Politics and central bank is high on the agenda this week as markets continue to react to protectionist moves from Donald Trump, the Italian election over the weekend and look forward to four major central banks announcing their latest monetary policy decisions. We consider the outlook for forex, equities and commodities markets in the coming days.

1. Weekly Outlook
Monday 5th March 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.
WHEN: Thursday 1st March, 1245GMT
LAST: 0.00% main refi, -0.40% deposit
FORECAST: 0.0% main refi, -0.40 deposit
Impact: The ECB minutes at the end of 2017 noting
that they could revisit monetary policy guidance early in
the new year stoked expectations of a hawkish shift on
the policy spectrum. However given the PMIs have just
started to slip a touch and inflation remains subdued, it
still seems a touch early for the Governing Council to
make a move. Draghi is likely to be grilled once more
over this in the press conference but also given recent
market volatility it is unlikely to be this month. Despite
this, expect significant volatility through the press
conference on Bund yields, the euro and DAX.
Key Economic Events
Date Time Country Indicator Consensus Last
Mon 5th Mar 1500GMT US ISM Non-Manufacturing PMI 59.0 59.9
Tue 6th Mar 0330GMT Australia Reserve Bank of Australia monetary policy No change +1.50% No change +1.50%
Tue 6th Mar 1500GMT US Factory Orders (MoM) -1.3% +1.7%
Wed 7th Mar 0030GMT Australia GDP (Q4 2017 YoY) +2.5% +2.8%
Wed 7th Mar 1230GMT UK Annual Budget
Wed 7th Mar 1500GMT Canada Bank of Canada monetary policy No change +1.25% +25bps to +1.25%
Thu 8th Mar 1245GMT Eurozone ECB monetary policy (Draghi conf 1330GMT) No change +0.0%, -0.4% No change +0.0%, -0.4%
Fri 9th Mar 0130GMT China CPI / PPI +2.5% / +3.8% +1.5% / +4.3%
Fri 9th Mar n/a Japan Bank of Japan monetary policy No change -0.1% No change -0.1%
Fri 9th Mar 1330GMT US Non-farm Payrolls & Average Hourly Earnings 200,000 / +2.8% 200,000 / +2.9%
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1N.B. Please note all times are Greenwich Mean Time (GMT), data source Reuters
Macro Commentary
Donald Trump has threatened for a while to impose tariffs to supposedly protect US jobs as part of his “America
First” agenda. Sure enough, he announced last week that the US will impose a 25% tariff on steel imports and 10%
on aluminium. This signals that he is willing to go ahead and push a protectionist trade agenda. The biggest
economy in the world turning protectionist is a concern for global growth. Trade tariffs rarely do anything other than
hurt economic activity. Trump’s argument is that he is protecting US jobs by putting up the prices of imports, which
would increase demand for US goods, thus helping the trade deficit. However there are always two sides to a story.
Countries such as Canada (at c. 16% the biggest importing country of steel into the US), Japan and the Eurozone
will respond, and could now impose tariffs on US steel. That is a problem if it begins a trade war. This then reduces
demand for US products and subsequently the net effect on the US trade deficit is zero, but overall economic
activity is reduced. The biggest winner would be safe haven assets, which is why gold, US Treasuries and the
Japanese yen have strengthened. This is also dollar negative as not only does it negatively impact future growth
expectations but it is also deflationary which reduces expectations of faster FOMC monetary tightening. The near
term dollar rally seems to have run its course with longer term bear trend ready to resume.
Must Watch for: European Central Bank monetary policy
German 10 year Bund yield
Any hints of tightening from the ECB would see German Bund
yields pulling higher again – it is unlikely though.

