The weekly outlook report provides an overview of key economic events and indicators for the coming week, as well as analysis of currency, equity, commodity, and bond markets. Key events include Eurozone flash PMIs on Thursday and US existing home sales data on Tuesday. The report notes renewed US dollar strength and risks to growth from an escalating US-China trade dispute. It recommends using rallies in sterling and the euro as selling opportunities given political and growth risks.

1. Weekly Outlook
Monday 20th May 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: Thursday 23rd May, 0900BST
LAST: Man 47.9, Serv 52.8, Composite 51.5
FORECAST: Man 48.1, Serv 53.0, Composite 51.7
Impact: With the Eurozone economic recovery spluttering
in recent weeks, but the April composite PMI was revised
higher as manufacturing ticked up. The big issue remains
on which direction the dichotomy of the German industrial
(weakness and export based) and private consumption
pulls in. With the US/China trade dispute blowing up, it
may be too early to factor in the flash numbers but this is
likely to be an issue in the final reading of May’s data in a
couple of weeks. Risk appetite, German bund yields and
the euro will be reactive, with consensus pointing to an
uptick on the composite PMI.
Date Time Country Indicator Consensus Last
Tue 21st May 1500BST Eurozone Consumer Confidence -7.6 -7.9
Tue 21st May 1500BST US Existing Home Sales 5.33m 5.21m
Wed 22nd May 0930BST UK CPI (headline / core) +2.2% / +1.9% +1.9% / +1.8%
Wed 22nd May 1530BST US EIA crude oil inventories 5.43m
Wed 22nd May 1900BST US FOMC meeting minutes n/a n/a
Thu 23rd May 0900BST Eurozone Flash PMIs (Manufacturing, Services, Comp) 48.1 / 53.0 / 51.7 47.9 / 52.8 / 51.5
Thu 23rd May 1445BST US Flash PMIs (Manufacturing, Services) 52.7/53.2 52.6 / 53.0
Thu 23rd May 1500BST US New Home Sales 680,000 692,000
Fri 24th May 0930BST UK Retail Sales (ex-fuel YY) +4.2% +6.2%
Fri 24th May 1330BST US Core Durable Goods Orders (ex-trans MM) +0.2% +0.3%
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1N.B. Reuters data where possible. Please note all times are now British Summer Time (GMT+1)
Macro Commentary
Assessing the trade disputes that the Trump administration engages itself with in shows that trade remains a key
driver of risk appetite. Talks between the US and China are not over, but they have reached an impasse that seems
fairly difficult to overcome for now. The US wants China to put into law the necessary changes protect against
forced technology transfer, IP theft and currency manipulation. China is unwilling to do this and so deadlock has
been reached. This is likely to continue until the two leaders meet at the G20, at which point hopefully a thawing of
relations could be seen again. Mutual damage of a protracted trade war is not good for the global economy.
However, also look at the impact of recent developments on USD/CNY there is already a key impact being seen. It
is interesting to see that whilst the yuan has weakened by around 10% since April 2018 (when the US first put on
the 10% tariffs). Since the dispute escalated again and the US increased the tariffs to 25% the yuan has weakened
by 2.5%. A move above 7.00 on USD/CNY would be a key signal to the market for further weakness. There is a
positive correlation between a weakening yuan and deterioration in Asian PMIs. This suggests that yuan weakness
is negative for growth in emerging Asia (US dollar strength drives a capital flight and fears over repayment of dollar
denominated debt). Subsequently if there is an increasingly belligerent positioning on this trade dispute it will be risk
negative and the potential for a global pick up in the second half would be in jeopardy.
Must Watch for: Eurozone flash PMIs
Eurozone PMIs
Green shoots of recovery took a hit recently, but consensus is
expected to see the PMIs picking up again in May.

