Boris Johnson plans an early UK election

Morning to everyone, it is Wednesday 17th of July. I hope everyone is well. Just having a look around the charts then of what we've got for this morning. From a news perspective, bit of an update on Boris Johnson and the Brexit situation. The pound obviously from the charts having broken through some quite interesting levels from a more medium-term perspective. This is sterling on a sterling-dollar cable on a longer-dated chart and You know, we've broken a very important level yesterday, which was kind of the third real assault on that Theresa May no-confidence low of mid-December of last year. The test— retesting that same level at the beginning of this month, and now we've broken that. As we were discussing this time yesterday in the briefing, absolutely no reason now why the market shouldn't just drift south, having broken through that and futures around 2479, and that seems to be the case so far this morning. Um, 2386 bringing into play the low point of support back on the 10th, 9th of April, probably the next clear technical target here, and absolutely would be expecting that to slowly materialize. Um, was looking at this and just talking to Sam about it this morning I felt quite strongly about that level, and if breached, we would remain, uh, to the downside. Because I don't know, from my objective point of view, looking at the fundamentals, on balance, given the Fed now have communicated so dovishly, uh, and given this idea now that it's pretty much factored into markets that they're going to cut end of the month and multiple times this year, for me, I only really see risks that the dollar get stronger. And if anything, the pound, I think, will materially weaken over the course of the next 2 months, given the fact that the economic situation is going to continue to deteriorate. That as well, not only because the political scene, I think, will also be a headwind for the pound, because Boris Johnson will want to be talking a pretty firm stance about the real credible risk of no deal and hard Brexit. As he then goes in once he gets the seat of Prime Minister into the negotiations with Europe. So all things considered, I do think fundamentally there's a pretty good mix here to promote a downside bias in the medium term for sterling for the moment, all things remaining equal as they are today. Where would go any breach, obviously, of that 2386, then you know, it starts to open up, moves down further, the 123 handle being challenged, then moving down to what it really is more the lower bound towards the 121.5034 level, as you can see further down. But probably need a few more things to transpire for us to get down to that lower bound point. But I think that technical breach of that level very important for sterling. And if we did move back up in cable over the coming days I'll be looking at that previous strong area of support as strong now resistance to cap some of the recovery potentially in the pound, should that be the case. Um, before we get into the news elsewhere, the other chart really that's, that sticks out this morning, uh, was a decline in crude oil. It looks like that came really last night. I can see here Sam had a, a trend line on, a break of that. Looks like it came up to retest it before then the push lower. Technically as well breaking through the, the kind of Asia-Pacific lows and the prior highs that we were seeing back on the 9th of July. And that in combination with some comments from the US, a couple of people looking on the fundamental side, the easing tensions between the US and Iran as the Secretary of State Mike Pompeo said that Tehran signaled a willingness to discuss its weapons program. However, Iran did later say that's not true. So certainly if people were looking for a news catalyst, you could argue that they had one here, but probably overlaid with technical breaks just helping exacerbate that type of price movement, paring back the steep gains that we saw back on through the sessions of the 9th and the 10th. Equity-wise, obviously drifted a little south yesterday. Earnings reports have been I'd say relatively uninspiring for the banking sector. Things certainly change up gears though today because we get first of the kind of growth-related stocks, that being Netflix. I'm sure if you saw me tweet this morning, but the FAANG companies— so Facebook, Amazon, Netflix, and Google— combined with Apple and Microsoft, the other two notable related technology firms. They account for about 17% of the S&P 500's $26 trillion market capitalization. So the FAANG companies are phenomenally large in the current context. Now Netflix is going to be the first of those to report. They, but they are by far the smallest, but they fit that same kind of mold in terms of the way of which the market will use it as a perception for risk appetite. Um, and so what are we expecting from Netflix? They're due after the market close. Netflix in April forecast weaker than expected growth in new subscriptions. That's pretty much the defining factor when you look at Netflix's earnings. It's about new subscribers, new additions, and concerns have only increased following announcements that Netflix actually have lost two of their main shows, which see the highest frequency of views, that being, if you can believe it, people still watch Friends and The Office. Not sure where people have been and why they subscribe to Netflix to watch Friends and The Office, but there you go. Apparently analysts are saying that that could have a negative impact on the company. Also, probably one of the most pressing things for Netflix has been looming competition I'm sure if you've got children, you'll probably be aware that