2. Weekly Outlook
Monday 5th March 2018 by Richard Perry, Market Analyst
Foreign Exchange
The Trump tariffs have put the dollar back under pressure again. The recent dollar rally has always looked like
a bear market rally and the bearish key one day reversal on the Dollar Index last week could be the sell signal
the markets have been waiting for. Subsequently, USD/JPY has broken sharply lower, with EUR/USD breaking
higher. This week there is a raft of major central banks announcing monetary policy to drive sentiment
throughout this week. Although decent Q4 growth numbers are expected this week, the Reserve Bank of
Australia (Tues) are far more focused on the progress of inflation and wages. If they remain relatively sluggish
then the RBA may not be able to fit in more than perhaps one hike this year. The Bank of Canada (Weds)
continues to see economic growth progressing, even if trends began to stutter a touch in December. The BoC
currently forecasts +2.2% but attention will be drawn by developments over NAFTA which is likely to put hikes
on hold for the coming months, (perhaps even more so in light of Trump’s tariffs on steel for which Canada is
the biggest US importing contributor). It still seems a little early for the ECB to make a decisive hawkish move
on policy guidance but subtle shifts in the statement would be pounced upon. Kuroda continues to see BoJ
policy normalisation as gradual but admitted that if inflation targets are met then an exit from easy policy is likely
in 2019. It is still too soon for any interesting shift in policy to come, with the first signs likely much later in 2018.
WATCH FOR: RBA, BoC, ECB and BoJ monetary policy; Non-farm Payrolls and US wages on Friday
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FX Outlook
USD/JPY
Watch for: Closing below 105.50 opens
downside towards 102.50.
Outlook: The selling pressure continues to run
lower highs and lower lows as the eight week
downtrend runs lower. The momentum indicators
remain strongly negatively configured and rallies
continue to be a chance to sell. Although there is
downside potential in current momentum set up,
equally there is also the risk of a near term
technical rally with the eight week downtrend set
to end this week around 106.50. The concern is
though the a decisive closing breach of the
support at 105.50 opens the support at 102.50
from November 2016. There is now considerable
overhead resistance between 107.30/107.90
EUR/USD
Watch for: A decisive move above $1.2360 re-
opens the highs
Outlook: With reaction to the Italian election and
then the ECB on Thursday it could be a choppy
week for the euro. However, the outlook has
certainly picked up as a two week corrective
downtrend has been broken and the medium
term bulls seems to be reasserting themselves.
Correction on EUR?USD remain a chance to buy
this week and a close above $1.2360 would then
start to re-open the highs again (at $1.255) this
week. Momentum indicators picking up also
point towards a low now in place at $1.2155 and
the bulls are eying their opportunity.

3. Weekly Outlook
Monday 5th March 2018 by Richard Perry, Market Analyst
Equity Markets
Markets have been in a tailspin after being shot at from several fronts recently. Initially a more hawkish than
expected testimony from Jerome Powell hit markets hard. Powell’s assessment was that inflation was building. If
equity markets react negatively to monetary tightening, they react doubly negatively to monetary tightening that
comes as a result of higher inflation. However, add in the high valuation of US markets, along with the negative
impact of a protectionist US government and this is the recipe for a large sell-off on equities. The recovery on
equities which had been progressing well has now turned sharply into reverse. Wall Street has broken below the
key reaction lows. This now effectively rules out the “V” shaped recovery that had been progressing well and
puts the bears back in control. VIX volatility has spiked higher again as market fear is increasing. On the S&P
500, the Fibonacci levels of the big sell-off are being watched and a break below the 38.2% Fib (at 2662) would
then open 23.6% Fib at 2613 and perhaps even a full retracement to 2533 if market fear really takes off this
week. In Europe, the export-heavy DAX has been slammed by the trade tariffs announcement and has broken to
a six month low. The DAX is also now at risk of completing a huge top pattern which would complete on a move
below 11,869. This would then be a 12 month top pattern and be a massive outlook changing development. The
FTSE 100 is less exposed to exporters and as such the selling pressure has not been as heavy as with the
DAX. However there is still the considerable risk of a 14 month top pattern completing should the market see a
two day close below the February low at 7073 this week. Concerning times for equity traders.
WATCH FOR: Reaction to SDP and Italian elections impacting sentiment, ECB & Non-farm Payrolls key
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DAX Xetra
Watch for: A two day close below 11,869
completes a huge top pattern.
Outlook: Selling pressure is huge on the DAX
coming into the new week with a decisive close
below 12,000 for the first time since August
2017. This now puts at risk a huge downside
break to a 12 month low which would come with
a move below 11,869. This would complete a top
breakdown that would suggest perhaps over
1000 ticks of downside could be seen in the
coming months. This is a huge corrective
projection but looking at the state of negative
configuration on the momentum indicators which
is now taking hold, perhaps it is not that
unrealistic. There is resistance now
12,000/12,280 this week.
FTSE 100
Watch for: A two day close below 7073 would
be a massive outlook changing move.
Outlook: Equity markets are on the brink of a
huge breakdown. The FTSE 100 is on the brink
of completing a 14 month top pattern and traders
will be eying a two day close below 7073 this
week. This would imply a longer term downside
projection target of around 500 ticks back
towards a test of the old August to November
2016 lows above 6600. The outlook is under real
pressure on momentum with the RSI failing
under 50 and the MACD line already looking to
cross lower way back below neutral. The
resistance on a medium term basis now comes
in strong between 7200/7300 this week.
Index Outlook

