The outlook for Fed rate hikes has shifted as the trade dispute has begun to bite. However, is this a move that has gone too far as the US pulls back from tariffs on Mexico. The US consumer indicators could be key. We consider the outlook on forex, equities and commodities.  

1. Weekly Outlook
Monday 10th June 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 14th June, 1500BST
LAST: 100.0 final May (from 102.4 prelim)
FORECAST: 98.0
Impact: Markets have been full of fear in recent weeks
over the impact of the trade dispute. However, consumer
indicators have been holding up extremely well. Last
month saw the Michigan Sentiment still at a very strong
final read of 100.0 despite a downward revision to the
102.4 prelim. In short, as long as the US consumer (c.
68% of US economy) is positive, the elevated market
fears will not translate through to the real economy and
the Fed will not panic to cut rates. A surprise sharp
deterioration in Michigan Sentiment could send markets
into a spin again. Treasury yields and dollar will react.
Date Time Country Indicator Consensus Last
Mon 10th Jun 1500BST US JOLTS jobs openings 7.50m 7.49m
Tue 11th Jun 0930BST UK Unemployment / Average Weekly Earnings 3.8% / +3.0% 3.8% / +3.2%
Tue 11th Jun 1330BST US PPI (headline / core) +2.0% / +2.3% +2.2% / +2.4%
Wed 12th Jun 0230BST China CPI / PPI +2.7% / +0.6% +2.5% / +0.9%
Thu 13th Jun 0230BST Australia Unemployment 5.1% 5.2%
Thu 13th Jun 0830BST Switzerland SNB monetary policy -0.75% -0.75%
Fri 14th Jun 0300BST China Industrial Production / Retail Sales / FA Inv +5.5% / +8.2% / +6.1% +5.4% / +7.2% / +6.1%
Fri 14th Jun 1330BST US Retail Sales (MoM core ex-autos) +0.4% +0.1%
Fri 14th Jun 1415BST US Industrial Production (MoM) +0.2% -0.5%
Fri 14th Jun 1500BST US Michigan Sentiment (prelim) 98.0 100.0
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1N.B. Reuters data where possible. Please note all times are now British Summer Time (GMT+1)
Macro Commentary
There has been a significant shift in sentiment in recent weeks. Fearful of negative implications of an escalation in
the US/China trade dispute, traders have flooded to the safety of high grade government debt (bonds), into safe
harbours of the Japanese yen and Swiss franc (forex) and the traditional go-to play of gold (in commodities).
Although the China trade dispute could drag for months, Trump’s protectionist US administration has been jabbing
elsewhere too. This time with its second biggest importing partner, Mexico (around 13% of US imports). Investors
are already worried about the global growth implications of the US/China trade dispute, which the IMF believes
could take as much as -0.5% off global GDP (c. -$455bn) in 2020. However, picking a scuffle with Mexico just
exacerbates market fears. What next? After all, the US has only just agreed a trade deal with Mexico and Canada.
The EU leaders will be nervous. Traders have priced between two to three rate cuts from the Fed this year now.
Analysts have been falling over themselves to slash year end forecasts on Treasury yields. Currently around 2.13%
on the US 10 year yield, JPMorgan are going for 1.75% by year, NatWest are 1.85% and Commerzbank 1.25%.
However, given that the US economy (and the dollar) will still be seen as a relative outperformer on the trade
dispute, other major central banks are also pivoting dovish. The RBA, RBNZ and ECB are all on that path. Whilst
safe havens will perform well, it is still not a time to bet against the dollar in the medium term.
Must Watch for: Michigan Sentiment (prelim)
US Confidence indicators
US confidence indicators remained very strong last month. Will the
increased market fears begin to weigh on expectations for the
consumer?