Walt Disney has now released video streaming, which is impacting subscriber growth at Netflix because obviously your children are particularly into the, the Disney, the various different stories. So that's going to be quite key, looking out for that. It will be interested to see that their general market reaction to earnings can be quite quite wild in Netflix. You know, it can be up to the high double-digit percentages, more like 18-20% is not uncommon. We'll have to check the options market later to see what the implied volatility is later on this afternoon. Also then, we have Microsoft. They're reporting on Thursday. They're expected to post a 9% increase in quarterly revenues to $32.8 billion. Strong growth in cloud computing actually is set to make it the, the business's largest unit other than its Windows business for the first time ever. So actually, Microsoft, who've done an excellent job about kind of reinventing themselves into this new cloud computing business, that will now exceed Windows for the first time ever. I think that's an important milestone for that company, and what's created it to become the biggest company in the world, bigger than Apple, bigger than Amazon, at least at this point. So earnings definitely will be key, but that Netflix one's not coming until after market. The other companies that are reporting today, just so you're aware, are Bank of America, IBM— IBM will be another one of those names after market which will kind of comprise of the larger names— eBay also coming out as well. You have had in European equities for chipmakers might have some read across into the US Open. ASML, the Dutch firm, they opened up with gains of about 2% this morning in the Netherlands. Okay, let's get straight into the news. I'll let Sam go over the charts and setups in more detail. This is one I thought was quite interesting, came out in the Times newspaper this morning, and it's basically claiming that Boris Johnson wants to hold an early general election while Jeremy Corbyn is still around, according to senior allies have said, as his team plans to overhaul the Conservative Party's campaign machine. Uh, the point being here, what the article is suggesting is that, um, Jeremy Corbyn is such a weak leader as it seems, and that is the perfect opportunity for Boris Johnson. The strategy being to encapsulate on the momentum behind the Brexit Party's performance in the European elections, to strike while the iron is hot, call a snap election, probably just before the run-in to the October 31st Brexit deadline. He will be banging the drum about how we will have a no deal and threatening that, and that will really capture that, that public sentiment that was obviously evident in those European elections. And he will be aiming for then a larger-sized majority this time in Parliament, in order then that it can't be so, um, the problem of it being blocked by the lower house when it comes to then the government's plans being put forward to Brussels. Now that's the theory. The only problem is this. This is the Westminster polls of ComRes, YouGov, Survation, BMG. So this basically maps all the different polls if there was going to be a general election as of tomorrow. And as you can see, quite a distinctive pattern. Of the last 5 polls that have happened, 4 have put Labour in the lead. I really can't believe how that happens, but Maybe because of the fact that, you know, whilst the Conservative Party is sorting out this mess of their leadership, maybe that's just leading to frustration and therefore the obvious other opposition choice. Brexit Party has dropped significantly because I guess as far as Farage is concerned, it's job done. He's got his seat and his representation in Brussels. Now that's over, he's not in the game of running —on a national basis for actual—to run government in the UK, not at least at this point. So that has shifted, and Labour actually is in the lead. And on an average of the last 5 polls, you would say they have a lead of about 3 percentage points. So if Boris Johnson is going to call an election, that is an incredibly high-risk strategy, of which at least at this point I still think the possibility of him calling election is a small one. Definitely not the base case scenario. If you remember back in April of 2017, Theresa May called the snap election because these numbers at the time showed the Conservatives had on average about a 22.5 percentage point lead. Now they're down 3 points, so find it hard to think that Boris and the Conservative Party would want to back this idea of going up that could result in the most leftist socialist government under Corbyn that we've seen since the mid-1970s. I just don't think that that's a risk that the Conservatives will be willing to take. So quite interesting though, Boris obviously just playing this card at this point, probably to show that his willingness to pursue this kind of more hard Brexit. Avenue. Okay, other things to be aware of. Trump says he could impose more Chinese tariffs if he wants. Is this impacting the market? Well, I think it's becoming a little bit like the boy who cried wolf now with this subject, because he has flipped and flopped a couple times on this issue now. And again, this is kind of where we're at. They apparently were having telephone conversations last week, and this is the setup then for potentially more face-to-face meetings. So this is kind of regular tactic from Trump, just keeping the, the foot on the pedal, if you like, and the pressure on the Chinese to make sure that they continue their US farm purchases in order to keep these conversations alive. So I don't really see this as anything particularly new at this point, but just so you're