2. Weekly Outlook
Monday 20th May 2019 by Richard Perry, Market Analyst
Foreign Exchange
A renewed sense of near to medium term dollar strength has come on positive news that the US will not impose
autos tariffs for at leave the next six months. Whilst this should be euro positive, it helps to settle fears. In a
more settled environment the dollar is outperforming amidst the continued relative strength of the US dollar.
The renewed dollar strength is bringing the key support of $1.1110 on EUR/USD back into view this week. A
move above 110.00 on Dollar/Yen would also be a key gauge to watch. Other key levels on major pairs to
watch this week: USD/CHF rallying above the 1.0125 pivot; USD/CAD breaking above 1.3520 resistance; whilst
the relative underperformance of the Aussie and Kiwi is also reflected in the negative outlook for both. However,
one major that is really suffering on a relative basis is sterling and this is driving Cable to multi month lows.
Cable is suffering from the renewed dollar strength at a time where the political outlook for sterling is suffering
again. The Brexit negotiations between Conservatives and Labour have broken down with no agreement. PM
May will try flogging her dead horse of a deal for a fourth vote in Parliament in early June. The Conservatives
are likely to replace her as leader in the coming weeks to be replaced (possibly by the end of July) with a
Brexiteer (Boris Johnson is favourite) who would increase the potential for a no deal Brexit come the end of
October. The market is now increasingly pricing this potential. Although a medium term sterling rally seems a
fair likelihood, for now UK politics is again a big drag on sterling. Cable below $1.2700 would be a key break.
WATCH FOR: UK CPI and Brexit politics for GBP, FOMC minutes for USD, Flash PMIs for EUR
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2
FX Outlook
GBP/USD
Watch for: A near term technical rally would be
another chance to sell
Outlook: After selling consistently for the past
couple of weeks, signs of a technical rally early
on Monday. However, given the deterioration in
the medium term outlook, any rebound should
be seen as another opportunity to sell this week.
The two week downtrend sits at $1.2920 so
there is room for a rebound and with the RSI
around 30, a technical rally has potential. There
is a band of resistance comprising the overhead
supply between $1.2770/$1.2865 to look for the
next lower high. A close below $1.2700 opens
the key December lows around $1.2475.
EUR/USD
Watch for: Another near term rally would be a
chance to sell for pressure on $1.1110.
Outlook: The run of lower highs continues, but
is it set to continue a run of lower lows? Failing
at $1.1265 seems to be a key line in the sand
now and with momentum taking a turn for the
worse, the sellers are once more in the driving
seat. The Stochastics accelerating lower with
further downside potential, whilst the MACD are
crossing lower below neutral. This all points to
continue using rallies as a chance to sell. With
the move below $1.1175 the test of $1.1110 is
now open. This should be expected in the
coming days (possibly weeks) before a potential
retreat to $1.1000. Look for another lower high
under $1.1265.

3. Weekly Outlook
Monday 20th May 2019 by Richard Perry, Market Analyst
Equity Markets
US earnings season is all but done now (over 90% of companies reported) and any positive newsflow is likely to
be limited in this regard though. It has been a positive earnings season in the respect that the number of
companies beating earnings estimates has been 76% and above the historic average of around 72%. The
earnings decline has also been less than originally feared. Q1 earnings are set to decline by just -0.5% versus
the original decline of over -4%. However, negative guidance from companies is still prominent whilst Q2 is not
expected to be too positive either, currently -1.7% earnings decline is expected. Q3 is only anticipated to see
growth of +0.6% before Q4 ramps back up to +7.6%. What is also stark in the assessment of Q1 is that
companies with more considerable foreign earnings exposure are relatively struggling. A stronger dollar, global
economic slowdown and the protracted trade dispute are taking their toll. According to FactSet, companies with
over half of their sales outside the US average an earnings decline of c. -13% (versus +6% for companies
generating more than half sales inside the US). With the escalation of the trade dispute in the past couple of
weeks and the renewed strength of the dollar, this issue will continue to be a problem. This could impact on the
outlook for future quarters. The immediate outlook across major markets has been boosted by the delay to the
US autos tariffs. This has maintained a strong medium to longer term technical outlook for the DAX. However,
just as an early one to watch, if the DAX decisively breaks below 11,865 it would complete a huge top pattern.
WATCH FOR: Talk of trade tariffs impacting on near term sentiment
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DAX Xetra
Watch for: Holding on to the medium term
uptrend channel maintains bull control.
Outlook: An uptrend channel has been in place
since the turn of the year. Finding key higher
lows around old breakout resistances adds to
the technically bullish configuration of this
channel. Momentum indicators are strongly
configured with the MACD lines consistently
above neutral and RSI consistently finding
support above. This all suggests using near term
weakness as a chance to buy. The breakout and
pivot at 11,865 is a key support now, along with
the rising 55 day moving average. A move above
12,435/12,460 opens the next leg higher for the
DAX.
FTSE 100
Watch for: Can the bulls maintain their recovery
momentum or is it another bull failure?
Outlook: A strong rebound has alleviated fears
of a key breakdown on FTSE. The support of the
March low at 7147 has been a pivot since
October. However, this is undoubtedly a big
warning for the bulls. Momentum indicators are
now far less positively configured on a medium
term basis. The reaction of the market around a
7370 pivot could be key this week. A failure and
subsequent lower high could see the bulls lose
ground again. The prospect of a near three week
head and shoulders top pattern is still present. A
decisive move clear of 7370 would be needed to
defer this prospect.
Index Outlook

