The Trading Week Ahead: 12th-16th August 2019

Okay, very good morning everyone. Hope you had an excellent weekend. Monday the 12th of August, as you can see, usual routine on a Monday. Got the calendar here to the side, so I'm going to split this delivery into two sessions. Me looking at the fundamentals, I'll try to highlight some of the real calendar events that could act as real pivot points for different assets and the reasons why. And then my colleague Sam's going to come on, look at the market much more from a technical perspective and looking at the charts in more detail, trade setups not just for today but also for the week ahead. So quick overview though, general sentiment for this morning, and yeah, a little bit of risk appetite in terms of Equity markets a little bit higher this morning. The actual fix for the PBOC— I mean, one, I did tweet on my way into work this morning, the first number I look at when I wake up, maybe I'm a little bit sad, but the first thing I check these days is the yuan fix because that is the barometer, really the kind of the trigger point of kind of market sensitivity, or has been in the last week. and that came in at 7.0211 per dollar. So that was weaker than Friday's setting but stronger than market expectations. So again, this kind of measured devaluing of their currency continues, but again, as long as it's being done in a very controlled manner, then the markets are quite comfortable with that. And again, even though their currency is weakening, it's actually been done in a way that's actually slightly stronger than expected. So, um, no real risk coming from that. If anything, a little bit of relief. Overnight in Asia, a little bit quiet. You have got a Japanese holiday, Singapore, Thailand, lots of other nations as well in the Asia-Pacific region are closed. So fairly quiet, but overall stock futures this morning, you can see, off to a positive footing. Um, DAX already up 123 on the session. Eurostoxx has run up to its R1, had a rejection in the futures, that is, but again, higher this morning. Elsewhere in the other charts, oil's pretty quiet. Gold testing back towards a pullback on that $1,500 handle, technically and psychologically relevant. I'll let Sam look at that though in more detail. Then the other thing that's quite interesting here is the currency markets. Got some real evident euro weakness. Italy, of course, very much in focus. I'm not sure if you caught Salvini getting his sunblock on down in southern Italy, catching some rays, trying to really control sentiment in southern Italy, obviously where his La Liga party is particularly popular. This coming after last week we heard, of course, that he's looking to break up the existing coalition government and look to run on his own to take advantage of what has been this popularity of his party under this more nationalist view. So euro a little bit weaker. That BTP-Bund spread definitely needs to be watched as a kind of European, I guess, barometer of sentiment. I think Italy definitely has ratcheted up now a few levels and is back up the hierarchy of real risks to the market this week. And we'll look at that in a second. Otherwise, the pound actually doing the reverse. You've got a bit of a divergence here. It's definitely a euro weakness story because cable is flat. Dollar, byproduct of that euro move, a little bit firmer, but cable up around its pivot level. And we'll talk about Boris. He's obviously been busy again, promising the world and more at the weekend, and we'll pick through some of those headlines and what do they mean. Uh, but yeah, as I'm delivering this briefing, just keep an eye on the euro. You've got that S1 near-term support which coincides quite clearly with a nice area of technical relevance. You can see here from some of the previous week's price action. So as we come down to this 1.1214 type area, um, the— there you go, just testing it right now. Be interested to see how the price action responds at around these, these levels. But again, Sam will add his his view. So let's have a quick look then and a run through. First of all, the calendar and a couple things to have a look at. Before I do though, I thought I'd just recap on this last week, particularly interesting. Sam was saying I was off the desk on Friday afternoon, but apparently my understanding is that Trump went on a bit of a tirade on Twitter and was firing out you know, everything and anything in regards to China, witch hunt, Epstein, just everything that was going on at the moment. And this is what it's led to. Volatility is back. S&P 500 registers longest streak of big daily moves since the beginning of the year. And so just looking here at the S&P 500 intraday percentage range, you can see this cluster of sizable price activity that we've had. And of course, this then lays its hand to that, uh, kind of risk-off rotation. And of course, gold had a phenomenal week last week, gains in excess of 4%, you know, way outperforming anything else you can get your hands on effectively when it comes to, uh, haven assets. In focus. So can that continue? Well, again, let's have a look at the week and see what we've got on the agenda, um, to see whether or not these trends have gone any further legs or not. Today is particularly quiet in terms of scheduled events. There really is not a lot going on at all, not unless you're trading softs like wheat, soy, corn, these types of products, because later on this afternoon, late afternoon, you've got the the WASDE report. Otherwise, it's very quiet. So moving on, let's, let's