2. Weekly Outlook
Monday 10th June 2019 by Richard Perry, Market Analyst
Foreign Exchange
Friday’s negative payrolls report was another jab to the ribs for the dollar bulls. However, whilst the near term
outlook has turned corrective for the dollar (and there could be further to go this week), the move is still likely to
be short-lived. The market was relieved that the ECB did not guide for a rate cut at last week’s meeting.
However, Draghi also pointed out the easing options that the ECB still has at its disposal. Inflation expectations
remains extremely anchored just above 1% and on interest rate futures there is an easing bias into June of
2020. Germany is still in trouble in its important industrial sector and “risks remain to the downside”. CME
Group Fed Funds futures are pricing three Fed rate cuts in the next 12 months. This seems to be excessive. US
economic data is still holding up relatively well and the Fed does not have form in front running the data. This
seems to be the market moving too far and the dollar is likely to find support before unwinding this move in the
coming weeks. A decisive euro outperforming rally would need a significant pick up in Eurozone PMIs, whilst
forward looking indicators such as the German ZEW and Ifo would also need to decisively pick up. Neither look
likely at this stage. Sterling remains mired in hard Brexit concerns and any near term outperformance is likely to
fade. The prospects for outperformance lies with the safe havens, Swiss franc and Japanese yen, especially
against GBP and AUD. Any rally on EUR/JPY to 123.40/123.75 looks a chance to sell. A continuation of
negative rhetoric on the trade dispute is also likely to drive AUD/JPY towards 73/74.
WATCH FOR: Trade dispute rhetoric. Chinese inflation, sector data. US Michigan Sentiment
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2
FX Outlook
GBP/USD
Watch for: A recovery needs above $1.2755 to
contemplate backing any realistic recovery.
Outlook: A mild recovery on Cable has formed
in the past week and a half, but is it any more
than another chance to sell? There is near term
resistance still in place in the band between
$1.2700/$1.2755 which is a barrier to a recovery.
Although there have been near term
improvements in momentum signals which
reflect the unwind, this is all within the context of
a medium term bear market. A continued failure
to push through overhead supply will simply add
further weight to resistance and put pressure
back on the recent low at $1.2555.
EUR/USD
Watch for: Following a breakout above $1.1300
a failure back under $1.1265 would be a big
disappointment
Outlook: The recovery of the past week has
shifted the outlook considerably. A move through
$1.1265 (May highs) and then above $1.1300
(an old medium term pivot) has come with big
improvements in the medium term configuration
on RSI (above 60) and MACD lines (rising above
neutral for the first time since January). The key
this week is for this rally not to be a failed
breakout. Therefore the bulls need to defend the
$1.1265/$1.1300 band of support. Back under
$1.1215 renewed the bearish configuration.

3. Weekly Outlook
Monday 10th June 2019 by Richard Perry, Market Analyst
Equity Markets
You will often see the concept of “sell in May and go away” being scoffed at by media and commentators alike.
After a high of 2954 was seen on the S&P 500 on 1st May, there would have been a large slice of humble pie
being eyed. However, this is threatening to change again as the market has rallied strongly in the past week, a
move which has built a strong recovery. The rebound is now just under 3% away from the May high, but is this
just part of a bigger corrective move and another chance to sell? The Wall Street rally has come as Jerome
Powell opened the door to potential easing of monetary easing. Whilst it is nice to think that the state of the US
economy is a prime driver of Wall Street gains, it is really the availability of cheap money that is the life blood of
the bulls. Share buybacks born out of low debt financing are key. Hints at Fed rate cuts help drive Wall Street
higher. But the US economy is not yet slowing to the extent that the Fed will either be forced (by hard data) or
pre-emptive (by soft data) to cut rates. Our outlook is for maybe one cut in December at a push, but certainly not
two or three that is being priced. This would mean the S&P 500 could struggle as the year goes on. However,
immediate upside momentum is strong and seemingly still in flow. Above 2892 opens the 2954 all time high. Fed
speakers need watching, but also data this wee, such as Retail Sales and Michigan Sentiment (almost 70% of
the US economy is private consumption). Rallies are also coming in Europe too. FTSE 100 is eyeing a medium
term pivot at 7370 above which opens the key 2019 high c.7530. The DAX is testing 12,125/12,310 resistance.
WATCH FOR: Talk of trade tariffs impact on sentiment. US Retail Sales and Michigan Sentiment.
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3
DAX Xetra
Watch for: Resistance at 12,125 is key for the
outlook of the recovery.
Outlook: The recovery on the DAX has not been
as pronounced as it has been for FTSE 100 and
there are more technical hurdles to be overcome
this week for the outlook to be considered more
than a near term bounce. The old 5 month
uptrend, and a new 5 week downtrend are a
basis of resistance between 12,085/12,160
initially with an old lower high at 12,125.
Momentum indicators are also far less
developed in a recovery. RSI is around 50, with
MACD lines still below neutral. However, on the
brink of a bull cross on MACD, this all puts the
market at a key crossroads this week.
FTSE 100
Watch for: A crucial week ahead with a medium
term pivot at 7370
Outlook: A strong rebound on FTSE has
significantly improved what looked to be a
concerning deterioration in outlook. However,
despite a broken six week downtrend and
improving momentum, there is still a negative
configuration on MACD lines which suggests the
rebound needs to be treated with caution. The
key technical indicator to watch this week is a
pivot at 7370 which has been a gauge for the
past three months. Trading decisively clear of
this medium term pivot would actually re-open
the 7529 April high. However, a failure in the
rally and continuation of the pivot as resistance
will be a concern given the MACD configuration.
Index Outlook