aware. Other things are, you had a quite a big conference to commemorate Bretton Woods Um, what was this, back in 1975, something like that. But this did involve much of the major central bank heads, Jerome Powell being one. He did speak and gave a speech, but he maintained the Fed's pledge to act to sustain U.S. expansion. His language, as per the second bullet point here, almost identical to that of which he delivered in the semi-annual testimony last week. To the House and the Senate. So nothing really new there, to be honest. The other thing that I thought was quite interesting was some comments late yesterday from Bank of England's Deputy Governor. So this is John Cunliffe, and John Cunliffe certainly is one of the contenders to take over from Mark Carney when he does end up leaving his position towards the end of the year. But he made quite an interesting comment, I thought. He said that there's no strong sense of contraction in the UK economy. And what he's saying is that the lackluster performance of the UK economy in Q2 is not to do with weak demand, but more to do with playing down the inventories that were front-run in Q1 in anticipation for what was the initial Brexit deadline of the end of August— or end of March, sorry. So if you think about it, a lot of manufacturing production in the UK was front-run to, to beat that deadline at the end of Q1. However, that deadline then has been moved to October, and so therefore companies are oversupplied with inventory and they need to work that back down first before then placing new orders. So any type of things that we, that we see data-wise that show weakness could be explained down to these factors if Cunliffe's logic is to be believed. So I know Sam will be particularly happy that I'm talking up the UK economy and that the recent weakness here is not to do with anything more sinister. But yeah, and we'll see how that plays out. Big piece of data coming out this morning from the UK. Later on, 9:30, you're gonna get the latest inflation reading. So this is typically one of the tier 1 readings that comes out for the, for the UK. Now, um, this isn't expected to be a particular shock in any ways. Um, the reading is expected to remain unchanged. We do have a range of 1.8 to 2.1, but we are expecting 2% is the, the expectation on the street. Now, the reason for this, kind of a little bit like the retail sales report yesterday, you remember in yesterday's briefing We're talking about the facts that wages in comparison to what had been the inflation rate, then calculating into the job creation in the US, we were leaning on the bias that we were going to get an upside surprise in retail sales in the US for those reasons, and that did materialize. Similar kind of case, I guess, with the inflation situation in the UK, despite, as we've seen, with demand diminishing on the PMI data. On the consumer side, things are a little bit different given the fact that our unemployment rate is the lowest since 1974 in Britain and wages still remain relatively robust, at least for now. Well, that means then that, you know, the appetite to, to spend, to that degree of which inflation on a consumer price index basis will continue to remain fairly stable at Bank of England target of 2%. So I'm not actually expecting too much from this. I would anticipate that it will be within the range, and so I'd say trading opportunity might be limited. I guess the thing that you're looking at, if you— now we've got that break of a key support level we were looking at earlier, a downside surprise would certainly help that direction and a further push down towards those, those lower bound longer-term technical levels of support that we were, that we were looking at. Otherwise, looking at the rest of the calendar, what else is there today aside from the UK inflation readings? You've got eurozone CPI, but this is final reading, so I wouldn't be looking for any market movement on the back of that. Construction output really is a, is a much lower, second, third tier piece of economic information. It's not going to move any European assets. In the US afternoon, we got housing starts, building permits. Canadian CPI is also coming out for anyone trading the loonie. And then you've got the, the DOE oil inventories that will come out. In terms of that, what was the APIs last night? Well, the best place to go actually, I find, is if you go on Zero Hedge in the morning. If you scroll back to— they basically will release a nice graphic which has all the numbers. Let me see if I can quickly find it. You'll probably have to scroll back quite a bit to yesterday evening, just bear with me. Should have had this prepped, I know, but there you go. Here's the numbers. So this was the API inventories from last night. We had a crude draw of 1.4 million. Uh, actually, that's a, that's a bearish number because expectations were for a draw of 3 million. Cushing, a draw of 1.115. Gasoline, a draw of just just close to half a million distillates, a build of 6.226 million, the biggest build since January of 2019. So comparative to what we have seen with some of the inventory numbers, which have been quite large, this is much more smaller in that respect. And if you actually go to the chart on the price movement of crude, the actual movement in crude was way before the data came out. So this was more as European participants were leaving the market. The actual infantry data had very little sustained impact on price, nothing really too out of line, I'd say, in comparison to recent weeks. All right, that's it from me. I'm going to hand you over to Sam. He can talk over the charts more technically, but otherwise, have yourself a great day. Thanks very much.