4. Weekly Outlook
Monday 5th March 2018 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The gold price held on to a positive long term outlook last week as the pivot band of support $1300/$1310 held
firm. A strengthening dollar had been a negative drag on gold, but in the wake of Donald Trump announcing his
intention to impose tariffs, the risk negative impact of a protectionist US potentially driving a trade war was
enough to turn traders back into gold. If this move by Trump is enough to renew selling pressure through the
US dollar, then this should help to fuel renewed appetite for gold. Silver has reacted less positively than gold in
this recovery phase as it has the perception of being a hybrid commodity being a precious metal but also
industrial too. It is more cyclically geared than gold and as such tends to underperform gold during negative
economic phases. The oil price remains under pressure for similar reasons, as the demand side of the equation
is geared clearly towards global growth, and protectionism hits global growth expectations. Rising US
production is also an issue.
Treasury yields have fallen amidst safe haven flows following the protectionist shift from the US government.
This also comes with a bull flattening of the yield curve (at least between the 2s/10s spread). The 10 year yield
has pulled back from a 2.95% peak in the last couple of weeks and further away from the key 3.05% yield that
would signal a decisive breakout and signal an end to decades long bull market in the 10 year Treasuries.
WATCH FOR: US core PCE will impact on yields and commodities, as will the ISM manufacturing
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Gold
Watch for: The long term pivot band remains
supportive at $1300/$1310.
Outlook: A recovery from the long term pivot
band $1300/$1310 has again been seen as the
importance of this band of support grows ever
more. This has prevented the completion of a
two month top pattern that would have implied
around $65 of further correction on gold. For
now then the bulls are still in control. However
there is still the risk of renewed selling pressure
until the market can sustainably break the recent
two week downtrend and find momentum
indicators sustainably ticking higher again. The
resistance at $1341 needs to be broken for the
bulls to sit confidently, but the support between
$1300/$1310 is strengthening.
Markets Outlook
Brent Crude oil
Watch for: A break below $61.10 completes a
large top pattern
Outlook: The key bulls trends are coming under
pressure once more as Brent Crude has sold off
sharply again. There is an increasing risk now
that Brent Crude could be in the process of
forming a large four month top pattern. The
support at $61.10 becomes absolutely vital now.
The concern comes with the deterioration in the
momentum indicators, with the MACD lines now
negatively configured on a medium term basis
but also now deteriorating under neutral. The
RSI is also now failing under 60. A breakdown of
an 8 month uptrend would be an early warning
this week. Resistance initially at $65.85.

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