Markets at Highs But Caution Remains

Very good morning, Anthony Cheung here. Friday, 10th of January, non-farm payrolls day of course. So first up, reminder, if you have not already done so, remember to subscribe to the channel, click the bell icon to turn on your notifications because Sam and our head of trading Piers will be covering non-farm payrolls live. That'll be from 1 o'clock London time. So they'll do like a preview for a good 20 minutes, and then they'll be covering the actual release live when it comes out. So it'll be a good session to see how they analyze and trade things in, in real time. Otherwise, for me, what am I going to talk about in the, the briefing today? Well, a bit of an update, of course, on Iran. There's actually been some further missile strikes from yesterday. Not that anyone's talking about it because it's almost as if following the Trump de-escalation type speech, this has kind of just taken a quite a back seat now in terms of where we were just a couple of days ago. But some updates for you nonetheless on that front. Also going to talk a little bit about Trump and China, Boris and Brexit, and then the build-up for non-farm payrolls. So that's what's on the agenda. I am also going to introduce to you as well, one of the other members of the Amplified team. So Alex is going to come on as well, and he's going to have a quick word, um, about the Dixie with some technical levels of which he's been looking at on a longer time frame, which I think are definitely worth bearing in mind because we're at quite a critical point, which he'll explain in more detail. So looking at the charts from the overall sentiment point of view this morning, I mean, as you can see, it's really dead this morning, and That is quite normal behavior ahead of the US employment report. As I'd normally say, with the NFP print, although it is a, a kind of a top-level figure which undoubtedly does cause intraday short-term volatility, how important is payrolls? Well, I mean, this is the difference between looking intraday or looking a little bit more from a top-level point of view. I think payrolls largely is fairly insignificant today. As far as any long-term reaction is concerned, because it ultimately doesn't really, in my mind, carry any potential really to change the needle for the FOMC's outlook for the future. But beyond that, we have got to go with what we see, and we get that normal kind of calm before the volatility, so to speak. And so currency pairs are pretty flat. Gold just hugging pivot. You can see in the futures in the top right-hand corner And index futures relatively flat, mildly positive. A couple of the airliners actually outperforming in London. Ryanair this morning opening up about 9%. Not very often you hear about a profit upgrade, not a downgrade. And in sympathy then, people like EasyJet up about 6%. And perhaps as well, I'm not sure whether technically this is the case, but the read across, there was some developments of course about, and this will lead us into the first story, which is that, that Boeing jet, which of course we didn't have much clarity a few days ago when that jet got shot down and killed all those passengers on board. It was a Boeing 737 aircraft, and obviously a few fears there for the company commercially, because if it were a technical failure, that'd be another catastrophic episode for the company in terms of its manufacturing capability. But it has been confirmed by the prime ministers of Canada, the UK, and Australia that the Ukrainian passenger plane that crashed on Wednesday near Tehran in Iran was probably brought down by Iranian missile. Now, why has the market not reacted to this? Well, I mean, come on, everyone knew that was the case, so it's the least surprising news you've probably heard. But for Boeing shares, it really is a bit of a sigh of relief. And in yesterday's Wall Street session, Boeing shares were up north of 3% at one point. And remember, we're at all-time highs in these US stocks at the moment, and Boeing being 8% of the Dow is the largest component within that index. So just another reason for why equities have just been, you know, edging up around also this, this theme of de-escalation and this hope of a trade deal being signed next week. However, as per what we've kind of seen this morning, two surface-to-air missile launches were detected from Iran. This was about the crash, but overnight reports indicated that a rocket— a rocket, excuse me— struck nearby the Balad Air Base in Iraq where US troops were stationed. But once again, I believe that there has been reports of no casualties. So this is the, the headlines in American military press: no direct hits. So again, it's one of these kind of— I think Will was describing this yesterday, and I guess it's a good way to, to word it— it's kind of these face-saving moves to show some kind of strength of hand. And once again though, it's a pretty inconsequential move from Iran, and so markets have really taken it in its stride at this point. A few other things I wanted to share with you on the Iranian situation. This was a good graphic, and if you wanted to look at it in more detail, you