Will US stronger US relative economic performance continue?

Weekly Outlook
Monday 4th February 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: Tuesday 5th February, 1500GMT
LAST: 58.0
FORECAST: 57.0
Impact: With the US Government shutdown, data out of
the US has been sketchy for over a month with significant
uncertainty over how the economy has been impacted.
However, the forward ISM data will form a key component
of how the US is comparing across the world in Q1. As
global growth has turned into a cyclical downturn in recent
months, the US (fueled by Trump’s tax cuts) has been
standing up well. However the Fed has already blinked
and markets will be looking towards the prospect for rate
hikes this year. ISM data will therefore be interesting. Any
surprises will impact on yields, the dollar and Wall Street.
Date Time Country Indicator Consensus Last
Mon 4th Feb ALL WEEK China Golden Week – public holiday
Mon 4th Feb 1500GMT US Factory Orders +0.2% -2.1%
Tue 5th Feb 0330GMT Australia Reserve Bank of Australia monetary policy No change +1.5% No change +1.5%
Tue 5th Feb 0900GMT Eurozone Final Services PMI / Final Composite PMI 50.8 / 50.7 51.2 / 51.1
Tue 5th Feb 0930GMT UK Services PMI 50.9 51.2
Tue 5th Feb 1500GMT US ISM Non-Manufacturing 57.0 58.0
Wed 6th Feb 1330GMT US Trade Balance -$54.0bn -$55.5bn
Wed 6th Feb 1330GMT US Retail Sales (core ex-autos MoM) +0.1% +0.2%
Wed 6th Feb 1530GMT US EIA Crude Oil Inventories +0.9m
Thu 7th Feb 1200GMT UK Bank of England mon pol (& Inflation Report) No change +0.75% No change +0.75%
T: +44 (0) 20 7036 0850 │ E: info@hantecfx.com │ W: hantecfx.com
1N.B. Please note all times are British Summer Time (BST) i.e. GMT +1. Data: Reuters
Macro Commentary
Given what we believe to be a key long term technical hurdle was decisively overcome last week, we are now long
term bullish on gold. The technical long term pivot band between $1300//$1310 has been a crucial turning point for
over two and a half years. The break to the upside means that this pivot is now a basis of support and we are now
bullish in 2019 for a test of the key resistance band between $1365/$1390 which has capped every significant move
higher in the past five years. So, why is gold running higher now? There is a seasonal factor to consider, with
Chinese Golden Week (starting this week) typically increasing physical demand, whilst according to the World Gold
Council central banks are busy buying gold, increasing their gold reserves by 651 tonnes in 2018, which is the
biggest since 1971. This year, we are seeing the development of a global cyclical downturn (which is gold positive),
whilst the Fed has just pushed the pause button on its tightening cycle, citing concerns over a slowdown in China
and Eurozone, and even Brexit. Gold performs strongly when real yields are falling, whilst performing negatively as
real yields rise. On a longer term basis, real yields are subdued, which explains why gold has not been in a rampant
bull market and has broadly ranged for the past five years. There is a caveat though, and the aspect of risk
appetite, which would be boosted should the US and China come to an agreement on trade. However, this would
likely just act as a parachute on a bull run as the dollar negative aspect would allow gold to continue higher.
Must Watch for: US ISM Non-Manufacturing
Watch Treasury yields
As Key tier one US data resumes, the impact on the bond markets
could be key. Declining yields remain a key issue for the dollar.

