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Weekly Outlook
Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit...
Weekly Outlook
24th August 2015
by Richard Perry, Market Analyst
Foreign Exchange
Major pairs may have started to turn a c...
Weekly Outlook
24th August 2015
by Richard Perry, Market Analyst
Indices
Although huge sell-offs (and subsequent rebounds)...
Weekly Outlook
24th August 2015
by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The rout on commodities...
T: +44 (0) 20 7036 0850 │ F: +44 (0) 20 7036 0899 │ E: info@hantecfx.com │ W: hantecfx.com
Risk Warning for Financial Prom...
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How the commodities rout is impacting forex market sentiment and equities panic

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The FOMC minutes last Wednesday have completely changed the market’s perception of a September rate hike. Traders have assessed the minutes that suggested more improvement needed to be seen in the data before “most” of the committee would shift stance. Since the latest FOMC meeting, there has been a series of aspects that can only have emboldened the resolve of the doves on the committee. A 3% devaluation for China (which has been seen as deflationary), the significant depreciation of Emerging Markets currencies (also deflationary), commodities such as oil and base metals have continued to plummet (again deflationary), whilst domestic inflation for July has US remained stubbornly low.

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How the commodities rout is impacting forex market sentiment and equities panic

  1. 1. 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 24th August 2015 by Richard Perry, Market Analyst Macro Commentary The FOMC minutes last Wednesday have completely changed the market’s perception of a September rate hike. Traders have assessed the minutes that suggested more improvement needed to be seen in the data before “most” of the committee would shift stance. Since the latest FOMC meeting, there has been a series of aspects that can only have emboldened the resolve of the doves on the committee. A 3% devaluation for China (which has been seen as deflationary), the significant depreciation of Emerging Markets currencies (also deflationary), commodities such as oil and base metals have continued to plummet (again deflationary), whilst domestic inflation for July has US remained stubbornly low. This change of sentiment is impacting across asset classes. Treasury yields have fallen sharply, with the more volatile long end of the yield curve particularly under downward pressure (as concerns over future growth persist) reflecting increased safe haven flows. The dollar has subsequently undergone a sizeable correction, whilst gold (another market with a negative correlation to the dollar) has also rallied strongly. My expectation is that it could now be a choppy medium term outlook ahead for the US dollar, especially if concerns over China and commodities persist. WHEN: Fri 28th Aug, 1330BST LAST: +1.3% FORECAST: +1.3% Impact: As part of the Fed’s dual mandate it is legally obliged to target low and stable inflation. The Fed is targets 2.0% inflation and the PCE is its preferred measure. The core reading (strips out volatile food and energy) has been stuck at +1.3% for 6 months now and if a consensus monthly increase of +0.1% is hit this will again show no sign that PCE is picking up. The FOMC minutes said recently that conditions had not been met to raise interest rates and this is most certainly a key factor. Year on year core PCE at 1.3% again would almost guarantee no hike in September and would be negative for the dollar and Treasury yields. Must watch for: Personal Consumption Expenditure Key Economic Releases Date Time Country Indicator Consensus Last Tue 25th Aug 09:00 Eurozone German Ifo Business Climate 107.8 108.0 Tue 25th Aug 15:00 US Consumer Confidence 93.3 90.9 Tue 25th Aug 15:00 US New Home Sales 510,000 480,000 Wed 26th Aug 13:30 US Durable Goods Order (MoM) +0.4% 0.8% Wed 26th Aug 15:30 US Crude oil inventories +2.6m Thu 27th Aug 13:30 US Q2 GDP (Preliminary) +3.2% +2.3% Thu 27th Aug n/a n/a Jackson Hole Economic Symposium Fri 28th Aug 00:30 Japan CPI +0.0% +0.4% Fri 28th Aug 09:30 UK Q2 GDP (second reading) +0.7% +0.7% Fri 28th Aug 13:30 US Personal Consumption Expenditure (core) +1.3% +1.3% Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com 1N.B. Please note all times are BST (GMT+1), data source Reuters US Core PCE
  2. 2. Weekly Outlook 24th August 2015 by Richard Perry, Market Analyst Foreign Exchange Major pairs may have started to turn a corner in the past week. The driver has been a dovish set of meeting minutes from the Fed which have pushed back expectations of a September rate hike. The China devaluation has certainly played into this trade too and now we are faced with an interesting outperformance on the euro. The short euro positions are being unwound and this is puling the EUR/USD pair higher. Unwinding the euro carry trade has driven the euro through its key June resistance and a multi month high. Safe haven flows have increased in the wake of the latest set of disappointing China flash manufacturing PMIs and this has benefitted the yen and Swissy. The other interesting move on the forex majors is the performance of the commodity currencies (Aussie, Kiwi and Canadian dollar) which are conflicted between the potential delay of a Fed rate hike and the rout in commodity prices. How the relative importance of the two arguments are balance will determine potential moves. On Monday it seems as though the rout in commodities is being given the bigger weighting. Also interestingly, is the relative performance of sterling versus the dollar. The market is still questioning the relative impact of the commodity decline on both central bank potential rate hikes. WATCH FOR: A raft of US data this week, with US GDP a key release, but the core PCE on Friday will be a big driver. The rhetoric from FOMC members at Jackson Hole will also create volatility in forex markets. EUR/USD Watch for: Holding an upside break of the medium term trading band at $1.1465 Outlook: A flag breakout hitting its target at $1.1370 has been a remarkable rally but the euro is not stopping. Near term momentum is strong, and now the bulls will need to hit a closing break of key resistance of the top of the broad sideways trading band at $1.1465. I see this as a near term reaction rather than a move that will be sustainable and I expect the profit taking to set in, but momentum is strong in the meantime. I see a choppy euro in the coming weeks and the pivot band $1.1050/$1.1100 still to play a role. NZD/USD Watch for: Holding on to the trading band above $0.6500 Outlook: After trading sideways for several weeks (having seemingly formed some meaningful support), the rally on the Kiwi come under some pressure today. But is this enough to induce further declines that would break the consolidation range. So far there is no sense on the momentum indicators that there is any substantial deterioration and depending on whether support can hold, the performance of the Kiwi remains rather strong still. 980. The bulls will note that the outlook will remain decent within the range whilst the pivot support at $0.6550 is intact. Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com FX Outlook 2
