The weakness of the dollar has been a key market factor in recent weeks, but there is a raft of key tier one economic data this week which could turn the tables. Purchasing managers surveys, FOMC minutes and culminating with Non-farm Payrolls on Friday, dollar traders have much to digest and much to drive direction. But coming into this week what is the outlook for forex, equities and commodities?

1. Weekly Outlook
Monday 3rd July by Richard Perry, Market Analyst
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WHEN: Friday 7th July, 1330BST
LAST: 138,000
FORECAST: 183,000
Impact: The strength of US economic data was
questionable in June and the dollar came under
significant pressure. However a bear steepener on the
yield curve since “reflation” comments by Mario Draghi
suggests that traders will begin to expect improvement
once more. Last month’s payrolls disappointed on
headline (just 138,000) and wage growth which
remains stuck at +2.5%. The market will look for both
these to tick higher and would help to bolster
expectations for a third FOMC hike in December. This
would boost yields but also help support the dollar.
Key Economic Events
Date Time Country Indicator Consensus Last
Mon 3rd Jul 15:00 US ISM Manufacturing 55.2 54.9
Tue 4th Jul 05:30 Australia Reserve Bank of Australia monetary policy +1.50% +1.50%
Wed 5th Jul 09:00 Eurozone Composite PMI 55.7 56.8
Wed 5th Jul 09:30 UK Services PMI 53.5 53.8
Wed 5th Jul 19:00 US FOMC meeting minutes
Thu 6th Jul 15:00 US ISM Non-manufacturing PMI 56.5 56.9
Thu 6th Jul 16:00 US EIA crude oil inventories +0.1m
Fri 7th Jul ALL G20 Meeting
Fri 7th Jul 13:30 US Non-Farm Payrolls 180,000 138,000
Fri 7th Jul 13:30 US Unemployment & Average Hourly Earnings 4.3% & +0.3% 4.3% & +0.2%
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
It comes with some relief that central banks are once more taking the lead in driving forex markets. After so many
months of political risk being a major factor, markets are finally coming back to focusing on interest rate differentials
once more. This has come as the significant divergence on monetary policy suddenly seems set to narrow. Central
bankers seemed to make an arguably co-ordinated move to suddenly talk up their currencies, as the ECB’s Draghi,.
Bank of England’s Carney and Bank of Canada’s Poloz all seemed to shift to a far less dovish position on monetary
policy. The ECB sees deflationary forces being replaced with reflationary forces, the Bank of England will need to
start the discussion on tighter monetary policy in the coming months and the Bank of Canada believes that its low
interest rates have “done their job”. Suddenly expectations of rate hikes are soaring and the Fed may not be alone
for too much longer as the only tightening central banks in the majors. For the ECB, inflation trends are coming
through improved bank lending and wages rather than commodity prices, suggesting there is a sustainability to
these trends. Eurozone forward inflation expectations have jumped from +1.5% to +1.6% in the past week. The less
dovish positions of the ECB and Bank of England (you could not saw they are explicitly hawkish quite yet) is driving
euro and sterling strength and puts the dollar under strain.
Must Watch for: US Employment Situation (Non-farm Payrolls)
Non-farm Payrolls
Headline numbers are tracking lower as the US approaches labor
market tightens.

2. Weekly Outlook
Monday 3rd July by Richard Perry, Market Analyst
Foreign Exchange
The dollar has been weakening since the turn of the year. The US Trade Weighted Dollar Index hit an early
January high of 103.8 but has fallen to end H1at 96, a decline of over 7%. The latest leg lower has been driven
by the narrowing of interest rate differentials in the wake of a notable shift in rhetoric from major central bank
chiefs of the ECB, BoE and BoC. Suddenly markets are having to price in the fact that the Fed may not be
alone in tightening monetary policy for too much longer. This has driven significant gains on the euro, sterling
and Canadian dollar. There is a potential for some near term corrective move on these majors, but the euro
could especially be in line for further upside. This comes as economic data continues to improve and inflation
readings turn higher again. Contrast this with the situation with the UK, in which the Bank of England finds itself
stuck between a rock and a hard place. MPC members are in a remarkable position of leaning increasingly
hawkish despite the economy deteriorating. UK consumer credit remains high with double digit year on year
growth (unsecured lending is up 10.3% on the year) whilst savings as a percentage of income is at a record low
of 1.7%. A rate hike to unwind the 25bps post-Brexit cut would help to reverse this but could this sow the seeds
of further economic woes and subsequent sterling weakness?
WATCH FOR: PMIs will drive sentiment in the early part of the week, whilst FOMC minutes will be
watched and the big focus will be on Non-farm Payrolls on Friday. The RBA is a focus for the Aussie.
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FX Outlook
GBP/USD
Watch for: Can sterling break through the
resistance at $1.3050?
Outlook: Sterling has rallied in the past couple
of weeks but interestingly just pulled up short of
a test of the key May high around $1.3050.
Trading above $1.2775 will maintain a positive
outlook within the medium term range
$1.2600/$1.3050 but there are signs of a near
term correction. A higher low above $1.2775 this
week would be seen as a positive for the bulls,
helping to unwind momentum and technically
looking to be a chance to buy. The moving
averages are all rising in bullish sequence and
this improves the outlook.
EUR/USD
Watch for: Looking to buy into the near term
weakness towards $1.1300 support
Outlook: The strong run higher is just showing
signs of profit taking and a near term corrective
move. This should not come as too much of a
surprise with the RSI hitting over 70 last week,
but should also provide the market with the next
buying opportunity. The bulls will now be looking
for support to form ideally around the previous
breakout at $1.1300 in the coming days. This
would allow overstretched near term momentum
to unwind and help to renew the upside potential
for the next bull run towards $1.1500 and above.
The RSI between 50/55 looks a good opportunity
now.