Morning guys, hope we're all doing well. Let's have a quick look over. I guess the best place to start here is the pound, and not looking, not looking great, not looking great for the British currency here. The euro-pound just touching up to a high as well, highest it's been for, well, for a long time. It's having a look at the breakdown that we had this morning. Can we get back up towards that area coming in on the futures around 24, 45, 46 area. That could be a point as well as all the, the previous lows. I mean, this reminds me of, uh, the time— of a time— of, uh, of when we do see previous lows of the days breaking. I mean, I wouldn't usually recommend getting short on the very first level of resistance back, but the way the pound has been moving, it's not looking, uh, too great. At the moment, is it? I think we, we have to say that. So certainly medium term, it does look like we, we've got a bit more room to, to go here. Then, you know, the, that low having broken, uh, 125 as well psychologically yesterday, uh, you can see that the move already pushed to, to the downside. So I think you've got to favor the downside rather than looking to get too smart and trying to, trying to call the bottom here. Certainly intraday will be, will be a tricky one to do. Do so. Just a word of warning, uh, you know, whether you'd want to get too aggressive on the initial sort of low from yesterday or not, rather than preferring higher up, I guess we'll have to remain to be seen. We do have, of course, that data out at 9:30, so you've got an hour or so before that comes in. We'll do a quick rundown beforehand, look at the charts around there as well, should at any moment this remainder of the week we get back up towards that area of, of those previous lows, 24.80, 24.90. You could imagine there'd be some nice resistance around there. That happening today, unless the data was way out of line and beat all kind of expectations, uh, you wouldn't imagine that's gonna, gonna happen. But the pound just now just coming up to test that low, so you obviously do have some other levels to be aware of. Just depends how aggressive you would want to be. The euro pushed lower this morning as we did see some dollar strength come in. The dollar is now flat for the day. The euro having broken through a similar kind of trend line you see here. Actually, we're just getting a bit of a retest of that. The first level, uh, first time we came back, we had to have resistance. So be interesting to see how that holds. If it was to, to get a pusher back above there, uh, it would then likely to be rather choppy. You've got the high of the day pivot, looks like it could be a good area to, to get in, as we did have quite a bit of resistance around there. I suppose it's more than a zone, more of a zone than just the pivot level. You can see some nice lows and then highs in around the mix there, uh, 112.80, as that's coming in. But for now, this is the key point here to retest of that trend line, uh, and of course we do have some decent data out as well, uh, coming in at 10 AM for Europe. So decent morning data-wise, uh, whether you could get long-lasting moves before that, uh, just be a bit careful. Obviously the, the lows that we just made this morning, that little false break of the, the low from last week, obviously quite a bullish signal short term, but anyone long would definitely be taking profit around here. However, if we do come back to that trend line in here, you can see on that 5-minute, uh, you could see, uh, maybe a quicker push higher and maybe preferring the pivot from, from then on. Aussie dollar, we talked about that, um, that trend line yesterday. It'd be interesting to see where we closed the day. And it was coming in around 74. He had a bit of support before that breakdown, and now that false break from yesterday, you can see the dollar starting to strengthen again. How long until the main man Donald Trump is tweeting about the strength of the dollar, uh, or, you know, how it is too strong, uh, will be remain to, to be seen. I guess we're just— you can see here lovely test of this trend line that's come through. So keep an eye on that. I would have this marks up from the 4th to then the low of, uh, of Monday morning on the 15th, and then today as well. And then below there you've obviously got quite a lot of support around the S2, whether you'd want to get long there or not. I think against the other currencies we've gone through so far, this one would make a bit more sense to do so. And then to the upside as well, perhaps you can see we're just getting squeezed in from the top as well. So priced, you know, in a small range, which it has been for the Aussie for the last couple of days. Patience, I would say, to wait for either this trend line here to hold, or the— around that, the handle around on S2, or this trend line to break. And of course, the top of that trend line now coming in around yesterday's low. So some quite interesting levels for Aussie. However, it hasn't moved too much, uh, as of recent times. Quick look over at the yen just to wrap it up for the currencies. Quite a good level, just almost traded today, just above the pivot, that double bottom or triple bottom if you like, from the last couple of days of the week— Monday, Tuesday, Tuesday, Wednesday. No, Monday, Tuesday, getting my days right there. Um, so we still haven't a look at that to see how that holds. From the lows, you can see we, we are getting squeezed in as well. So potential for the afternoon, maybe a break lower. Uh, I would say