look at the UK for a start, and that will bring in some of the both economic and political updates to look out for if you're looking at sterling. From an economics point of view, it's an interesting week for the UK because on Tuesday you get the latest claimant count rate, employment change, and average hourly earnings. Now, you'll remember hourly earnings and just generally wages in the UK has been a bit of a sweet spot in terms of the kind of the measurements that would lead MPC members to want to be hawkish. The incredibly multi-decade low unemployment rate, which is leading to the best decade-high wages at the moment in the UK, would all be favorable of tightening conditions in terms of its policy ramification. However, as we go further through into the week— that's Tuesday— Wednesday we get UK CPI. And of course, then, just given what we've had with this kind of front-loading of inventories in Q1, that then basically translating into weaker demand for Q2. And how is this now impacting as well this political uncertainty to consumers' confidence to continue to spend and its demand for goods? So we get CPI on Wednesday, always a key figure. Um, then on Thursday we get then that real consumer metric, UK retail sales coming out. And so quite an interesting week for economic data for sure for the pound. But overall, obviously a lot of the headline press has been dominated by Mr. Johnson, once again the new Prime Minister, where he's pledged— basically since he's come in, he's pledged £2 billion every week Reading about it at the weekend about this new— a new £2 billion worth going into the basically UK's jail system. I know that's not the correct terminology, but you know what I'm talking about. The point being is that we are pretty much at maximum capacity. I think it's something like— I was watching the news last night, there's 84,000 inmates, I think, in Britain. I think the maximum capacity is about 86,000, and he's suggesting then that we should have harsher punishments, longer terms, and we should have— therefore you need more money, more facilities, and so on. But all of this, of course, has come through really key things: more Brexit planning, downside protection planning, £2 billion NHS, £2 billion, and now this latest kind of infrastructure around the jail system, another £2 billion. All of which though, he's not given any details about where the £6 billion's coming from. Now, couple things here. The government's own appointed body, the Office of Budget Responsibility, their report which they issued about 6 weeks ago said that if we have a no-deal Brexit, the budget deficit in the UK, the immediate aftermath, the impact will be to the tune of £30 billion, and he's going on a spending spree of £6 billion. The point being is I'm not trying to politically criticize Boris here, but it's quite clear what his strategy is here, uh, and that is that a general election is in the offing. Uh, I think it's, uh, an absolutely— all of what this is, is as the headlines would suggest, um, Johnson being accused of spending for votes. And that's exactly what he's doing, and I don't blame him because ultimately this is a tactic that has been successfully deployed and rolled out by President Donald Trump, where he's promised the world, delivered arguably less than half of what he said, but that's not the point. You know, we live in a new realm of economics, and, you know, personally, part of my frustration about the Remain campaign, for instance, in this country, is its obsession with economics. Have you not learned that doesn't work? It doesn't resonate correctly with, with the majority. And Boris, you know, definitely, obviously, with Dominic Cummings under his belt being the chief strategist, I think it's absolutely just going down this path of really striking a chord, an emotive one, trying to gee this up for a general election. So yeah, all of this is just, again, political posturing. What does it mean for the pound? Well, I don't think you should really look to look at this tactically to put in as a variable into your trading strategies. More of this, this is more about the medium term and what's going to transpire over the case of the next coming weeks. About this issue of a general election. Of course, Boris at this point is saying, 'Absolutely not what the government is doing, and we are not looking to call a general election.' But one thing you should have learned by now, if you weren't familiar with politics over the last 3 years, never believe a politician as far as you can throw them. Um, with that being said, what I am interested in this week is— this is the pound on a daily continuation chart And we are at really interesting levels now. That's that double bottom that we had in the aftermath of the actual— this is the EU referendum vote, of course, that seismic repricing of the pound that we had on the evening of the surprise vote on the referendum. This was then that double bottom, October, and then retested in the beginning of 2017. And we are within a whisker of that level. Now given where we are, absolutely, even within today's session, that's not out of the realms of being tested. But definitely this week, that is a big target, and I do believe that if that breaks, I don't see any reason why we don't go flying down to 115 in pretty rapid fashion. Uh, the only thing I think that could counteract this is, does Trump come in and basically intervene in the dollar. Now, we know that he has a track record of doing this verbally. Is there any kind of physical element where he'd want