Has the time of finally been called for US dollar outperformance? We discuss the implications of recent moves impacting on forex markets, equities and commodoties. What is the outlook for the coming days and the key factors to watch?

1. Weekly Outlook
Monday 15th July 2019 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: Friday 19th July, 1500BST
LAST: 98.2 final June (97.9 prelim June)
FORECAST: 98.0
Impact: The consumer is c.70% of the US economy, so
consumer indicators are key. In his Congressional
testimony, Fed chair Powell noted growth in consumer
spending had bounced back from a weak Q1 and was
now solid. Michigan Sentiment reflects this and should be
watched. This is expected to remain the case this month,
however watch the expectations component. Having
looked really strong in May, a sharp unwind in June took
hold (which dragged the Sentiment back). Another
deterioration would accelerate expectation of rate cuts.
Yields and USD will be reactive.
Date Time Country Indicator Consensus Last
Mon 15th Jul 1330BST US Empire State Manufacturing (New York Fed) +0.5 -8.6
Tue 16th Jul 0930BST UK Unemployment / Average Weekly Earnings 3.8% / +3.5% 3.8% / +3.4%
Tue 16th Jul 1000BST Eurozone German ZEW Economic Sentiment -19.0 -21.1
Tue 16th Jul 1330BST US Retail Sales (MoM ex autos) +0.2% +0.5%
Wed 17th Jul 0930BST UK CPI (headline / core) +2.0% / +1.8% +2.0% / +1.7%
Wed 17th Jul 1000BST Eurozone CPI (final headline / core) +1.2% / +1.1% +1.2% / +0.8%
Thu 18th Jul 0230BST Australia Unemployment 5.2% 5.2%
Thu 18th Jul 0930BST UK Retail Sales (ex fuel, MoM / YoY) -0.2% / +2.7% -0.5% / +2.2%
Thu 18th Jul 1330BST US Philly Fed Business +5.0 +0.3
Fri 19th Jul 1500BST US Michigan Sentiment (prelim) 98.0 98.2
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1N.B. Reuters data where possible. Please note all times are now British Summer Time (GMT+1)
Macro Commentary
Traders could be forgiven for asking themselves whether Jerome Powell is the head of the Federal Reserve or the
head of the World Central Bank? The Fed chair’s Congressional testimony was littered with caution, mostly
concerning the impact of a global economic slowdown infecting the US. However, stepping back, the US economy
is running at c. 2% to 2.5% GDP in 2019. Core inflation is a little subdued but is not falling sharply below the target.
The labor market is solid with unemployment at record lows and Non-farm Payrolls running a 12 month average of
185,000. Real wage growth is over 1%, and yet “many” on the FOMC are considering more accommodative
monetary policy. The Federal Reserve is in retreat at the first sign of trouble, heading for the hills. Pressures of
trade disputes/protectionism/nationalism are slowing the global economy and the Fed may just be proved right in
time to make an insurance cut. But how many beyond there? US core CPI ticked higher to 2.1% last week, whilst
the focus will be on Michigan Sentiment this Friday. What is interesting though is that the Dollar Index peaked at
98.37 in late May just prior to pricing for Fed rate cuts. Since then it has posted a couple of lower highs and another
potential lower high on Powell’s testimony. Effectively, it looks as though the dollar has peaked for 2019 and taken
over a near six month basis looks to be ranging. Whilst the US economy is the best of a bad bunch, with Jerome
Powell now acting as the pseudo head of the Global Central Bank, the dollar outperformance could be at an end.
Must Watch for: University of Michigan Sentiment (prelim)
US consumer indicators
Michigan Sentiment has been fairly steady in the past 18 months.
However, any sharp deterioration in the expectations component
will be eyed as a dovish signal.