4. Weekly Outlook
Monday 10th June 2019 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold reacted higher once more on the back of the disappointing payrolls report on Friday. However, the sharp
bull run of the past couple of weeks has hit the 2019 high around $1347 and backed off. This has been an
incredible spike higher on gold with huge momentum as gold rallied over $70 in seven sessions (over 5%). To
put into context the euro and yen have rallied around 2% against the dollar. However, if an improvement in
sentiment surrounding the trade story (US is delaying tariffs on Mexico) this could give rise to profit-taking this
week. This would only serve to increase the massive multi-year resistance in the band $1347/$1375.
Not too much has changed with the supply story for oil. US oil production is well over 12m barrels per day and
is expected to rise to over 13m bpd by year end. US inventories are growing. However, it is the demand side of
the equation which is driving the oil price right now. The sharp sell off was driven by concerns over global trade
and a growth slowdown. However, the focus this week will be on US tariffs on Mexico being delayed and hence
a rebound on oil. There is a key floor at $50 on WTI now and $60 on Brent Crude now in place.
Bond yields under pressure from Friday’s disappointing payrolls report has certainly not helped. However,
even with that, in the past six sessions, there has been almost no net change on 10 year Treasury yields.
Consolidation has set in, almost as though the big move has played out. Potential for a prospective rebound?
WATCH FOR: News on US/China trade dispute. US consumer data too.
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4
Gold
Watch for: A bull failure to break out increases
potential for profit-taking this week.
Outlook: A huge run higher on gold has come
up against what is a massive band of resistance
between $1347/$1375 – a band of resistance
that has been in place for the past three years.
With momentum indicators turning back from
overstretched, is this a week for profit taking? A
close below the previous breakout at $1324
could be the trigger. RSI with a basic sell signal,
if followed by Stochastics bear crossing this
could pull a retreat into the $1300/$1310 long
term pivot band again. Whilst holding above the
long term pivot this would be a near term
pullback and a chance to buy again for a retest
of $1347/$1366 in duce course.
Markets Outlook
Brent Crude oil
Watch for: As support builds is this a potential
week for recovery? A medium term pivot is key
Outlook: The selling momentum has found a
near term floor around $60 and this has allowed
the stretched momentum to unwind again. But is
this a serious floor now in place, or is this
rebound a chance to sell? The negative medium
term configuration on momentum reflects how
weak the bulls are now. There is a pivot around
$64 which dates back more than seven months,
whilst also being the 38.2% Fibonacci
retracement. This is now a crucial gauge to the
recovery as a decisive close back above would
suggest that the bulls are ready to pull the
market strongly higher. This could be a crucial
week for oil.

5. Weekly Outlook
Monday 10th June 2019 by Richard Perry, Market Analyst
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5
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