Weekly Outlook
Foreign Exchange
The dovish shift in the Fed monetary policy decision last week puts the dollar on a path of correction. “Patient”
on monetary policy and now no commitment to “further gradual increases” means that the Fed is now on pause
in its tightening. Another aspect to the dovish move came in the fact that the Fed will also be more manual in its
balance sheet reduction. The next piece in the puzzle of a dollar correction would be an agreement between the
US and China to put aside their tit-for-tat squabbles over tariffs and come to an agreement in their trade
dispute. This would certainly be rocket fuel for a dollar correction. Outside the US, relative economic
performance is not great and this is something that may act as a buffer of any strong performance against the
dollar. Eurozone economic trends are negative and the ECB is likely to have to act (possibly through some
liquidity operations) at the next meeting. This is likely to subdue the euro to a decisive recovery. Sterling is also
looking restricted as the Brexit uncertainty rumbles on. It had looked as though Parliament was moving towards
a softer version of Brexit, but this has again shifted. Theresa May will travel to Brussels to attempt to get more
concessions on the Irish Backstop (which will be denied), so look towards the next Parliamentary voting
process on 14th February for the next opportunity for Parliament to make a difference. The yen has been
supported, but if the BoJ allow the 10year JGB to drop further below zero (below -0.1%) then this would
pressure the yen near term. For the RBA, as ever, it is all about the expectation of wage growth.
WATCH FOR: Services PMIs, and a deluge of delayed US data, RBA for AUD, BoE and Brexit for GBP
2
FX Outlook
GBP/USD
Watch for: Recovery rolling over, a correction
back towards $1.2800/$1.300 could be seen.
Outlook: The recovery has tailed off in the past
week and the technicals a re beginning to
deteriorate. Momentum indicators seem to be
close to leading the market lower now. Despite
this though, there is a big area of support for
cable with several support levels of note. Initially
$1.3050 is being tested early this week, whilst
$1.3000, $1.2920 and then $1.2815 are all
levels of note this week. With the deterioration in
the momentum, it looks as though it is going to
be a struggle for the bulls for the time being. A
retreat back towards the increasingly flat 144
day moving average (long term trend indicator)
around $1.2920 could be looming.
EUR/USD
Watch for: The prospects of any sustainable
direction remain low.
Outlook: The euro remains stuck in a
consolidation range. Since the end of October it
has consistently been a case that rallies have
failed around $1.1500 whilst corrections have
been supported around $1.1300. The extremes
of trading mean key support at $1.1215 and key
resistance at $1.1570. Momentum indicators are
increasingly neutral on a medium term basis,
although coming into this week there is a nearer
term positive bias (holding support above a near
term pivot at $1.1420 is helping). The
increasingly neutral technical outlook does not
look hopeful that there will be a breakout any
time soon.

Weekly Outlook
Equity Markets
It was interesting to see that in front of the Fed meeting, equity markets began to stall. There was an initial bump
higher in the wake of the dovish Fed, with the perception being that a liquidity sapping balance sheet reduction
being slowed would be bullish for equities. There certainly scope for this to be true, however equally there is a
concern that there are good reasons behind the Fed’s move. They are not pausing (or perhaps even ending)
their tightening because they are happy that the equilibrium, rate has been reached. They are doing so because
of growing concerns of a global cyclical slowdown. Continuing to hike with global economic trends having turned
as they have, would lead to potentially disastrous (a perhaps recessionary) consequences. In a way it is a good
thing to become “patient” due to caution, but is that a reason to be bullish equities? Growth sectors will feel the
pinch and late cycle defensives are the way to focus. In the past few weeks, both the S&P 500 and the Dow
have retraced over 50% of their Q4 bear market moves (the S&P 500 fell 20% and has now rebounded 15%
from its lows. But can the run higher continue? Earnings season has been reasonable, but reflects the slowdown
in growth. It may be just around a third of the way through, but Q4 earnings are expected to grow around 11%
but this is down from the 12.2% expected at the end of 2018. Negative guidance is also an increasing theme.
Given the negative macro backdrop, it is difficult to see huge gains continuing. In Europe, the DAX is in
consolidation mode having broken above a key pivot, but the bulls look to be increasingly cautious.
WATCH FOR: US earnings season, US/China trade news impacting broad sentiment
3
DAX Xetra
Watch for: The important focus is for the bulls
remains the 11,000 pivot
Outlook: The breakout above the medium term
pivot at 11,000 has been maintained, but the
bulls have lost their way in the past week. As the
market holds above 11,000 the outlook will
remain positive, but there is a concern that
momentum could begin to deteriorate. Nothing is
as yet decisive but the resistance at 11,321 will
be watched now and the bulls need a closing
breakout to regenerate positive momentum now.
The support of the 55 day moving average is
becoming an important gauge to watch.
FTSE 100
Watch for: The bull recovery needs consistent
closes above 7000 to open the upside.
Outlook: Suddenly, just as a downside break
was threatening, the FTSE has engaged an
about turn and the bulls are running higher. This
could be attributed to the Fed move, but also a
negative correlation with a slip on sterling. A
consistent close above 7000 leaves the market
at multi-week highs and momentum indicators
are turning positively again. The RSI consistently
above 60 would reflect growing positive
momentum and open the potential for a move
back towards the resistance around 7200. Watch
for the 6850/6910 old pivot band again being
supportive.
Index Outlook