2. Weekly Outlook
Monday 15th July 2019 by Richard Perry, Market Analyst
Foreign Exchange
The Bank of England’s Gertjan Vlieghe has detailed the Bank of England’s prospective reaction on how Brexit
pans out. The almost inevitable accession of “Brexiteer” Boris Johnson to replace Prime Minister May has
significantly increased the potential for a “no deal” Brexit. In the two months since the market has moved to
price in this prospect, GBP has lost 5% against USD and almost 6% against EUR. The Bank of England has
previously laid out a scenario for rate cuts in the event of a disorderly “no deal” Brexit, however Vlieghe has
gone a step further and talked about the size of cuts a potential move. He talks about “close to zero”, from the
current +0.75%. Alternatively Vlieghe sees +25 basis points per year if a deal on Brexit can be reached (in-line
with the current BoE guidance of gradual rate hikes). GBP’s fate now lies with Boris. Elsewhere, it was
interesting to see another rebound on AUD last week back to the long term pivot band $0.7000/$0.7050 which
still looks to be a chance to sell. The knee jerk reaction comes on the dovish Powell testimony, but the global
economy is slowing and although USD may have seen a peak, it is likely to be rangebound now. The RBA is
still looking at cutting rates and this should mean that AUD remains under pressure. Yield differentials are key
for JPY outlook now. The 2 year spreads of UST/JGBs is key for USD/JPY and for now suggest downside (but
changes if US 2yr breaks above 1.94%). The 10 year spread of Bund/JGB is key for EUR/JPY, again pointing
to the continuation of a negative trend, but US 10yr above 2.18% changes this.
WATCH FOR: GBP volatility on key tier one UK data, USD move on Retail Sales & Michigan Sentiment
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FX Outlook
GBP/USD
Watch for: Support at $1.2435 has held for now,
but is likely to be tested again.
Outlook: Although Cable has engaged in a near
term technical rally from a key low at $1.2435,
but the negative medium to longer term outlook
suggests downside pressure is likely to resume
in due course. Since March the succession of
lower highs and resistance formation, along with
negative configuration on moving averages and
momentum signals suggests that near term
rallies are a chance to sell. A failure in the
resistance band between $1.2600/$1.2650 this
week would be one such opportunity. It would
need a decisive rally through $1.2785 to change
the outlook.
EUR/USD
Watch for: A Broad 300 pip trading band
continues with a neutral configuration
Outlook: The bulls supported the recent
correction and helped to maintain the market
above $1.1180. This has helped to once more
neutralise the outlook within what is now a five
month trading band of 300 pips. The April/May
floor at $1.1110 up towards the $1.1410
resistance now defines the range. Momentum
indicators are neutrally configured with the
MACD lines flattening around neutral and RSI
around 50. Near term indicators are marginally
positive coming into this week, but there is little
real direction. The resistance between
$1.1310/$1.1350 is restrictive initially, with
$1.1235 as initial support.

3. Weekly Outlook
Monday 15th July 2019 by Richard Perry, Market Analyst
Equity Markets
There is a dichotomy on major global equity indices right now. Wall Street is breaking all time highs but
European markets are struggling. As investors expect the Fed to officially end its tightening cycle in the July
FOMC meeting, the S&P 500 and Dow Jones Industrial Average have broken to all time highs. A 25bps cut in
interest rates is priced at a 100% probability on Fed Funds futures, and perhaps even a 50bps cut could be
seen. The lesson in the wake of the great financial crisis of 2008 was never to bet against the Fed. Loose
monetary policy pulls yields lower, giving cheaper money to chase risk. The rally on Wall Street since the market
began factored in rate cuts at the beginning of June has been impressive but is it based on firm ground? The
Dow Jones Transports Index historically matches the moves on both the Dow and S&P 500. This reflects the real
economy matching Wall Street. However, there is a significant lagging/underperformance of the Transports, not
matching the breakout. In fact, the Transports is around 10% below its all time highs. With a deteriorating global
outlook, can the S&P 500 continue to rally? Why is the Fed set to cut rates? The answer is fear of contagion
from a global slowdown. If the US economy is dragged back it means lower corporate earnings. A weaker dollar
has helped to drive Wall Street highs, and also plays into an underperformance of the DAX and FTSE 100
recently. The major European markets are showing corrective signals as the dichotomy has developed. This US
earnings season could be crucial as to whether the Transports is a lead indicator or simply playing catch up.
WATCH FOR: US Q3 earnings season kicking off. Sentiment on US Retail Sales & Michigan Sentiment
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3
DAX Xetra
Watch for: How the DAX reacts around the old
breakout at 12,440 will be a key gauge
Outlook: The breakout above 12,440 effectively
left an island of overhead supply as the market
gapped down early last week. This now means
that how the market responds to the resistance
band between 12,440 and last week’s high at
12,477 will be key. Although minor support has
formed at 12,307 a deterioration in momentum
indicators is still underway. It means that the
support at 12,190 and resistance band
12,440/12,477 are the key levels that need to be
watched for a gauge of sentiment. The rising 55
day moving average (12,201) is also a gauge of
support. Closing above 12,477 would re-open
the 12,656 high.
FTSE 100
Watch for: A corrective unwinding move is
gathering momentum.
Outlook: The negative correlation between
FTSE 100 and sterling is a factor in why we have
seen the divergence between Wall Street
pushing to all time highs and FTSE 100 being
dragged lower. The result is that technicals on
FTSE 100 are corrective. The RSI has unwound
back towards 50, whilst a MACD bear cross (first
since the big corrective cross in April) and
Stochastics sliding too make for a continued
unwind. The feeling is that if Wall Street corrects,
this could really pullback FTSE. Losing support
at 7530 has opens 7370 as the next key pivot
line support. Is still long term trending higher, but
the near term corrective move continues.
Index Outlook