can see my Twitter handle below. I did tweet it yesterday. It was from CNBC, and it basically looks at all the different situations of past US-Iranian tensions and how, over past the initial knee-jerk reaction, hardly any of them have managed to have a sustained long-term impact on the S&P 500. So here you're looking at 2019. You remember you had the Iranian, uh, reports of shooting down that US drone over the Strait of Hormuz. You then had the Gulf of Oman oil tanker incident in May of last year. All of those saw initial negative implications for the S&P on fears of escalation within the region and consequently contagion in the Middle East. However, within 1 month that had been recovered. Within 3 months we're already up 1-2%. Within 6 months we're already up north of 7-8%. But that's not an unfamiliar pattern because there has been— I guess the one was in 2008, but beyond that we have seen similar type things happen before. And this goes all the way back to what we were talking about on the initial strike on Tuesday, that yes, this is a flare-up short term and the price needs to reflect that supply kind of shock. Potential or escalation in terms of military conflict, but reality bites and then rationale returns, and the, the likelihood of both of these nations going into full-on engagement is incredibly unlikely. And so this has been seen before, this is the historical precedence, and this is where the perception of the market lays today because this is being reflected on the prices given how much we've reversed a lot of these Gold obviously well off those highs that we were seeing when it was rocketing higher just a few sessions ago. Other things, well, Republicans support his strategy. A latest Reuters/Ipsos/Mori poll shows that Republicans are loving what Trump's doing, even though his pledge in 2016, you remember in the campaigning when he was going up against Clinton, was, look, we need to withdraw out of the Middle East and bring our boys home. He's doing the opposite. He sent extra troops in since the killing of Soleimani, but that's beside the point, of course, because people are liking the general rhetoric and strength of hand that Trump has been showing with his handling of Iran, and that particular region is paying dividends. So if anything, Trump is coming out of this in a fairly positive fashion from a political point of view. Obviously, those of a different disposition, the Democrats, are highly critical of what he's done, from a core Republican base that he's trying to appeal to. They have liked his tactics so far, and the equity market resides up at around these highs. That does though bring a point, uh, bring around, excuse me, a very interesting point which I think warrants discussion right now, because I think it's going to be a big talking point for Monday. And that is that come Monday, I think Iran becomes It's not even a consideration, not unless there is a surprise unexpected event that develops over the weekend. Why? Because this trade deal is supposed to be signed on Wednesday, but the Chinese envoy led by the Vice Premier and his team will land in Washington on Monday. So for me, stock markets at record high, Trump is is hitting the right notes with the people that matter as far as then this electoral kind of campaign. Do we fall into this again? And this is a very familiar graphic, of course, which we've shared many times, and it feels like we are pretty much where that red kind of, uh, mark is here on this, this cycle. Market has rallied on temporary news, the idea, this notion of phase 1 being concluded I just feel if I was Donald Trump, um, why, you know, perhaps I've bought myself a little bit of room here where I could just have a little bit of a stalemate. Let's just say here, Reuters this morning, interestingly, US Donald Trump, who announced last month the Phase 1 trade deal with China would be signed on the 15th, has said last night the agreement could be signed actually shortly thereafter the 15th. So already in my mind, the goalposts are starting to move. And so this is a bit problematic, I feel, for where prices are trading at the moment, because people have priced in the conclusion. And what I mean by this is the deal to be signed. But what I'm saying is, is Trump— and I don't think it would be a bad move for him to say, look, look, I don't really like the deal at the moment, and quite frankly, if— unless you're going to send Xi, I'm not interested in talking to the number two. And therefore, markets correct perhaps a few percentage points, but look, we're up north of 30% in the last 12 months, and so he's got room to maneuver. And all of this, of course, is about prolonging, uh, the sustainment of this US equity market. A small pullback, only to see it rise again, to then move us into the second phase, which he needs to prolong out through the next several months, I think is an appropriate strategy. So what I'm saying here is I think things from a macro perspective next week take a distinct reversion back to the mean, which is the trade war, unless something unexpectedly develops with Iran over the weekend. Moving on, let's, let's get to another