4. Weekly Outlook
Monday 20th May 2019 by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Gold spiked higher on elevated market fear of the US/China trade dispute escalation. However, as the dust has
settled and the dispute has not negatively spiralled out of control, the gold bulls have retreated again. As the
dollar looks to strengthen again, this could be a further drag on gold this week. As long as the rhetoric between
China and the US does not explode further (forcing expectation to change) or a major escalation in geopolitical
risk, then gold is likely to struggle on the dollar strength. Support around $1278 needs to be watched this week,
with a breach opening $1266 again. With silver trading at multi-month lows this does not bode well for gold.
Touching on geopolitical risk, oil is an interesting market to keep watch of. There is an escalation of tensions in
the Middle East. With Saudi oil tankers attacked in the Strait of Hormuz, US non-emergency officials have been
withdrawn from its embassy in Baghdad, the fear is that tensions between the US and Iran are rising to the
point of potential conflict. This raises the prospect of supply disruptions in the region and subsequently
underpins the price near term. WTI above $63.30 and Brent Crude above $73.35 is near term bullish.
After a risk averse move back into bonds in the past couple of weeks, the move has just begun to subside.
However, the trend is still set and US 10s below 2.34% would be an 18 month low. It is also interesting to see
the 3 month/10 year spread (the Fed’s preferred gauge of potential recession) going negative again.
WATCH FOR: Ongoing news on the US/China trade dispute, FOMC minutes and Flash PMIs
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Gold
Watch for: A bull failure and acceleration lower
opens the potential for a test of key support
Outlook: A bull failure at $1303 (inside the long
term pivot band $1300/$1310) opens the
prospect that this is another lower high. Breaking
back under near term support at $1278 has
opened the key April low at $1266, however,
equally as important will be the test of the 8
month uptrend which comes in around $1271
early this week. Given that the RSI failed at 60
(similar to March), the Stochastics have posted a
bear cross similar to the one in March and the
MACD lines are failing at neutral, the medium
term indicators are negative configured. A
downside break of $1266 would renew the
bearish outlook.
Markets Outlook
Brent Crude oil
Watch for: Corrections to find support above
$68.30 remain a chance to buy
Outlook: The improvement in the past week to
close to releasing the shackles from the bulls,
but not yet. The bulls will be pointing to the late
April pullback that found support at an old key
breakout resistance at $68.70 which is now
supportive. The momentum indicators are also
looking far more positive again with Stochastics
and RSI rising and the MACD lines looking to
bottom around neutral. However, there needs to
be a push above resistance at $73.30 to open
the highs again at $75.60. The bulls will be
looing towards using near term weakness as a
chance to buy for another higher low above
$68.70.

5. Weekly Outlook
Monday 20th May 2019 by Richard Perry, Market Analyst
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