As the US Dollar Index breaks through key levels, will this sell-off continue?

1. Weekly Outlook
Tuesday 3rd May with Richard Perry, Market Analyst
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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: Fri, 6th May 1330BST
LAST: 215,000
FORECAST: 200,000
Impact: Non-farm Payrolls will always cause a stir in
the markets, but with the Fed seemingly focusing back
on the domestic economy behind whether it will hike
rates or not, the labor market indicators will become
more important. The headline number is again
expected to be around the 200,000, whilst the Fed will
also take interest in the labor force participation which
is the highest since Jan 2014. Average hourly earnings
are also a focus and the expectation of +0.3% for the
month would mean an improvement to +2.5% for the
year with slow traction.
Key Economic Events
Date Time Country Indicator Consensus Last
Wed 4th May 09:00 Eurozone Services / Composite PMIs 53.2 / 53.0 53.1 / 53.1
Wed 4th May 13:15 US ADP Employment Report 200,000 200,000
Wed 4th May 13:15 US Factory Orders (MoM) +0.5% -1.7%
Wed 4th May 13:30 US Trade Balance -$42.2bn -$47.1bn
Wed 4th May 15:00 US ISM Non-Manufacturing PMI 54.6 54.5
Wed 4th May 15:30 US EIA Crude Oil Inventories +2.5m +2.0m
Thu 5th May 02:45 China Services PMI (Caixin) 52.6 52.2
Thu 5th May 09:30 UK Services PMI 53.5 53.7
Fri 6th May 13:30 US Non-farm Payrolls 200,000 215,000
Fri 6th May 13:30 US Unemployment / Average Hourly Earnings 5.0% / +2.5% 5.0% / +2.4%
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1N.B. Please note all times are BST (GMT+1 after the European switch to summer time), data source Reuters
Macro Commentary
The FOMC statement toned down emphasis on global economic and financial risks to instead focus on domestic
issues such as growth and inflation, a marginally hawkish lean. However, current prospects for both factors are not
looking great for a rate hike in June. The Advance reading of Q1 GDP disappointed analysts forecasts at a meagre
annualised +0.5% (+0.7% expected) which was well down from the final reading of +1.4% for Q4 2015. The first
quarter does tend to be the weakest so perhaps we should hold off from judging US economic growth until we have
more of an idea of Q2 growth trends. This means that the PMIs this week are important, but it looks like the Fed will
go into the June meeting without a clear picture of Q2 growth (being as it will be incomplete). This then puts added
emphasis on growth forecasting models such as the Atlanta Fed’s GDPNow model (which called +0.4% for Q1
GDP growth earlier this week). However there is also inflation data to consider and the Fed’s preferred inflation
measure, the core Personal Consumption Expenditure, also dipped back to +1.6% on Friday (from +1.7% last
month). FOMC members will at least need to see sure trends on inflation improvement too, and Yellen has talked
about an overshoot of inflation so perhaps core PCE needs to be well over 2.0% for a hike. June is therefore not
likely. The Fed is data dependent and the data is not strong enough. The dollar is subsequently under pressure.
Must Watch for: Employment Situation Report (Non-farm Payrolls)

2. Weekly Outlook
Tuesday 3rd May with Richard Perry, Market Analyst
Foreign Exchange
The dollar has been slammed as the knock-on impact of the strengthening yen in addition to the weakening US
growth and inflation data (GDP and PCE both fell) has exacerbated the move and now the ISM Manufacturing
has disappointed too. This move has meant that several dollar pairs have now broken key levels. Starting with
the Trade Weighted Dollar which is the basket of currencies, the selling pressure has driven the greenback
below the support at 92.6 from last summer where the euro and yen both spiked higher. If this support confirms
a break down it would signal a significant shift in sentiment for the dollar. EUR/USD had been trading in a broad
range for well over a year and if yesterday’s upside breakout above $1.1465 is confirmed upside breakout
above $1.1465 it would open $1.1700 but then with little real resistance until $1.2250. Disappointment over the
decision by the Bank of Japan to stand pat has seen yen pairs plummet amidst huge yen strength. Dollar/Yen is
now back at 19 month lows and is looking at further weakness in due course. Sterling is also breaking key
levels against the dollar. The RBNZ also failed to ease policy last week and the Kiwi duly shot higher. However
the Aussie seems to be the one currency under pressure against the dollar after the RBA cut rates amidst
weakening inflation. Despite this though the Aussie is still hanging on to a positive technical outlook, for now.
WATCH FOR: Lots of volatility this week with the PMIs and Non-farm Payrolls impacting forex. The US
Trade Balance and Factory Orders will also be watched as US data has weakened in recent weeks.
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2
FX Outlook
USD/JPY
Watch for: Next target is 105.20 and momentum
indicators suggest further weakness this week
Outlook: An incredible strengthening of the yen
has pulled the pair sharply lower. All the
downside targets are being met and more, with
the next level being the 105.20 support from
October 2014 which is also the big target from
the massive top pattern. Rallies continue to be
sold into and this means that the resistance of
the previous breakdowns become key marker
points. Therefore the initial key resistance is
107.60/80 would be eyed if a rally set in and ran
for more than a few days. Momentum indicators
retain their bearish configuration and also with
further downside potential. It would now need a
rally above the resistance at 111.00/111.80 for a
serious turnaround.
EUR/USD
Watch for: Looking for medium term buy signals
between $1.1100/$1.1200
Outlook: Can the euro sustain the breakout?
There have been two occasions since January
2015 where the euro has been above $1.1465,
but both occasions were somewhat brief before
the profit takers moved back in again.
Yesterday’s key breakout above $1.1465 needs
to be consolidated as the momentum indicators
are now up at levels where the profit takers have
been looking to take profits during previous bull
runs. A confirmed breakout opens the August
high at $1.1711 but also the potential for moves
back above $1.2000 again.

