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The Fed is in focus as central bank policy dominates sentiment

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There are few guarantees in life. Death, taxes and it would appear, the markets love of extra monetary stimulus. Last week, the European Central Bank and the People’s Bank of China (the latter somewhat unexpectedly) gave risk appetite a boost. Mario Draghi, the ECB chief, talked of potential for further monetary easing in December (maybe an increase in QE monthly purchases above €60 billion, or extending the program beyond the September 2016 end date, or maybe also a further cut to the negative deposit rate).

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The Fed is in focus as central bank policy dominates sentiment

  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 26th October by Richard Perry, Market Analyst Macro Commentary There are few guarantees in life. Death, taxes and it would appear, the markets love of extra monetary stimulus. Last week, the European Central Bank and the People’s Bank of China (the latter somewhat unexpectedly) gave risk appetite a boost. Mario Draghi, the ECB chief, talked of potential for further monetary easing in December (maybe an increase in QE monthly purchases above €60billion, or extending the program beyond the September 2016 end date, or maybe also a further cut to the negative deposit rate). Then the PBoC cut its headline and deposit rates by 25 basis points and further eased the reserve requirement ratio. With sentiment suitably bulled, equities soared, bond yields fell and interestingly the US dollar hugely strengthened. However these extra easing measures by rival central banks leaves the Fed with a quandary, especially the PBoC move. A stronger dollar is disinflationary, but so is tightening monetary policy. However the Fed pointed towards China as a reason not to hike in September and if the easing helps settle sentiment then the FOMC may have to tweak its the statement again. The Fed will not tighten this week, and FedWatch interest rate futures pricing March as the likely month. Watch out for the FOMC statement on Wednesday. WHEN: Wed 28th Oct, 1900BST LAST: No Change FORECAST: No Change Impact: The talk of easing by the ECB and subsequent rate cut by the PBOC now gives the Fed a decision to make. The expectation is still that the Fed will not hike this month (especially after what it said last month alluding to China), however the statement will make interesting reading with regards to the “global economic and financial developments”. There is no press conference this meeting so the statement is the main driver of information. There will be volatility around the announcement, with US dollar especially volatile with subsequent impact on commodities. Must watch for: FOMC Monetary Policy (statement only) Key Economic Releases Date Time Country Indicator Consensus Last Tue 27th Oct 14:00 US New Home Sales 0.55m 0.55m Tue 27th Oct 09:30 UK GDP Q3 (Prelim - QoQ) +0.6% +0.7% Tue 27th Oct 14:00 US Consumer Confidence 102.5 103.0 Wed 28th Oct 18:00 US FOMC Monetary Policy +0.25% +0.25% Wed 28th Oct 20:00 New Zealand RBNZ Monetary Policy +2.75% +2.75% Thu 29th Oct 12:30 US GDP Q3 (Advance - annualised) +1.7% +3.9% Thu 29th Oct 23:30 Japan CPI (core) -0.2% -0.1% Fri 30th Oct n/a Japan BoJ Monetary Policy No change No change Fri 30th Oct 10:00 Eurozone CPI (flash) 0.0% -0.1% Fri 30th Oct 12:30 US Personal Consumption Expenditure +1.3% Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com 1N.B. Please note all times are GMT, data source Reuters US Treasury yield curve
  2. 2. Weekly Outlook 26th October 2015 by Richard Perry, Market Analyst Foreign Exchange Forex markets have been rocked by the ECB and the PBoC. A huge euro sell-off has been the main result, which has changed the medium term outlook. The formerly positive position, building through a series of higher lows over the past few months has now been impacted by the ECB which was even more dovish than the market had anticipated. Taken with the strong US dollar impact of the PBoC rate cut and the double-whammy on EUR/USD has been profound. The euro is not the only major pair that has been chastened by the US dollar rally. A corrective outlook on Dollar/Yen has been flipped and the range high of the 121.70 August rebound resistance could come under pressure, although for now I still see it as a range play 118.00/121.70. The reaction on Cable has been less pronounced as the Bank of England seems to remain fairly well in lockstep with the Fed with regards to tightening. Although there has clearly been a degree of dollar strength which has driven Cable lower near term, I still see this as part of the choppy medium term range play. It is interesting that the Aussie is trading once more in close correlation with the gold price and has been sliding, but the $0.7200 pivot is now important for the outlook. The Kiwi remains the best performing major (ex USD) in October. WATCH FOR: The raft of tier one US data will keep the focus firmly on the dollar again this week, with special focus on the FOMC, GDP and PCE. Euro traders will also focus on flash CPI. For the UK it is GDP. EUR/USD Watch for: The close below $1.1050 implies the sellers are increasingly in control again Outlook: I must have mentioned the 50 pip pivot range on Euro/Dollar between $1.1050/$1.1100 countless times over the past few months, but the selling pressure on Friday which saw a close below the $1.1050 support was a significant move. The big range between $1.0810/$1.1465 has been in place since April but the breakdown now kicks the bulls into touch and suggests that there could now be a drift back towards the $1.0810 support. The momentum indicators point towards continued correction too. The pivot also now becomes resistance. GBP/USD Watch for: Near term correction to continue possibly back towards $1.5100/$1.5200 Outlook: The dollar strength is dragging Cable lower now and the immediate near term downside target at $1.5320 is under pressure already. However with the RSI in decline and a sell signal confirmed on the Stochastics the momentum is growing in the correction. This could mean that further weakness is seen towards the supports within the 6 month trading range. The support comes in at $1.5100/$1.5200. The old near term support around $1.5410 now becomes resistance near term with $1.5510 now key. Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com FX Outlook 2