  3. 3. Weekly Outlook 24th August 2015 by Richard Perry, Market Analyst Indices Although huge sell-offs (and subsequent rebounds) have been a feature of trading major equity markets during 2015, the nature of this latest decline has been particularly vicious. As the concerns over how China continues to slowdown have grown, we have seen equity markets fall to multi month lows. It would appear that although Wall Street has been relative sheltered from selling pressure in the past few months, even the S&P 500 has started to break key support levels. Although the S&P 500 is only just under 8% off its all time highs, the market ended last week at its lowest level since October. The disappointing earnings season is drawing to a close and traders are concerned over the impact that the slowdown in China is having on corporate earnings growth. The decline could be insulated to a certain extent by the fact that the FOMC is increasingly unlikely to hike rats in September now. This is driving increased Treasury flows and a dollar correction which could help to pull the reins on fears of an ever strengthening dollar (at least for the near term). FTSE 100 is now over 14% off its 7122 high of April but the 26% weighting in commodities is a big drag. The DAX is now down around 20% from its April peak (bear market territory) amid fears for a market that heavily exports to China. WATCH FOR: Focus will remain on China and how commodity markets move as concerns over global demand continue to impact on sentiment. DAX Xetra Watch for: Old support band 10,000/10,100 is now resistance Outlook: The DAX has blown support out of the water. All the levels in recent months which had previously acted as solid level and turning points have mattered little as the bear pressure has ripped through the DAX. The market is now back at levels not seen since January. The support band between 10,000/10,100 has been breached and could act as resistance. The DAX is short term oversold with the RSI in the low 20s and this could induce a snap rally this week, however beware catching a falling knife. FTSE 100 Watch for: Key support levels at 6145 and 6073 are now close Outlook: The FTSE 100 had fallen well over 500 points in two weeks at Friday’s close, however the sell-off is now getting to the stage of becoming exhaustive. The daily RSI is now back at 17 and is the lowest since August 2011 (weekly RSI at 30 is also stretched). This does not necessarily mean a technical rally is imminent, but the support around 6000 is now into play and this may see the sell-off stall near term. The problem becomes timing now as a falling knife can be painful to catch but a snap back rally can be equally as sharp. Difficult times for investors. Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com INDEX Outlook 3
  4. 4. Weekly Outlook 24th August 2015 by Richard Perry, Market Analyst Other Assets: Commodities & Bonds The rout on commodities has become somewhat dichotomised recently as the precious metals have rallied strongly whilst commodities linked to economic growth (oil and base metals) have come under almost relentless pressure. The divergence has been driven by a big shift towards safe haven trading, which gold has particularly benefitted from. The downtrend on oil has been punctuated by rallies that continue to be sold into and with supplies remaining strong and demand hit from a China slowdown, there is little to suggest the buying will return yet. A rebound on gold has hit an initial band of resistance and the gold bug will do well to avoid selling pressure but a continuation of the current general bearish market sentiment will help to support. Safe haven flows are moving investors back into Treasuries, Bunds and Gilts again. For Treasuries, this move is also coming in the wake of the dovish FOMC minutes which have reduced the likelihood of a September rate hike. If the commodities rout continues then expect the long end of the US yield curve to continue to flatten. WATCH FOR: A whole raft of US data can drive commodities this week, with focus also on sentiment out of China too. Jackson Hole will dive volatility as various speakers will move expectations of a September hike. Gold Watch for: Reaction to the resistance band $1162/$1170 is key to the recovery Outlook: The bullish recovery got a new lease of life after the FOMC minutes and has seen the price now bounce by over 7% in just over 2 weeks. Although the old key floor at $1131.85 was paid scant regard, the bulls had a bit of a stutter on Friday as the next resistance band around $1170 came into sight. This level becomes a key test this week. If market sentiment starts to improve you could see some profit taking set in. Momentum remains strong with RSI pushing towards 70. Brent Crude Watch for: A close below $45.20 is a multi year low and opens $40 Outlook: With WTI pulling lower to levels not seen since 2009, it has taken a while for Brent Crude to pull down to similar levels. However the downtrend has been consistently negative for Brent Crude and it has only seemed like a matter of time. A breach of the January low at $45.20 opens the initial support around $40 but as with WTI there is very little reason not to expect a test of the December 2008 low at $36.20. Momentum indicators remain incredibly bearish and there is little sign of any reversal in sight. Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com COMMODITIES & BONDS Outlook 4
  5. 5. T: +44 (0) 20 7036 0850 │ F: +44 (0) 20 7036 0899 │ E: info@hantecfx.com │ W: hantecfx.com Risk Warning for Financial Promotions This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability. Trust Through Transparency Hantec House, 12-14 Wilfred Street, London SW1E 6PL T: +44 (0) 20 7036 0850 F: +44 (0) 20 7036 0899 E: info@hantecfx.com W: hantecfx.com Weekly Outlook 24th August 2015 by Richard Perry, Market Analyst

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