4. Weekly Outlook
Monday 15th July 2019 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold has been volatile for several weeks now. The huge June rally has been replaced by a choppy trading
range in July. A lack of sustainable conviction on gold. Positive US data versus dovish messages from the Fed.
However, the unwind on momentum is throughout the range and could ultimately help to serve the bulls. We
continue to view near term weakness on gold to be a chance to buy. The floor at $1381.50 is growing in
importance as support. Weaker global growth and inflation dynamics, a dovish Fed, and a dollar having seen its
peak. In addition to trade protectionism and all of this plays into gold continuing higher in the medium to longer
term. Whilst we cannot rule out another near term slip, any weakness would be a buying opportunity.
Oil is breaking higher again. A dovish Fed is a source to stoke demand as the trade dispute is a drag. However,
the supply side has suddenly become key. Tropical Storm Barry in the Gulf of Mexico is an early start to
hurricane season and off-shore oil rigs have been evacuated, this will also play into refinery issues on-shore.
Additionally the tensions surrounding Iranian production sanctions continues, whilst Iran continues to disrupt the
passage of oil tankers around the Strait of Hormuz.
Bond yields have recovered strongly since Non-farm Payrolls. However, a dovish Fed should limit the move
higher, especially on the two year Treasury. Rebounds still look to be retracements within downtrend channels.
WATCH FOR: US Retail Sales and Michigan Sentiment will be key for Fed outlook and Treasury yields.
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4
Gold
Watch for: The bulls will look to build support
above $1400 this week.
Outlook: The volatile range of the past three
weeks has left support at $1381.50 with
resistance of the multi-year high at $1439. As
the market consolidates around the middle of the
range, the momentum indicators are unwinding.
This looks to be a move to renew upside
potential as the bulls are holding up well. The
bulls will look to hold a position above the band
of support $1398/$1400 this week, which would
allow them to build a higher platform in
preparation for the next leg higher. Building a run
of positive sessions would help to improve
conviction for the bulls too.
Markets Outlook
Brent Crude oil
Watch for: The bulls are in control of a recovery
looking to build on the higher lows and higher
highs.
Outlook: The technical outlook for further gains
on Brent Crude continues to build. Momentum
indicators are pulling higher again on MACD and
Stochastics. However, it would be RSI above 60
which would be the key signal the bulls are
looking for. A six week uptrend channel is pulling
higher lows and higher highs and is not eyeing a
test of the 50% Fibonacci retracement of the
$86.75/$49.95 sell-off at $68.35 this week. The
38.2% Fib is a basis of support now for the bulls
at $64.00 and weakness is a chance to buy as
the recovery builds. The next key resistance
comes in at $70.60.

5. Weekly Outlook
Monday 15th July 2019 by Richard Perry, Market Analyst
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5
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