subject. Brexit. Not really too much for me to add here, just more of an update really. Members of Parliament voted 330 to 231 in favor of the withdrawal agreement bill yesterday, so Boris on track as per expectations. The formality as we head into the 31st deadline. However, we did see this. Michel Barnier the chief negotiator on obviously the EU side, warned yesterday that Brussels will not budge on its demand that Britain stay in line with the EU restrictions on state aid and its regulatory standards in exchange for a far-reaching trade deal. What's quite interesting here is, you remember, a lot of these pro-Brexiteers were suggesting, well, look, we're going to broker this amazing deal with America and they're going to give us this great fantastic and immediate trade deal. However, one of the big things here— and there was some interesting comments out of the UK Agricultural Minister yesterday— and this is a bit of a problem because the food standards specifically are very different between the US and Europe. Now, you can't have, um, one without being to the disbenefit of the other. Now, what Europe is saying, which ultimately would be more of a key strategic relationship with Britain given its geographic location. Well, America have chlorinated chicken and growth hormone beef, both of which would fall short of the Eurozone standards then of food hygiene and standards. So ultimately, already this is just one thing, they're at an impasse. So is this to be— is this a surprise? Absolutely not, I don't think so. Is Boris bothered at this point? Well, I don't think so. I think this is— he is gonna dig his heels in and he's gonna drag this out, keeping— and he needs to— the threat of no deal on the table. Which does mean that I do think still that the likelihood of that June extension is going to be the next real key milestone in this Brexit development. That's when the pressure will be on. Do Europe buckle to his demands, or does Boris have to then start asking for this, um, this extension beyond 2020? All right, non-farm payrolls, quick word. What are we expecting? Headline figure today for non-farms is expected at 160,000, and that actually is pretty much bang on the long-term average. So interestingly, The range though is pretty wide. The most pessimistic estimate on the street is 54,000. The most bullish estimate is 221,000. So if you think about that distribution of the, of the spread, it is phenomenally wide. But as far as I'm aware, 54 is a bit of an outlier as much as those estimates are concerned. Now a couple things to be aware of here. This is a quick look at what some of the bigger banks are anticipating. Not that I put too much consideration to this, but as you can see, all of the primary dealers are pretty clustered within a much more reasonable range, that being MS at 210 down to JP Morgan at 125. Now the reason why you get estimates, just from a, an awareness point of view, of 54—54 will probably be like an independent a small research firm who basically wants to deviate from the norm to create some headline noise so it gets more coverage for its research. That's often what you see when you get these kind of outlying numbers, but the big boys are all going for, I would say, a more realistic range of 1.25 to 2, 2.10. Now, people can and will be quite optimistic about the headline figure, perhaps for a couple of different reasons. For one, Um, this is ADP. ADP came out earlier this week, of course, at 202,000. That was the greatest reading that we've seen of jobs in a private sector since April when we printed at 255,000. 202,000 was way above expectations of 160,000 as well. So ADP, which is often seen as a, as a good precursor of the, uh, the National Employment Report, was strong and was subject to an upward revision from the previous. Remember, the previous was around 60, was upgraded by double to 124, so particularly strong. Other bullish things to be aware of here: a couple of analysts that I've been speaking to have been noting the unusually warm temperatures across the US through the month of December could be actually a beneficial factor for the employment situation. Uh, in addition as well, this is going to be one of the first times we're actually going to get a relatively clear idea about the job situation in America. If I go back to here and let's get newest non-farm payrolls, we have seen some fluctuation, but you remember 266 last time was a monster number, but that was somewhat impacted by the return of striking General Motors workers. This time should be a bit again of a reversion back to the trend, and that's why analysts are looking for 160. On the bearish side, analysts at JPMorgan have said that what would be one of the weakest months for job growth— they anticipate potential softness due to seasonal issues related to the late timing of Thanksgiving this year in 2019, or last year in 2019. Okay, look, that is it. I'm not gonna talk anymore. What I am gonna do though, let me just transition something on my screens. I'm gonna ask Alex to to come over first before he then hands over to, um, Sam to talk over the charts a bit more. So Alex, here is your Dixie chart. Thanks, Anthony.

