A significant driver of recent trading sentiment has been taken from the flows of news over the trade dispute between the US and China. This remains an issue this week and we take a look at the impact on forex, equity markets and commodities.

1. Weekly Outlook
Monday 9th April 2018 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: Wednesday, 11th April 1330BST
LAST: Headline +2.2%; Core +1.8%
FORECAST: Headline +2.4%; Core +2.1%
Impact: Movement in inflation during 2018 will likely be
the key factor in driving expectations of how fast the
Fed will tighten rates this year (i.e. three or four times).
Could this be the month that inflation finally starts to
build some traction? Although the core PCE is the
Fed’s focus, core CPI is also clearly a key indicator. It
has been stuck at 1.7%/1.8% for 9 months, but inflation
indicators have been ticking higher in recent months
and this is likely to pull through in consumer inflation
very soon. Expect dollar volatility. Any negative surprise
would hit longer term Treasury yields and the dollar.
Date Time Country Indicator Consensus Last
Tue 10th Apr 1330BST US PPI (headline / core) +2.9% / +2.6% +2.8% / +2.5%
Wed 11th Apr 0230BST China CPI / PPI +2.6% / +3.2% +2.9% / +3.7%
Wed 11th Apr 0930BST UK Industrial Production +2.9% +1.6%
Wed 11th Apr 0930BST UK Trade Balance -£11.9bn -$12.3bn
Wed 11th Apr 1330BST US CPI (headline / core) +2.4% / +2.1% +2.2% / +1.8%
Wed 11th Apr 1530BST US EIA Crude Oil Inventories -4.6m
Wed 11th Apr 1900BST US FOMC meeting minutes
Thu 12th Apr 1230BST Eurozone ECB Monetary Policy Meeting Accounts
Fri 13th Apr 0400BST China Trade Balance (Exports, Imports) +$27.2bn (+10.0%, +10.0%) +$33.8bn (+44.5%, +6.3%)
Fri 13th Apr 1500BST US University of Michigan Sentiment (prelim) 100.5 101.4
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1N.B. After daylight savings time shift, please note all times are British Summer Time (BST) i.e. GMT +1. Data: Reuters
Macro Commentary
Q1 started with a bang as equity markets soared higher. However it ended on a particularly soar note as risk
sentiment took a nose dive on the threat of escalating trade tensions between the world’s two most powerful
economies. It looks as though this issue has legs and is likely to be the big story of Q2. Trump is looking to flex his
muscles (and massage his own ego) through this trade spat with China. The problem is that seemingly every time
China responds, they are certainly not backing down. His first $50bn of tariffs on China’s imports into the US was
targeting c. 10% of the total imports. However China replied with $50bn of their own tariffs, which accounts for
almost 40% of US imports into China, so relatively a much bigger proportion. Trump is considering another $100bn
of tariffs, but if this is the case and China responds in kind, it would cover all US imports into China, which begs the
question of what next? China targeting services or investments maybe? The market currently seems to be gambling
on a 60 day consultation period for these tariffs being a time during which an amicable agreement can be reached.
The lack of real reaction or reduction in risk appetite on Friday suggests that the market is still taking all this as tit
for tat ahead of a compromise. Trump is businessman masquerading as a president, and loves the thrill of the deal.
Looking past the noise this has to be the logical the outcome, as a trade war is something that no-one wins from.
Must Watch for: US Core CPI
US Core CPI
Will the core CPI finally begin to tick higher? Consensus is
expecting a decisive tick higher to 2.1%.