3. Weekly Outlook
Monday 3rd July by Richard Perry, Market Analyst
Equity Markets
Having held up for most of the year in the face of a reversal of the Trump “reflation trade”, equities are suddenly
under corrective pressure. Perhaps ironically, there are links to comments from Mario Draghi that “reflationary”
forces were taking hold, which have seemingly helped to drive the correction. A realisation that the era of ultra-
loose monetary policy may be coming to an end is now beginning to weigh on sentiment for equities. The
economic fundamentals are improving in the Eurozone, however the US remains in a low slow growth phase
with which the Fed is pushing ahead with tightening. The crutch that has helped markets to these elevated
levels is being removed. We are now seeing corrective patterns developing on European equity markets.
However, for now these patterns still appear to be near to medium term in magnitude but all seem to have room
to unwind back towards their medium to longer term uptrends. The FTSE 100 has completed a small seven
week top pattern below 7378 which implies 7160. A correction in the coming weeks would be considered a
healthy move, with the long term trend on FTSE 100 currently coming in at 7165, whilst support around 7100 is
key. For the DAX, the break below 12,490 was a key two month top and implies 460 ticks of correction towards
12,030. This would unwind the DAX back towards the key April low just under 12,000 whilst the longer term
uptrend is currently around 12,900 this week. Wall Street looks less corrective (helped by the positive outcome
for financials following the stress tests. The S&P 500 has support at 2400 intact that defends a top completion.
WATCH FOR: Equities sentiment will move off a raft of tier 1 data this week (PMIs, FOMC minutes,
NFPs) with expectations of tighter monetary policy and Trump-watch an ongoing a factor.
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DAX Xetra
Watch for: The completed top below 12,490
implies 460 ticks of correction
Outlook: The technical top pattern completed on
the DAX on a move below the key May low at
12,490. This implies 460 ticks of correction in the
next couple of months and the technicals are
continuing to deteriorate. This suggests that
rallies will be seen as a chance to sell now, with
the deterioration in the outlook being confirmed
on a breach of the support band 12,375/12,375.
Momentum is deteriorating with the MACD lines
accelerating lower and the RSI in themid-30s at
n 8 month low.
FTSE 100
Watch for: A top pattern completed below 7378
implies 220 ticks of correction
Outlook: A phase of lower highs and lower lows
has been building over the past month and this
has now fallen below support at 7378 to
complete a 7 week head and shoulders top. The
top pattern implies that a further 220 ticks of
correction could be seen in the coming weeks.
This begins a corrective phase that would now
see an unwinding move and a retreat back
towards the long term uptrend which currently
comes in around 7165. Momentum indicators are
increasingly corrective near term with the RSI
below 40 and MACD lines falling below neutral.
The rising 144 day moving average (c. 7285)
has supported the last two big corrections so is
worth watching as support.
Index Outlook

4. Weekly Outlook
Monday 3rd July by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Base metals have taken a significant leg higher in recent sessions after China’s premier Li Keqiang spoke at
the World Economic Forum of the benefits of globalisation, free trade and job creation. The weaker dollar will
also be playing a supportive role. There has been a notable change in sentiment on oil which is continuing to
build a strong near to medium term recovery. The announcement that US oil production had fallen by 100,000
barrels last week has helped the recovery to build momentum, as will the slight drop in the US rig count.
However EIA inventories continue to be a key driver of moves for oil. Gold has been under pressure despite the
weakness on the dollar. Hawkish leans from major central banks will add to the corrective forces on gold where
the improvement in real interest rates continues to acts as downside pressure. However, if equity markets
continue to correct then risk sentiment will deteriorate and this will help to buffer gold against a correction.
There has been a significant shift in the US yield curve in the past week. A sharp increase in longer duration
yields has helped to steepen the yield curve. The US 10 year yield increased from 2.12% towards 2.29% and
with little discernible increase at the shorter end, the 2s/10s spread has increased strongly from around 80 up to
90 basis points. It is interesting that this “bear steepener” has not had any significant impact on the US dollar
could mean that the effects are yet to play out.
WATCH FOR: EIA inventories still key for oil, whilst tier 1 data will drive yields and impact on gold.
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Gold
Watch for: The near term range $1240/$1261
breaking to the downside opens $1214
Outlook: There is a near term bearish bias that
is putting increasing pressure on the $1240 pivot
support and the market looks set to complete a
downside break early this week. This would
complete a $21 range breakdown and bring the
key May low at $1214 back into play whilst there
is a further picot around $1216. Momentum
indicators point towards confirmation of the
downside break. This will continue the outlook
for 2017 which continues to look choppy on a
medium to longer term basis, lacking any
sustainable trend and makes trading on a longer
term basis difficult to call.
Markets Outlook
Brent Crude oil
Watch for: The outlook is now showing
sustainable signs of improvement but needs to
breach $49/$50 resistance band.
Outlook: The four week downtrend has been
decisively broken as a recovery has taken hold,
from the low at $44.35. Momentum indicators are
all now tracking strongly higher however the
market is now approaching a key resistance
band that will need to be breached for the bulls
to be considered in sustainable control of the
recovery. The resistance between $49/$50 is
overhead and plays as a key pivot around the
mid-point of a year long trading range $42/$58.
The bulls will be also looking to post a higher low
to start to put down some significant roots for the
recovery.

5. Weekly Outlook
Monday 3rd July by Richard Perry, Market Analyst
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