Hi everyone, just come over a little bit. Oh, I'll come over a bit more. Oh, there you go. Hi. So was looking through the charts last night. I don't focus too much on the Dixie usually But this is quite interesting from, from a longer-term perspective. I need to do this again. So a bullish setup on the dollar index, just joining up the lows from, from here like this. There was, from this trend, from this trendline support, there's this morning star formation on a weekly time frame. So weekly time frame is, is a huge time frame. Can see that back in, back in mid-June we had the same setup, that morning star candle formation. We got big bearish candle followed by the sort of the doji or the, or the spinning top candle followed by bullish engulfing. And then that led— that was the, that was the turning point where, where the rotation happened back to the upside. And again, this happened in January where the same setup, you know, we come down, bit of a hammer candle, and then the bullish engulfing, which was a rotation back to the upside. And exactly the same thing's happening here, but if anything, this one's stronger because we've got this established trend line which we tested, and huge hammer candle which was the close of last week. And now we've got this bullish engulfing candle, which if we close like that, which is looking like today, um, would indicate that it's likely that the rotation is going to happen back to the upside. If we draw a trend line across there, there's actually— but on a break above that would be even more confirmation. I think looking for target-wise, you can see that this— there's another fat trend line across the top here that was tested back in late September, which was the top resistance up here. So target-wise, there's this— there's these highs from back in late April, May 2019, around that sort of 98, that 98 area, and then back up towards that, that 2019 high, which is that 99.30, up to the sort of 99.70 and the 100 handle. And that's miles away, that's sort of 4, 4 whole points away. And I know that's a really long time frame and we're all intraday traders, so why is that helpful? I think that's helpful because personally I like to— I like the wind at my back, you know. I would only really be looking for long setups and sort of pullbacks in the daily trend because on the daily and the sort of hourly time frames, these are really— as this moves higher, you know, I want to be buying those dips along the way. Uh, the last— looking at the last move higher, the last 4-point move higher with this, moved higher over a quarter. That took 3 months to move higher. And so what does that mean for the euro? Did I cover everything? And they're— sorry, the risk is below, is just below the trend line. So below that 97.50 area is the risk. There's no guarantee that it'll work, but I do think it's likely. Just switching over to the daily quickly to get a bit more of a surgical look at things. You can see that the market at the end of December, we tried to— you can see this trend line being respected on the daily. We break below, come back for the classic and get squeezed up. And there's guaranteed there's going to be shorts in this that have already been squeezed out, but there's still going to be shorts in that ready to, ready to move up. I think that if there's a bullish non-farm payroll today, that would just add to this whole technical picture where I think looking at entries for the trade, I'd be focusing on the euro, which on a bullish non-farm payroll, you'd be— look, you'd be the spike lower, quick pullback, sell short, and then, and then just— and then you could really hold this because you'd be in line with the, with the trend. If we do go back up to test that 2019 high from the Dixie, well, what does that mean for the euro? Well, the euro would head back down towards that 2019 low, that around that 1.09. I think what's interesting about this euro chart, again just lining things up, is the euro broke above, held the 200-day moving average. If we look back here in July, we moved above the 200-day moving average, came back, support, support, support, broke below, and then we came back and broke below the previous low of the year, you know, 200-pip move. Well, exactly the same thing's happening here, you know. We break above the 200-day moving average, we come back, support, support, we break back below. And there's this trend line that Sam highlighted yesterday which has also been broken, and that is hugely bearish setup on the higher time frames. And so where's it going to go? Well, maybe it comes down to test the, test the low of, um the low of 2019 and maybe even lower. There's a trend line, just to wrap up on the euro, get the weekly out on the euro. There's a big trend line from 2017 coming down here, and I mean, that's a potential target for support on the longer picture. And, um, and yeah, that around that 108, it'd be lower than that, be 107s. You know, and that's all I've got. I just thought I'd share that with everyone, sort of the higher timeframe levels. Yeah, thanks a lot.