to step in and do that? Likelihood of that low. But he'll be fully mindful of the fact that, you know, if the euro is weakening, if the pound's weakening, by default, the dollar is going to strengthen. And if China's allowing its currency to weaken, All of this is against them, the ability of the US to remain competitive. So really, he's got to start upping his game to weaken his own currency. I think that might be the saving grace of this pound getting really crushed in the medium term. But yeah, definitely this week, all eyes on that level. I would definitely be keeping a, a very close eye on there at the moment. Obviously we're moving in the opposite direction in the intraday environment, but definitely needs watching. As I'm speaking, I can see euro's just broken that level, and you can see the extension there, um, as we broke through technically that level. A little further push through, nice little break there. Gold as well under a bit of pressure as by default the dollar strengthens, now up 2 tenths. Managing to get ourselves back below that 1,500, which is going to be quite key. I know there's some long-term levels I know Sam's got his eye on that he can, he can share with you. Anyway, let's just quickly run through the other headlines of note. Obviously the trade war is key. Over the weekend I was kind of looking for any comments in regard to China or the US, and basically they remain absolutely far apart, it seems, at this point. Not helping either, I feel, is this situation which is kind of escalating in its, in its violence that's happening in Hong Kong. China being quite explicit that they do not want any interference from the UK or America. But as that situation gets to the point where I can't really think of how that's gonna resolve itself, itself. And the biggest, uh, obviously flashpoint would come if there was some kind of Chinese mainland, Chinese military occupation coming in to control the situation. That would be a massive escalation that would probably then cause great decisions to have to come out of the Western world of how they're going to tackle that or not. And so yeah, I definitely at this point On the trade side, they remain very far apart. And one thing that we've seen here is Goldman Sachs. They've come out last night and they've basically said that the fears of a US-China trade war leading to a recession are increasing. Goldman's no longer expect a trade deal before the presidential election at the end of 2020. They expect tariffs targeting the remaining $300 billion of US imports from China to go into effect And they've also lowered their— excuse me— their fourth quarter US growth forecast by 20 basis points to 1.8%. Again, just to refresh your memory, what was the GDP that came in, um, in terms of the previous one for Q2 at 2.1%? So a continuation of a slowdown in North American growth, but in fitting with the overall global growth story. that we've been pricing in. So yeah, still hearing a lot of these kind of bearish calls about the, the near-term horizon for sure that seemingly are growing at this point. The other thing before we jump back to the calendar, look at some of the other economic highlights, is, is Italy. Um, and I was just looking at this firstly, not sure if you were aware of this, but Every quarter or so, the rating agencies S&P, Moody's, and Fitch have an update, and the ones that are very much in focus— Italy is, is one of them. They avoided a credit downgrade from Fitch Ratings on Friday, but the agency has effectively left them on negative outlook, citing high debt levels and a fresh round of political uncertainty. So they're on watch. To be reviewed in the coming months. And I think that's probably an appropriate stance given the fact that they need to see what happens yet. The president of Italy has not yet declared that there is going to be an election, as much as Salvini has intimated towards that being the next step, given he wants to break the existing coalition with the Five Star Movement. So without that, without knowing that next political phase, I think the rating agency has to just sit on its hands for the time being. But point being here that they've avoided a downgrade, which would have been obviously, uh, very detrimental to their assets and the spread BTPs over Bunds. And that definitely needs to be watched. Here was a great article. I'm going to share the link into the Trading Live chat room. I'll share it on our YouTube as a comment as well. But basically this is a short, sharp 10-minute read of everything you need to be aware of for the political scenarios with its FX and rate implications about what the next potential moves might be for Italy and its political situation that's developing at the moment. Very great read here from the guys at ING. One of the things here, this is a really fascinating quote graphic actually, because what they're saying is that Salvini— well, just let me quickly show you. In Italy, the League is the gray line here. So when the— we had the hung parliament in Italy not that long ago, what, a year ago, they had to form a coalition with what was by far the most popular party, which was the anti-establishment Five Star. And you can see here the two converged within about 3 months of the two parties coming together. And the Five Star basically have been losing popularity ever since their first day in office. And quite the opposite from the more nationalist viewed League under Salvini, who have just surged to popularity. Almost— they're at about 30%, 38% in the polls. All you need in Italy for