The US dollar is performing strongly once more, but is this underlying strength of the greenback or simply due to weakness elsewhere? We consider the outlook for forex, equities and commodities markets this week. 

1. Weekly Outlook
Monday 12th November 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 14th November, 1330GMT
LAST: Headline +2.3%, Core +2.2%
FORECAST: Headline +2.5%, Core +2.2%
Impact: Inflation is still the one remaining piece in the jigsaw
that the hawks are looking for a full house. Earnings growth
is tracking at nine year highs now and although the Fed’s
preferred core PCE is stuck around 2%, the decline in
headline CPI in the last two months is expected to come to
an end with a tick back higher. Core CPI is though not
expected to shift from its +2.2% level, but if there were to be
any upside surprises it would be seen in Treasury yields and
the dollar would strengthen. It could also be a hit to equity
markets as it would put increase rate expectations for further
Fed tightening.
Date Time Country Indicator Consensus Last
Tue 13th Nov 0930GMT UK Unemployment / Average Weekly Earnings 4.0% / +3.0% 4.0% / +2.7%
Tue 13th Nov 1000GMT Eurozone German ZEW Economic Sentiment -25.0 -24.7
Tue 13th Nov 2350GMT Japan GDP (Q3 prelim QoQ) -0.3% +0.5%
Wed 14th Nov 0200GMT China Industrial Production / Retail Sales / FA Inv +5.7% / +9.1% / +5.5% +5.8% / +9.2% / +5.4%
Wed 14th Nov 0930GMT UK CPI (headline / core) +2.5% / +2.0% +2.4% / +1.9%
Wed 14th Nov 1000GMT Eurozone GDP (Q3 flash QoQ) +0.2% +0.4%
Wed 14th Nov 1330GMT US CPI (headline / core) +2.5% / +2.2% +2.3% / +2.2%
Thu 15th Nov 0930GMT UK Retail Sales (ex-fuel YoY) +3.3% +3.2%
Thu 15th Nov 1330GMT US Retail Sales (ex-autos MoM) +0.4% 0.0%
Fri 16th Nov 1415GMT US Industrial Production / Capacity Utilization +0.2% / 78.2% +0.3% / 78.1%
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1N.B. Please note all times are British Summer Time (BST) i.e. GMT +1. Data: Reuters
Macro Commentary
The US dollar has been in a sweet spot in recent months. Looking past near term corrective moves, remaining long
dollar has been fruitful. CFTC net dollar futures show that long dollar positions continue to expand and which
should help to at least prevent any decisive profit-taking. However, the dollar is suddenly facing a series of key
bullish driving forces drying up. If President Trump is serious about a potential agreement with China over trade
then this is dollar negative. This now comes with the Democrats grabbing control of the House, which will crimp any
hopes Trump may have of tax reform version 2.0, restricting prospects of further fiscal expansion (that has driven
yields higher). If this means that longer dated yields rise less aggressively (or perhaps even range) then the dollar
will struggle to find sustainable upside traction. One key variable here is inflation, bringing focus on CPI this week.
Wages are rising nicely now, but inflation still seems hard to come by. Europe is losing economic traction, whilst the
PPI data out of China last week also suggested signs of slowdown in the world’s second largest economy. Can US
inflation sustainably increase in these conditions? With the positive aspects of tax reform dissipating in 2020, US
growth is expected to slowdown as the Fed is expected to reach 3% on rates. The US yield curve is unlikely to
sustainably steepen next year as traders look ahead with trepidation. Where the US is an economic outperformer
for now, the dollar bulls may retain control for the new year, but traction is likely to dissipate in the coming months.
Must Watch for: US CPI
US Inflation data
CPI is expected to tick a tenth of a percent higher which would
keep CPI well above PCE