Thank you, Alex. Well, what I'm gonna do then is just quickly let Sam come on because Alex obviously was just talking on a slightly higher timeframe there, so I think it warrants Sam coming on to just bring things back into a slightly more setup for an intraday perspective. So hand you over to Sam.

Yeah, we'll have a quick run through, uh, just of the dollar pairs and bringing in the euro here under a bit of pressure. Non-farm payrolls, not expecting too much this morning. Just on the futures here, that weekly time frame, we'll bring that in. Let's get rid of those pivots, uh, just dragging this to the left-hand side, starting on the 2017. A good jobs number today. I don't necessarily think we can get below here, but you've got to be having this on starting here at the the, the back end of 2016, early 2017, matching up with those lows that we had last year. A break of that and it could well be game over, and you look to a quick move towards the, the gap open that we had following Macron-Le Pen first round French elections. Definitely keep an eye on that. Bigger move in euro, you'd expect to happen on a break of the trend channel either way as well. So if that was to go at any point, well what a trade that could be. And if the Dixie breaks to the upside, well, this could be game on and a big move could come, which hasn't really happened for, for quite some time. Intraday perspective, let's have a quick look at the euro before we go over to the pound and some other dollar-related markets. You can see where we're trading now is key because of yesterday's low, but below here, 1.1131, keep an eye on that. You've got the triple bottom from the 23rd and 24th. Below these levels, that's going to be a key area of support going to the back end of the week. Looking above where we're trading, the R1 today is filled with yesterday's multiple tests of that high. Think of it maybe as a bit of a new range that we could well be in, uh, as, as well. Keeping a watch on, uh, that later on. Not expecting too much in the way of movement today. Likewise with the pound, which as you see with a bit of dollar strength is coming under pressure as well. We've broken this trend line, haven't quite quite retested that back. So keep a watch on that as well. But look at that, right from the, the top that we had here on the 7th of Jan, you then get the test on the 8th, and the higher the day, the third test of that trend line. Massively important, keep an eye on that. Definitely had that marked up. The high of today as well is also an area of support that we've had from the 8th and the 7th this week. So 131.15 to the upside, as a horizontal level, and this trend line, which of course will come down as an area of resistance as well. You know, getting that price will, will change throughout the day. The low of the day area of resistance turned support from the 26th. So the pound and euro, some interesting levels to think about later on. And of course, we'll go through this on live on YouTube for non-farm payrolls later on. Quick look over at stocks, all-time highs just coming off a tiny bit in the last, uh, 30 minutes or so, uh, whether people would want to hold positions over the weekend, uh, or not will remain to be seen. The Dow on the, the futures hitting 29,000, just coming down, uh, a touch, uh, and the Nasdaq obviously hitting all-time highs last night, uh, as well. Uh, we'll run through these in a bit more detail later on. Gold yesterday did come down but found a bit of support and we're now trading around 1552, potentially just starting to get squeezed from both directions. Certainly from the low of yesterday, you've got the 3 touches on that trend line on the hourly, so keep a watch on that for any potential breakout. And we're just hitting the third test now, uh, on the top part there. Whether you want to get too involved in this before non-farm, not too sure, but certainly have that marked up. Oil, after a shocking uh, well, really from now, you know, 48 hours, uh, has started perhaps just to recover a touch. When would you be happy? Well, probably if you get above that trend line there and the pivot and $59.50, then you'd be a bit more comfortable about holding along. There is that, uh, longer-term trend channel as well, which people are looking at. Be interested to see certainly where oil finishes, because if we do push higher, you're gonna have a lot of resistance points from those previous weeks in the back end of last year, which will be attractive for people looking to get in to go short. Over the weekend, wouldn't recommend holding any short-term positions with that geopolitical risk going to be still on the agenda. And of course, China-US talks, looking to sign that deal from Monday to Wednesday in play as well. We'll be, we'll be live on YouTube later from 1 o'clock, so please please do make sure you— your notifications are on for that. Hope you'll have a good trading day. Until then, would, uh, keep your powder dry, as the saying goes. Hope you all have a good morning session. Catch you all later on.