After a raft of recent key risk events to impact on markets in recent days the interest shows little sign of any let up as the markets deal with the continued fallout from the UK General Election. However increasingly attention will begin to turn to the major central bank meetings this week with main focus on the FOMC decision. How are forex, equities, and commodities markets set up?

1. Weekly Outlook
Monday 12th June by Richard Perry, Market Analyst
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WHEN: Wednesday 14th June, 1900BST
LAST: no change 0.75%/1.00%
FORECAST: +25bps to 1.00%/1.25%
Impact: The Fed is on course to hike by another 25
basis points this week. However US data has been
sketchy of late and with inflation underwhelming, it
could mean the Fed is wary about pushing ahead too
quickly with tightening if inflation remains stubbornly
low. The US 2 year yield certainly points to a hike in
June, but the 10 year yield reflects a market cautious
on inflation. Will the Fed be cautious in its economic
projections and just ease back on its tightening?
Markets will also look for talk about balance sheet
reduction too. Treasury yields and the dollar in focus.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 13th Jun 09:30 UK CPI (headline / core) +2.7% / +2.3% +2.7% / +2.4%
Wed 14th Jun 03:00 China Industrial Production / Retail Sales +8.8% / +10.6% +8.9% / +10.7%
Wed 14th Jun 09:30 UK Unemployment / Average Weekly Earnings 4.6% / +2.0% 4.6% / +2.1%
Wed 14th Jun 13:30 US CPI (headline / core) +2.0% / +1.9% +2.2% / +1.9%
Wed 14th Jun 13:30 US Retail Sales (core ex autos MoM) +0.2% +0.3%
Wed 14th Jun 19:00 US FOMC monetary policy (& press conference) 1.00% to 1.25% 0.75% to 1.00%
Thu 15th Jun 08:30 Switzerland Swiss National Bank monetary policy -0.75% -0.75%
Thu 15th Jun 09:30 UK Retail Sales (YoY core ex fuel) +1.9% +4.5%
Thu 15th Jun 12:00 UK Bank of England monetary policy (and minutes) +0.25% +0.25%
Fri 16th Jun n/a Japan Bank of Japan monetary policy -0.1% -0.1%
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
Politics in the UK is once more in a state of flux as the General Election returned a hung parliament. Theresa May
is battling on, in the face of a perceived loss of public opinion, a “lame duck” Prime Minister. The Conservative got
what they deserved in this election. They lazily assumed (as many commentators did) that the country would reject
Jeremy Corbyn, as the opinion polls had apparently been showing for the past two years. However, a turgid
campaign, littered with an inability to win arguments on a host of key areas (Brexit, social care and security) cost
the Tories dearly. Labour’s socialist leader bolstered, whilst the Conservatives left with significant damage. The
minority Conservative government propped up by 10 DUP MPs from Norther Ireland is not strong or stable and this
could mean serious problems for the Tories to do achieve of any note in government. This could ultimately lead to
yet another election being held, perhaps even as earl as October. Aside from Labour, the big winners were the 27
EU leaders what are set to battle with the UK in the Brexit negotiations in the coming weeks. For the markets, the
one thing that does not play well is uncertainty. Sterling has dropped sharply, and could remain under pressure,
continuing to underperform. It is also interesting to see that the negative correlation between sterling and the FTSE
100 is also back on with a rally in large cap equities (although the domestic based companies are faring less well).
Must Watch for: FOMC monetary policy
US 2 year Treasury yield
Could the 2 year yield fall again in the wake of a hike as it did in
March?

2. Weekly Outlook
Monday 12th June by Richard Perry, Market Analyst
Foreign Exchange
A sterling sell-off has set in, but will it be ongoing? This comes in the wake of the UK election. Will this now start
to drive ongoing sterling weakness again as questions and uncertainty over Brexit are multiplied? Key levels to
watch on Cable are the old key pivot at $1.2775 above which sterling would be more positive, whilst $1.2600
would be considered a floor of support to turn sterling decisively negative again. After months of Could the
dollar about to mount a sustainable turnaround? The US dollar has rallied in the wake of the testimony of
James Comey which did not appear to implicate President Trump in anything that would result in his
impeachment. With Treasury yields picking up again, the dollar index has bounced almost 2%, however there
are a series of key lower highs in this 2017 dollar sell-off, the first of which is at the late May high of 97.78. The
next step would be for this recovery to be sustainable and the reaction to the Fed this week could be key. The
FOMC is nailed on to increase rates by 25 basis points whilst how the Fed begins to communicate the balance
sheet reduction could also be a factor in the longevity of a dollar recovery. The euro has comes under pressure
after the ECB marginally underwhelmed last week. Despite the ECB moving to a position where it sees the risks
to growth outlook being “broadly balanced” and the removal of “or lower” for rates, but the ECB cutting its
inflation projection for the next three years just took the edge off normalisation expectations.
WATCH FOR: Central Bank decisions from FOMC, SNB, BoE and BoJ. UK and US inflation is also key.
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FX Outlook
GBP/USD
Watch for: The UK election has driven sterling
weakness and now likely underperformance
Outlook: Sterling is now under pressure with the
break back below $1.2775. Technically this
completes a top pattern and implies 275 pips of
potential downside now towards $1.2500 in the
coming weeks. The long term pivot at $1.2775
will take on increased importance of being a key
watershed now. It will also be an area of
overhead supply as resistance. The corrective
outlook on the momentum indicators are
suggesting that rallies are now a chance to sell
and a period of sterling weakness is increasingly
likely now. Whilst there will be volatility around
the politics of the UK now a sustainable path of
sterling strength will find significant resistance.
EUR/USD
Watch for: Another higher low above $1.1100
being the springboard for the next up-leg
Outlook: The mild correction in the wake of the
ECB meeting should prove to be another chance
to buy. The technicals show that the medium
term outlook remains positively configured and
that corrections remain a chance to buy. The
near term correction has set in but whilst the
support of the longer term pivot at $1.1100
remains intact then the bulls will be in control
The recent corrections have been between
150/200 pips of around a week in length before
the bulls resume control. This would suggest a
retreat from $1.1285 towards $1.1100 should not
be ruled out.