2. Weekly Outlook
Monday 12th November 2018 by Richard Perry, Market Analyst
Foreign Exchange
The euro is under pressure. The EU forecasts of Italian GDP for the coming years suggests that in 2019 and
2020, the current projections for the Italian budget deficit puts the country dangerously close to the 3%
threshold allowable under European Commission rules. Italy is due to resubmit its budget on Tuesday and a big
row could blow up is the spending plans are little changed. Coupled with the slowing trends of Eurozone
growth, the euro is pressured. There is a strong correlation between the CFTC net euro futures and the trade
weighted euro. CFTC data shows the market is net short the euro at levels not seen for 19 months. With little
sign of any sustainable reversal in the ever expanding net long dollar position, this all points towards the euro
testing $1.1300 on EUR/USD which if breaks could drive towards the June 2017 low at $1.1110. This could be
a big week for Brexit too. For months, the outlook for a Brexit deal has been a key driver of sterling performance
and it was interesting to see sterling underperforming on Friday as Arlene Foster of the DUP (which provides
crucial voting support for Theresa May’s minority government) firing a shot across bows as a warning should
Theresa May strike a deal with the EU which treats Norther Ireland any different to the rest of the UK. It is
interesting to see that sterling options volatility continue to rise. One week volatility is at 8 month highs, whilst 1
and 3 month vol is at 20 month highs. Options markets are preparing for the situation to come to a head.
WATCH FOR: A draft withdrawal agreement discussed in Parliament. Tier one UK and US data.
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FX Outlook
GBP/USD
Watch for: Brexit remains a key drier as volatility
increases and could put $1.2660 under threat
Outlook: Another renewed bout of selling
momentum (Brexit newsflow related) has put the
sellers into control early this week. As ever, with
Brexit though, things can always turn on a six-
pence and means that it make it difficult to
properly position for any length of time. The
market is increasingly volatile on the Average
True Range but a drop towards the medium term
range lows around $1.2660/$1.2695 could easily
be seen now. Resistance is at $1.2920/$1.3060
and it would need a move above $1.3175 to
regain bull momentum.
EUR/USD
Watch for: A closing breach of $1.1300 would
mean that $1.1300/$1.1430 is a sell zone.
Outlook: The outlook is becoming increasingly
corrective on the euro as near term technical
rallies are being sold into. The failure at a near to
medium term pivot at $1.1500 last week has now
been followed by a breakdown below $1.1300 to
a new 17 month low. In the past 7 weeks rallies
have failed at lower levels and there is now a
key near to medium term sell-zine between
$1.1300/$1.1430. It would now take a rally
above $1.1500 to materially change the
increasingly negative outlook now. The breach of
$1.1300 now opens a $1.1110 low from June
2017 as the market struggles with renewed bear
momentum and downside potential this week.

3. Weekly Outlook
Monday 12th November 2018 by Richard Perry, Market Analyst
Equity Markets
The markets seemed to take the mid-term election results as unambiguously positive. However, the enduring
legacy may not be so bullish. With a Democrat controlled House of Representatives, it makes it difficult for
Trump to push ahead with any even remotely controversial domestic legislation, meaning another look at tax
reform will be highly unlikely now. The rally seemed to be a relief rally that there could now be a concentration on
getting the trade dispute sorted out. The Wall Street rebound in November after a torrid October has come amid
the prospects of an agreement between the US and China over trade. Updates on this will now drive equity
markets sentiment. US earnings season has been another strong on (likely to see S&P 500 earnings growth to
be around 25%, having originally expected to be around 19%). However, the geopolitical factors are clearly
completely over-riding this. The oil majors have been a huge driver of earnings growth but with WTI now in a
bear market, can these results be expected to continue into Q4? Slowing oil may be a function of growing
production but also concerns over demand with a slowdown in China. The trade dispute plays into this and is
therefore a key driver of market sentiment. With the US and China expected to have high level meetings at the
G20 at the end of November this could mean there is a basis of support for Wall Street n the coming weeks. Can
the European markets shake off their continued underperformance? Friday’s late rally on the DAX reflects just
how difficult it is to call European direction for now. The overhead supply 11,726/11,865 remain a key barrier to
gains. A mixed outlook also on FTSE 100, with resistance at 7200/7220 to be overcome.
WATCH FOR: Further newsflow on the US/China trade dispute.
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DAX Xetra
Watch for: A failure below 11,400 would confirm
renewed negative outlook.
Outlook: The DAX has been in a choppy range
for the past week and a half and is now
threatening a breakdown. Breaking the pivot
support at 11,400 would be a key move to open
the low around 11,050 again. Given the massive
overhead supply band between 11,725/11,865
which is weighing on any recoveries, the risk
remains for a bearish breakdown to be renewed.
Momentum indicators are beginning to roll over
again and the concern is that this is coming
around medium term levels to suggest rallies are
a chance to sell.
FTSE 100
Watch for: A breach of support at 7027 opens
renewed downside.
Outlook: The outlook on equities is increasingly
uncertain near term as there has been a choppy
series of sessions in the past week and a half.
Resistance around 7200/7220 is preventing a
recovery but as long as the support at 7027
holds then the prospect of a recovery will still be
intact. Coming into the new week, there is a lack
of real conviction on momentum either, with the
RSI fluctuating around 50. However the MACD
lines are still climbing (from a position below
neutral) which will concern the recovery
prospects should the MACD lines begin to roll
over. A close below 7027 re-opens the low at
6851.
Index Outlook