2. Weekly Outlook
Monday 9th April 2018 by Richard Perry, Market Analyst
Foreign Exchange
Can the recent rebound in the dollar last? During 2018, every time the greenback has rallied into the
90.50/91.00 area on Dollar Index, the sellers have returned once more. Although the market has ranged
sideways for the past three months, it remains in a long term downtrend. Given the potential for further
escalation of the trade spat between the US and China to explode further into an all out trade war, there has
been an incredibly muted response on the forex markets. The euro has been slipping in recent weeks as the
jawboning of ECB Governing Council members has continued, whilst the economic data continues to surprise
to the downside. Inflation trends in the Eurozone remain muted (core CPI again static) and this remains a key
drag factor on the euro that if continues could easily cause the ECB to possibly even push back its plans for
tapering/ending its asset purchases this year. Currently the expectation is for an announcement in June, but if
inflation continues to struggle will this be shifted out? The lack of inflation is also a problem for the Bank of
Japan and recent slowdown in Japanese household spending will no doubt dampen expectations further.
Considering the risk aversion from the trade tariffs, the yen remains out of favour, but for how long? Another
currency mover is the Canadian Dollar, which continues to perform well at the prospect of progress in the
NAFTA discussions in the coming weeks. XXXCAD pairs are consistently finding loonie positive traction now.
WATCH FOR: With US CPI and FOMC minutes, Wednesday will be a volatile session
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FX Outlook
USD/CAD
Watch for: A well-defined head and shoulders
top implies 325 pips down from 1.2800
Outlook: This chart has one of the best
configured head and shoulders top patterns I
have seen for a while. The support at 1.2800 has
been broken to complete a four week pattern
implying around 325 pips of downside towards
1.2475 in the next few weeks. A completed
NAFTA deal would certainly be a big driver of
this move but the technicals are also in strong
agreement. The decisive negative momentum of
the corrective RSI, MACD and Stochastics lines
all point towards selling into strength now. The
neckline at 1.2800 is a key basis of resistance
for a pullback rally this week. The next support is
at 1.2610/1.2650.
EUR/USD
Watch for: The bulls need to now build on to the
support in place now 1.2155/$1.2210.
Outlook: EUR/USD continues to be stuck in a
broad 400 pip trading range throughout the early
months of 2018 but this pattern is now becoming
firmly entrenched in the outlook. So much so that
the support of the 12 month uptrend was
arguably broken last week as the drift in the
market dragged it back to bounce from the range
lows. There has been a deterioration in the
outlook in the past week that would suggest that
the euro bulls have lost control. It will be
interesting to watch the Stochastics now which
are back at levels similar to the January lows
when the market bounced from the range
support. Is this a chance to buy to play the
medium term range?

3. Weekly Outlook
Monday 9th April 2018 by Richard Perry, Market Analyst
Equity Markets
There have been varied reactions across the asset classes to the prospect of an escalation to a trade war
between the US and China. Whilst forex markets have been relatively muted, the real fun has been seen in the
equities space. Markets have really been flying higher and lower as the story of the tit-for-tat of the tariffs has
progressed. Although volatility remains at elevated levels, interestingly the reaction even in equity markets is
becoming more sedate. The VIX is around two week lows and below 20 again. Are traders/investors becoming
immune to the noise? The recovery moves that were seen throughout last week would begin to suggest the
same. This would suggests that investors are taking a longer view, that earnings growth (especially in the US)
remains strong, whilst valuations are also far more acceptable (closer to 16x on the S&P 500 rather than over
20x previously). Is this a time to buy? The markets are looking to make technical progress and come into this
week the outlook is improving again. The DAX is bumping up against resistance of a two month downtrend
channel whilst the key March highs of 12,455 are well within reach of the daily Average True Range of 208 ticks.
The DAX continues to underperform on the negative newsflow over the tariffs, but outperforms on the positive
sessions. With an increasingly sanguine response, is the DAX ready to push decisively higher now? The French
CAC has already broken its equivalent downtrend and will be eyeing the 5311 key March high this week. The
FTSE 100 has also broken a much bigger (11 week) downtrend and is having a look at the key March high of
7255.
WATCH FOR: Newsflow on Trump’s tariffs is still important for sentiment, but also watch FOMC minutes
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DAX Xetra
Watch for: Bull momentum building for a test of
overhead resistance at 12,455
Outlook: The bulls fought valiantly on Friday,
but and today there is a move to breakout above
the downtrend channel. This now sets up for a
push higher to test key overhead resistance this
week. The signs of encouragement are there in
the momentum indicators and if sentiment does
not take another nose dive this week, the bulls
will be confident of building momentum to test he
initial lower high at 12,460 (the March high).
Furthermore, if 12,460 is breached then there is
little reason why the bulls cannot have a go at
the key medium term resistance of the late Feb
high at 12,600. Support comes in between
12,000/12,160.
FTSE 100
Watch for: A continued rally and move above
7245 opens the key medium term high at 7326.
Outlook: After weeks of failed rallies and selling
into strength, finally the bulls have something to
cling to on FTSE 100. The market closed last
week with the bulls sensing a turnaround of note.
The resistance of a ten week downtrend has
been decisively broken and the bulls are now
eyeing their first scalp of a recovery, the lower
key high at 7245, which was also the March
high. If this can be breached this week then the
prospects for a sustainable recovery are
significantly improved. The break above
7060/7110 has now left a basis of support, but a
higher low is also now in place at 6970.
Index Outlook