Weekly Outlook
Other Assets: Commodities & Bonds
Gold has broken through the $1300/$1310 long term technical pivot band which is a very important move and a
bullish breakout. This pivot now becomes a basis of support as the recovery is now on course for a test of the
2018 highs around $1365. It is interesting to see that there is though a hint of loss of momentum on Silver as
there are concerns over exactly why the Fed has suddenly turned far more dovish. The gold/silver ratio is still
elevated and a risk-off induced bout of profit-taking move on both silver and gold would not help this week.
Oil is, as ever, a play on demand and supply. On the demand side, positive oil requires positive risk appetite on
the global economy (not great at the moment) but also the prospect of the US/China trade agreement
(improving) and a dovish Fed. On the supply side, US sanctions on Venezuela are oil positive, but the US EIA
inventories are beginning to build as the rig count has stopped falling. On balance though a mildly positive bias.
Bond yields have been tumbling again in the last week, with the ongoing deterioration in economic data trends
across the major economies of the world which point to a cyclical slowdown. This has been exacerbated since
the dovish shift from the Fed. However, differentials are shifting positively for the euro (Bund/Treasury spread
tightening), whilst Gilt/Treasury spreads are holding up too (Cable supportive still?). The interesting move is the
BoJ allowing the 10yr JGB yield to move into negative territory, if this continues it will help support USD/JPY.
WATCH FOR: Reaction to US/China talks, a US data deluge and the Bank of England impacting on Gilts
4
Gold
Watch for: A decisive long term bullish shift in
outlook is underway with a move above $1310.
Outlook: The long term pivot band $1300/$1310
has been broken and the outlook has become
increasingly bullish. The way is open now for a
test of the 2018 high at $1366 over the coming
weeks. Near term corrections will now be seen
as a chance to buy. There is an uptrend of the
past 10 weeks around $1290 this week, but the
bulls will be looking to build support on any
unwinding move into $1300/$1310. Momentum
indicators are strong but threaten a slip back
after $45 of upside in a week could tempt some
to take profits. A move above $12326 opens the
2018 highs.
Markets Outlook
Brent Crude oil
Watch for: There is a growing trading range
between the Fibonacci retracements
Outlook: A period of consolidation has set in
over the past few weeks. The market is holding
the support above the 23.6% Fibonacci
retracement of the bear market at $58.60 but
has stalled under the January high of $63.15.
Momentum indicators retain a mild positive bias
within this, whilst it is interesting to see the
market is supported by the rising 21 day moving
average now. Given that there is a pivot around
$64.00, which is also the 38.2% Fib level, there
is a range of around 10% between the two Fib
levels that is being traded now. A closing move
outside this range would break the consolidation.

Weekly Outlook
5
Risk Warning for Financial Promotions
This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority
(FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only.
Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to
the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater
than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but
not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake
and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking
independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or
CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should
only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess
funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging
in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further
independent advice.
This report does not constitute personal investment advice, nor does it take into account the individual financial
circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is
intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any
financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely
and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and
are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so
entirely at his/her own risk and Hantec Markets does not accept any liability.
Trust Through Transparency
Hantec House, 12-14 Wilfred Street, London SW1E 6PL
T: +44 (0) 20 7036 0850
F: +44 (0) 20 7036 0899
E: info@hantecfx.com
W: hantecfx.com

Will US stronger US relative economic performance continue?

More Related Content

What's hot

Similar to Will US stronger US relative economic performance continue?

Recently uploaded

Will US stronger US relative economic performance continue?