3. Weekly Outlook
Monday 12th June by Richard Perry, Market Analyst
Equity Markets
Equity markets appear to have been pretty much the only asset class not to have been impacted by the
unwinding of the reflation trade that has swept through bond markets (and also the dollar) in 2017. The bulls
remain in control as major global markets move back to new high ground. Nothing seems to phase them. It
seems as though with the testimony of former FBI Director James Comey not enough to inflict mortal damage
to Donald Trump’s presidency and Wall Street bulls have breathed a sigh of relief. However, the Comey
testimony does question Trump’s integrity and by extension the politics of Congress are hardly going to be any
easier for Trump to get his fiscal plans into law. For now though Wall Street can look forward once more with
the bulls back in control. The UK election result has also seemingly bolstered the bullish outlook for FTSE 100.
Looking at how the individual constituent performances in the index, the move is plain to see. Companies that
derive their earnings abroad are rallying on the sterling weakness, whereas domestic companies were under
pressure. With over 70% of FTSE 100 earnings derived abroad, the FTSE 100 is subsequently gaining ground
as the negative correlation trade with sterling is back in play. However, it is interesting to see that the more
domestic focused mid-cap FTSE 250 Index fell on Friday. The perception is that uncertainty is going to be
negative for the UK economy. It will be interesting to see if the DAX can sustain its rally from Friday that arose
on an improvement in risk appetite. The DAX is now looking towards a retest of the all time highs again.
WATCH FOR: Ongoing negative correlation between FTSE 100 and sterling. The raft of central bank
announcements will add to volatility.
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3
DAX Xetra
Watch for: Can the DAX test the all-time highs
this week
Outlook: The DAX has been in a range of
around 400 ticks between support at 12,490 and
the 12,879 all time high for the past six weeks.
The support has been bolstered in recent weeks
but now a higher low at 12,640 has given the
bulls the impetus for a test of the all time high
again. This comes with momentum indicators
that are strong across the board with the RSI
holding in the mid-50s with the MACD lines now
ready to turn higher. Corrections remain a
chance to buy this week and a close above
12,879 completes a bullish range breakout.
FTSE 100
Watch for: Continued sterling weakness could
help the FTSE 100 into new high ground
Outlook: A strong bullish reaction came through
on Friday despite the uncertainty of the UK
General Election result. This means that a pivot
support at 7447 has been bolstered and the
bulls are looking back higher again. The move
came amidst the negative correlation with
sterling weakness. The recent all time high was
7599 and if sterling remains under pressure then
expect the FTSE 100 to test the highs again.
Momentum indicators had been unwinding but it
is interesting to see the RSI bouncing from 50
and this suggests that if the bulls can remain in
control then upside potential has been renewed.
Index Outlook

4. Weekly Outlook
Monday 12th June by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The big outcomes from Comey’s testimony from the market’s perspective has been a Treasury yield/dollar rally
and an improvement in risk appetite. None of these engender a positive outlook for gold and the price of the
yellow metal has fallen sharply as a result. The outlook is under pressure and the market is now pulling back
into the medium term pivot around $1261 which had been supportive in late May. A decisive breach of the pivot
support would change the medium term outlook once more and re-open the May low at $1213. The oil price has
been under huge pressure in the last couple of weeks with intraday rallies continually being sold into. Concerns
over the effectiveness of the OPEC strategy to sustainably underpin the oil price coupled with increasing
production in Libya, whilst the surprise EIA inventory build questions further the move towards rebalancing the
market. The pivot at $47.00 will remain key for the near term outlook as resistance.
It is interesting to see that in the wake of Comey’s testimony the US yield curve has started to steepen a touch
again. Will this be a sustainable move? Ahead of the Fed we see the 2 year yield back above 1.300% whilst the
10 year yield has risen more than 10 basis points in just a few days. The FOMC is certain to add volatility to the
outlook for US yields, however a flattening of the US yield curve remains a concern. Will the Fed take its foot off
the gas? This could pull yields back lower again.
WATCH FOR: The FOMC is crucial for US yields, whilst commodities will also be volatile.
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4
Gold
Watch for: Pressure on $1261 with a decisive
breach opening further downside.
Outlook: The correction is gathering pace now
with the three strong bear candles that have
culminated in in a breach of the four week
uptrend. The medium term pivot around $1261
will be the key focus this week, with a decisive
breakdown opening a much deeper correction.
However, with the momentum indicators
increasingly negatively configured with
burgeoning downside potential, the prospect of
an ongoing correction is growing. The resistance
at $1296 is now key and it seems as though the
long term choppy range on gold is set to
continue.
Markets Outlook
Brent Crude oil
Watch for: Rallies remain a chance to sell with
momentum so negative.
Outlook: Despite a consolidation on Friday,
there is little to suggest that a recovery is in the
offing. Brent Crude has been falling for the past
three weeks and technically the momentum
indicators remain deeply bearishly configured.
Having broken below support at $50.00which
has been a historic pivot and clearly
psychological, the bears remain in control for a
test of the key May low at $46.65. Rallies remain
a chance to sell and there is a band of
resistance between $49.00/$50.00 to watch this
week.

5. Weekly Outlook
Monday 12th June by Richard Perry, Market Analyst
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5
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