s and 5s) last
week. Longer dated yields falling sharply mean that the 2s/10s spread is now just within 14 basis points of
inverting. This spread is considered to be the primary gauge of flattening and reflects the fears over US growth
slowdown, which is expected to be around 2.5% in Q4 and possibly back towards 1% next year. The reaction of
the FOMC for 2019 will be key, so it’s dot plots will be seen as crucial.
WATCH FOR: Fed chair Powell testifying before Congress, whilst US CPI is also key
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Gold
Watch for: The uptrend channel is re-asserting
as the market trades at multi-month highs
Outlook: The gold rally continues to make
ground this week. Closing consistently above
$1236 now means that $1230/$1236 is now a
basis of support for any near term corrections.
Trading at five month highs, the market is now
open for a run higher within the uptrend channel
which shows that the $1266 reaction high is now
open. Momentum indicators are increasingly
positive, with the RSI in the mid-60s and the
strongest bull momentum since January, whilst
MACD lines are accelerating higher. There is
now a higher low at $1210 as support.
Markets Outlook
Brent Crude oil
Watch for: A broken downtrend opens a test of
key resistance at $64.60
Outlook: Volatility remains considerable but
Friday’s rebound has helped to paint a picture of
a recovery on oil. The OPEC meeting agreement
with Russia helped to drive the market higher to
break through what has been a very well defined
eight week downtrend. Building for a higher low
at $58.35 above the November low at $57.50
now means that a test of the near term pivot at
$64.60 could be seen this week. A break above
this resistance would be a key technical
improvement, and would open $68.40/$70.30
resistance band. The recovery is also reflected in
the improvement in momentum indicators as the
MACD line accelerate higher.

5. Weekly Outlook
Monday 10th December 2018 by Richard Perry, Market Analyst
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