while the previous lows from yesterday do look like a good resistance, you know, that's your line in the sand really for, uh, if you want to, to get, uh, to get long, I would say you would, you would want to see it break above that. But price getting squeezed in key level pivot yesterday morning's low, and then this trend line to the downside. If you're looking for an extra push lower, maybe this dollar strength to come in and equities to push higher, well, that could be the option on a continuation kind of strategy. Speaking of equities, have a quick look over at the S&P, which, which did drop down yesterday, uh, of some Trump comments. And, uh, we actually did snap back to find resistance on, on the, the low, or what would have been the low of yesterday when saying it. And then you can see that did push lower and we just kept knocking on the door just above 3,000. So really key level to keep an eye on, those lows from today and yesterday. And it's more now just pushing that back down to— you can see the low from the beginning of the week just below that, 3,002.25. Obviously very key to the upside, really key level um, you can see traded here. We had the highs from the beginning of Friday morning, then the lows on Monday, and the breakdown yesterday. So 30, 12, very important to just have a line in the sand. Obviously you can have your bias or whatever, trade it however you, you see fit. Maybe looking at the DAX this morning to get an idea what could happen around there if we reach it. We're currently 2 points away, a very key level. Uh, for now I'd say sellers in control for the moment. If if it was to break through, you know, quicker move up towards R1 and 3016, which was yesterday morning's lows, isn't out the question. Of course, those are the all-time highs as well. So if we were to have a bullish day, the stocks worth having on some of these trend lines as potential targets should we get up there. And of course, not forgetting, just above today's R2 is that trend channel high from the two previous all-time highs in February last year and October. I'm gonna look at gold and oil to wrap it up. Gold had a decent push low. We had that trend line on yesterday, broke through, came back, retest, went down. Really good opportunity to have got in, and it took its time, but it went down eventually to the S2. Obviously we had data out in the mix there as well, so to hold that would have perhaps been a bit brave to have done. So really key level on on that S2. And I know people were looking actually at getting long there, talking through to them throughout the day, and it would have been a fantastic trade. Uh, would have again had to be quite brave to get in, but held really well. And you can see that level from the 11th and then the highs from the 9th as well. Really nice technical point. Uh, to looking more intraday, we're range-bound for now. Let's have a look if we can get any of these trend lines. Seems to be squeezed in from there. On the downside, key level support around 1404. I mean, if it was to come up to the pivot, I mean, pivot does look quite messy from yesterday. Well, previous days about good price action around 1409. To be honest, I'm looking at this, I'm not too interested as of yet unless maybe we were to, to break those lows. And even then, uh, S1 and the high that we had— if I just move this above the camera— back in the morning of the 10th you know, look at a good level of support. So gold, which has been pretty choppy other than that trendline break, not looking too interesting. I think if you're looking for the upside here, and you know, that isn't guaranteed over the last few days, you know, the break, retest, and push higher could of course be an option. But again, is the volume going to be there in the morning? So looking for more afternoon on this one, I would say. Oil, as they had the APIs yesterday, as Anthony Cheung was bearish. Makes a change from the last few, uh, APIs on those Tuesdays where we've seen decent push higher. We have come lower. We are, however, just trending or trying to push to the highs. So keep an eye on around $58, $57.97 before the API. That level of support, obviously very small, but that's really what had to break for this move lower. We're about 20 ticks away from there. Price getting squeezed in from the lows. You know, a break of that before DOE could be half interesting. Pivot looks quite good as well, uh, you know, more intraday as a key level of resistance for this move, which really did push down from, from yesterday, having at the beginning of the week pushed to, uh, the high that we had from, uh, the 11th as well. Big wave down from there. 60.93, now trading at 50 well, just below 58 as well. Quick look over the DAX, you can see just trying to push higher. So we're talking about the S&P level, uh, on the, on 3012, well, and the pivot as well, but 3012. So if the DAX was to really break above, you could argue anywhere above here really, for, you know, the, the high from the 15th, good resistance there as well on the 16th and previously 11th. If we get above there, you can imagine the, the S&P is going to want to have a go at pushing higher, uh, as well. So keep an eye on the DAX early morning. Decent data around 9:30, 10 o'clock as well. Just having a quick look over that before the afternoon as well. Looks pretty exciting before the DOE's at 3:30. Only one speaker, uh, and that's come out. Nothing really said from that's going to move things about. Hope you all have a good trading day. Any questions, as usual, please do let us know.