  3. 3. Weekly Outlook 26th October 2015 by Richard Perry, Market Analyst Indices Indices have reacted unambiguously bullishly to the actions of the ECB and the PBOC in the past few days. The dovish press conference from Mario Draghi and then the series of rate cuts fro the PBoC has opened the floodgates of buying for equity indices. The German DAX and French CAC have been the major beneficiaries of these policy responses with the less volatile markets such as the FTSE 100 and S&P 500 on the coattails. The moves have now seen all these major markets breaking out at multi-week highs with levels not seen since the middle of August. These breakouts mean that old resistance becomes new support so on the DAX the key levels to watch for building support on a correction now comes in at 10,512. On the FTSE 100 the support is at 6284, with the S&P supported at 2021, and the French CAC 40 with support at 4733. The interesting factor is that earnings season for the US has hardly been stellar, with the usual trend of around 70% of companies beating earnings estimates and almost 50% beating on the revenue line. No matter though, when there is the promise of additional monetary stimulus, who cares about earnings? WATCH FOR: There is arguably a tier one US economic announcement on almost every day this week (if new homes sales is considered as such), however the FOMC meeting, the first look at Q3 GDP and then the Fed’s preferred inflation measures (PCE) will ensure the focus remains on the Fed all week. Suggestions that the Fed will not tighten in December will be bullish for equities – remember good news is bad. DAX Xetra Watch for: A possibly unwinding correction but corrections should now be bought into Outlook: The sharp breakout above the key resistance at 10,512 has been key as it changes the medium term outlook to more positive. This old resistance now becomes supportive and although there is a gap still open just above 10,500 any minor corrections that serve to unwind the immediately overbought momentum should be seen as a chance to buy. The RSI is now at 70 and is the highest since March. The 38.2% Fib retracement at 10,849 is a basis of resistance too. FTSE 100 Watch for: A close above 6488 opens the next resistance at 6765 Outlook: The FTSE 100 is in a bullish medium term recovery, however the rallies on FTSE tend to always come with a caveat attached. Not only did the FTSE seemingly just stall around the resistance of a 5 month downtrend, but also there was the failure to close above the resistance of the 6453 reaction high. However, this disappointment would be forgotten if the index can muster a close above Friday’s reaction high at 6488. This would then continue the recovery. Momentum indicators need to also push on to confirm the move. The support around 6268/6284 is growing. Trust Through TransparencyT: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com INDEX Outlook 3
  4. 4. Weekly Outlook 26th October 2015 by Richard Perry, Market Analyst Other Assets: Commodities & Bonds The news of the PBoC rate cut created significant volatility for gold as the price was flying around on the negative correlation with the strength of the US dollar once again (the inverted relationship is strong once more). The breakout in the trade weighted dollar has driven gold back lower again and this remains the key near term driver of gold. In the oil space he strong dollar also made for weakness in oil which has been tracking lower over the past couple of weeks (especially for WTI). The strong hint towards an extension of the ECB’s QE program has driven the yield on the German 10 year Bund back towards 0.5% again (and the positive correlation between the Bund yield and that of EUR/USD remains strong). This is forcing yields lower across the German curve. Yields on bunds dated up to 6 years are negative with a remarkable fact that the ECB is unable to purchase yields of less than the 4 year maturity due to them being less that the -0.2% limit that is set out from its negative deposit rate. It is though noticeable that the core/periphery spread within the Eurozone is tightening, with the spread (Spanish over German) now at its lowest since May. WATCH FOR: Focus on US Treasuries this week with the FOMC which will also mean commodities volatility Gold Watch for: The bottom of the support band $1156/$1170 could be tested Outlook: Big volatility on Friday with a sizeable turnaround means that the corrective outlook continues near term. I have been waiting for another medium term buy signal to present itself and every time I think it will be seen there is a bearish reaction once more. The near term momentum remains negative for the slide and a test of the bottom of the support band $1156/$1170 could now be seen. I am still positive medium term above $1151, whilst a closing breach of $1136.50 would be bearish again. Brent Crude Watch for: The support band $46/$46.95 could come under pressure Outlook: The technicals are pulling the price of Brent Crude ever closer towards a test of the key support band $46/$46.95. With the selling pressure spanning over two weeks the momentum indicators have taken a turn for the worse, the Stochastics are now very bearish near term. It is interesting though that the RSI is not as bearish as it is on WTI, however this all still points to a test of the support. There would need to be a rally above the reaction high at $50.70 to defer the negative outlook near term. 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 26th October 2015 by Richard Perry, Market Analyst

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