4. Weekly Outlook
Monday 9th April 2018 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Shifting sentiment from the trade tariffs, has left gold devoid of any direction. Dollar Index is back towards its
2018 range resistance c. 90.50/91.00 but gold is all but bang in the middle of its three month range, struggling
for direction. The feeling is that there would need to be a dramatic break of longer term yields to really drive
direction. Although US inflation expectations have increased in recent months, sluggish earnings growth
suggest a breakout on the US 10 year yield above the key 3.04% is unlikely for now, which should underpin
gold above $1300. Perhaps a trade war could break resistance above $1366 but this is not the likely scenario.
Oil is being pulled higher and lower on the trade tariffs, with the negative impact of the tariffs on the global
economy. The seven to nine month trends on WTI/Brent continue and for now the outlook remains positive.
There is a deadline of 12th May for President Trump to waive the nuclear sanctions against Iran. Will he
continue to do so? This will become a bigger issue as April continues.
US yields have drifted back since the FOMC rate hike. Initially last week the diffusive comments from US
Commerce Secretary Wilbur Ross pulled yields higher last week, but there is a developing trend lower. On the
US 10 year yield the 2.80% seems to be a bit of a near term watershed level. It is also interesting to see
another big safe haven, the 10 year Bund yield, has pulled back from 0.80% to 0.50% and now at a key pivot.
WATCH FOR: Trade tariff fears remain key, but the core CPI and FOMC minutes are key this week
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Gold
Watch for: Trade tariffs are driving choppy
direction in the $65 range
Outlook: Gold remains stuck in its three month
range with little real technical direction to speak
of. The signals on momentum indicators are
increasingly neutrally configured, whilst daily
candlestick analysis is highly unreliable for now.
Trading on shifts in newsflow is the only way to
play gold whilst trade tariffs drive market
sentiment. This lack of direction seems set to
continue until there is a decisive close either
below $1300 key long term pivot support, or
above the $1366 January high. Confirmed
breaks would imply a move of around $65, but
for now a very neutral range play is in force.
Markets Outlook
Brent Crude oil
Watch for: The long term trend supports
between $65.50/$66.00 this week.
Outlook: With the bulls failing to break to new
multi-year highs they have lost the upside
impetus in the past couple of weeks. The market
is now back within range of testing the key nine
month uptrend once again. The near term
momentum deterioration suggests that pressure
will mount on the medium term pivot at $65.85
and the long term trend that sits between
$65.50/$66.00 this week. The bulls will be
eyeing the lower reaction high at $68.95 as the
barrier to break through in order to regain some
sort of near term positive momentum. A decisive
break of the pivot at $65.85 opens the next
support at $63.20.

5. Weekly Outlook
Monday 9th April 2018 by Richard Perry, Market Analyst
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