3. Weekly Outlook
Tuesday 3rd May with Richard Perry, Market Analyst
Equity Markets
The recovery in risk appetite that has been seen since the February lows is being called into question. Equities
have been strongly correlated to the gains in the oil market for several months, however this relationship is
beginning to break down now. The oil price remains strong, but the S&P 500 seems to be coming under
increasing pressure and the 30 day positive correlation of oil to the S&P 500 has fallen markedly in April. It
would appear that there are now questions being asked of the risk rally. On the indices we could now start to
see some key technical support levels tested, so we must look out for 2022/2034 on the S&P 500 which were
the key reaction lows from late March early April. On Friday we saw the DAX drop below its breakout support at
10,120 as the market drops back towards the key support of the 61.8% Fibonacci retracement at 9897. The
FTSE has managed to hold up better than the DAX. The FTSE 100 has an 18% weighting in Oil & Gas (the
DAX has none), but this is also a signal of the reduced risk appetite as the DAX tend to historically
underperform during market sell-offs whilst the euro strength may also be an issue. The breakout support
between 6200/6237 has so far held firm, whilst the key March low at 6037 remains the big support to watch. US
earnings season may certainly not be a blow out, it does seem to be coming in slightly better than the
drastically low expectations set, with blended earnings (already reported plus expectations) now expected to fall
by just -7.6% (up from -9.1% a couple of weeks ago).
WATCH FOR: Economic growth prospects are in focus with the PMIs and a key Non-farm Payrolls
report which could drive sentiment. Look also towards earnings too.
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DAX Xetra
Watch for: The old 61.8% Fib level at 9897 is
again a key level
Outlook: A correction has taken hold once more
and the move back below the previous breakout
support at 10,120 now means that the market is
sliding back towards the 61.8% Fibonacci
retracement of 8355/12,390 at 9897 which has
been a consistent pivot level in recent months.
The momentum indicators have turned corrective
and the RSI will now need to be watched as if it
falls back below 40 it would be a sign that the
bears are gaining a stranglehold for the medium
term.
FTSE 100
Watch for: The old resistance between 6200
and 6237 is still supportive but is under pressure
Outlook: The old breakout support in the band
6200/6237 is key for the medium term outlook.
The bulls will arguably still be in control if they
can sustain this near term correction back from
6427. Momentum indicators are in unwinding
mode but we need to watch out for the RSI
which could give an early warning of the selling
pressure. The RSI has been above 48 since
mid-February and a drop to an 11 week low
would suggest the bulls are beginning to lose
control. This could turn out to be a key period for
the bulls as a confirmed, closing loss of support
at 6200 re-opens the key 6037 low.
Index Outlook

4. Weekly Outlook
Tuesday 3rd May with Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Precious metals are performing strongly amidst the dollar weakness in the past few days. The weakness of the
US economic data combined with the huge strength of the Japanese yen has meant that commodity plays
priced in dollars have surged. Having traded sideways in a range for the past 11 weeks, the surge has pushed
through a key band of resistance between $1260/$1282 which now opens the 2015 highs. The silver price has
matched the gains on gold and has also broken through key resistance to open its own January 2015 highs.
This comes as the oil price continues to make steady recovery gains. The EIA reported slightly lower than
expected oil inventories by also that the US was producing around half a million less barrels of oil per day than
last year to suggest that the declining rig count is making a difference to the fundamentals.
Looking at the chart of the US 10 year Treasury yield, there has been a consistent negative reaction to yields in
the wake of the FOMC decisions in the past few meetings. Since the September meeting we have seen the
yield decline on five of the past six occasions in response to the Fed. This comes as the market consistently
seems to be factoring in less likelihood of rate hikes this year, whilst concerns over growth are also weighing.
The German Bund yield continues to pull higher and after the UK 10 year yield completed a technical “double
bottom” a couple of weeks ago, the Bund yield is not far off, needing above 0.330% to make the break.
WATCH FOR: PMIs and Payrolls will drive risk appetite to impact commodities and bond yields
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4
Gold
Watch for: Can the gold bulls sustain the
breakout and push above $1300?
Outlook:The gold price has broken out above
$1282.50 after spending the past 11 weeks in a
sideways trading range. Certainly helped higher
by the dollar weakness but also the bulls bias in
the medium term technicals have now
strengthened and the configuration on the
momentum indicators suggests that corrections
could now be seen as a chance to buy now. This
means that the old band of resistance between
$11260/$1282.50 that had previously been
capping the gains now turns into a key band of
support. The 2015 high at $1306 is being tested
by a breakout would open $1322 and $1345
(July 2014 high) and crucially the March 2014
high at $1392.
Markets Outlook
Brent Crude oil
Watch for: With stretched momentum a
correction would be a chance to buy
Outlook: The momentum remains very strong
on oil and corrections are being seen as a
chance to buy. The top of the uptrend channel
that has been pulling the oil price higher
throughout 2016 is now even being tested, as
the bulls look ever higher in the recovery towards
the November high at $50.90 a retracement
back to the key October high at $50.04.
However, perhaps immediate upside potential is
becoming limited with the RSI around 70. A nice
healthy correction would be a strong chance to
buy now, with the initial support band
$44.25/$44.95.

5. Weekly Outlook
Tuesday 3rd May with Richard Perry, Market Analyst
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