4. Weekly Outlook
Monday 12th November 2018 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold has come under pressure in the past week as a mix of improved sentiment (from the assertions of Donald
Trump that the US were ready to come to an agreement with China over trade) and subsequently renewed
dollar gains (as the Fed remains on its course of tightening). However, it seems as though there now needs to
be a renewed sell-off on longer dated Treasuries (10 year yield breaking out above 3.25%) in order to drive gold
sustainably lower. Unless this is seen then gold is likely to continue to range.
Oil has been a key reflection of increased fear of economic slowdown in economic activity coming at a time
where production levels both in OPEC and the US seem have been rising. The meeting of OPEC and friends at
the weekend suggested a move to curb production levels again, apparently a view of needing to cut 1m bpd. A
formal decision could come in the December OPEC meeting, however, all the time US supplies and rigs rise.
In the 2 years of Donald Trump’s presidency bond yields may have picked up but yield curves have also
flattened significantly (the US 2s/10s spread is around 75 basis points lower). After the mixed mid-term results it
would need a significant pick up in inflation to sustainably steepen the yield curve again. It is also interesting to
see that yield differentials are significantly in the US dollar’s favour. On the 10 year yield comparison, Treasury
yields are +135 basis points higher, versus Gilts +30bps, Bund yields +25bps and JGB yields just +18bps.
WATCH FOR: US data on CPI and Retail Sales. Trade dispute developments
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Gold
Watch for: A close below $1208 changes the
outlook with the bears eyeing a breach of $1200
Outlook: The selling pressure on commodities
seems to be growing as gold broke to a new four
week low on Friday. The positive medium term
outlook is now under scrutiny as near term
momentum turns corrective. This is therefore a
crucial week for the outlook as the bulls need to
fight hard to hang on to the improving outlook.
There are two levels to watch, initially is $1208
which is the bottom of a range of breakout highs
$1208/$1217. A breach puts the market more
corrective but if the market begins to trade again
below $1200 then the outlook would be
increasingly for a test of $1181 again.
Markets Outlook
Brent Crude oil
Watch for: Support at $70.30 being broken
opens $66.70 but momentum is increasingly
oversold.
Outlook: Brent Crude may not have sold off as
far as WTI, but a move below $69.40 marks bear
market territory. The concern from a technical
perspective is that the market has closed below
the $70.30 key August low which is a long term
pivot line and now marks a move to a break a
key higher low. The momentum indicators are
negatively configured, and the RSI reflects the
scope of the negative sentiment currently in
place as it is the most bearish than at any since
the market bottomed in January 2016. This does
though give the contrarians the potential for a
snap back technical rally, but there is overhead
supply now $7.30/$71.20.

5. Weekly Outlook
Monday 12th November 2018 by Richard Perry, Market Analyst
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