the threshold for a parliamentary majority is 40%. They are just off that, and the expectations are that given their stance and their views on issues like immigration, the party that they'd probably team up with on a coalition would be the Brothers of Italy, which are the most furthest right-leaning in terms of their political stance. So, yeah, interesting times ahead for sure for Italy. Okay, back to the calendar. Quick wrap-up then, and let's hear from, from Sam on the technical side. So other things I've got my eye on this week, um, definitely growth potential in Europe. And actually, we are looking for a contraction in the German economy to be announced on Wednesday morning, so look out for that. That precedes then the European GDP reading we're going to get on Wednesday morning. And then Thursday is the main day for for US economic data. And I do feel like US economic data does carry a real renewed level of interest given this market's indecision on whether or not to buy into Jerome Powell's mid-cycle adjustment phrasing. You know, is Jerome Powell right? Is this unprecedented times where actually we just need a little kink in interest rates to then resume the upward trend of the the increasing rate cycle. This is why economic data like retail sales, New York Empire, Philly Fed, industrial manufacturing production, they're all coming out on Thursday. So really key day for US data. Uh, and then on Friday things tail off, fairly quiet. Maybe foreign direct investment in China could be quite interesting just given everything that's going on there domestically. And then you've got the University of Michigan sentiment the preliminary reading on Friday. Okay, that is pretty much it from me. So really it comes down to continuation of focus on the trade war rhetoric, any developments there. US data key on Thursday, and then keeping on further developments of Italy in regards to then this political situation with Salvini and that, that BTP Bund spread as an indicator of risk. And then finally, that big level in cable. Um, the trigger point on that, I feel, doesn't necessarily need to come politically out of the UK because I don't think we're going to get too much more. I think it will be a continuation of what Boris has been doing. The data could, well, act as a bit of a catalyst. And underlying that as well, dollar movement will be key given how close that level is. OK guys, that's it from me. As you can hear, my voice is now fading, so I'll hand you over to Sam. Cheers.

Thanks, Anthony Cheung, and I think I speak for everyone saying that we're glad you're better than you were on Friday. Well looked after. We'll have a quick look over the euro to begin with, is breaking out of those lows that we had at the back end of last week. What a support level it had been. And the 112 handle is as big, to be honest. And just having a look back here to the beginning, uh, of— well, sorry, the last couple of days of, uh, of July, you can just see the importance of this point. So we then retested it after breaking through on the 6th, and we're just, uh, hitting— well, the low of the day is half a tick below 112. So really key level. Obviously to the upside, keeping a close eye on those lows that we did just break through as well. So we'd have that marked up. To the downside, if we were to get through 112, which of course we're not at the moment and it's holding quite firmly, and you've got the, the S1 from the day, but also we'll be looking down to any of those previous highs that we did break through on the 5th last Monday where the euro was just pushing higher and higher and higher against that dollar. So Perhaps that push that we had last Monday wasn't necessarily warranted as much. I know we were coming in last week and they were talking about, you know, an extra quarter point being priced into a cut. And really the euro just pushed, you know, through all these resistance points like they weren't there. But that now gives you the opportunity is looking for support just below where we're trading now. And let's have a quick look at any of these these trend lines to the downside. Got a nice one that would be coming in around the S1— S2 as well. So keeping a close eye on that for the euro. Obviously for the pound, as I mentioned, that big level not too far away now from the low that we reached this morning, just over 30 ticks, which is incredible to think just how far we have come since the beginning of May. And the pound obviously gonna have to have that marked up. And if that was to go, you've got to imagine there's going to be a decent, decent push below there and a fast money move. To be honest, I think you might see first test of it, and it was first retest of it, have a decent level of support. But once that goes, it could really get quite ugly for the pound. However, this morning we have just had a decent enough push. I haven't seen seen anything out on the headlines, but the pivot on the first test, you can see, acting as a strong resistance point to the upside. If we were to get through, you can see a nice area just above, uh, 121 from Friday. And then you've got, uh, if I just move this above the camera as well, you'll see was also the low that we had back on the first. So that's a key level, key line in the sand. We never really had the opportunity to, to get up towards the 123 or 124, which would have acted as a good level of resistance. And as you can see, while the euro last Monday was just pushing higher and higher, the pound was just drifting, drifting to the downside. We have, of course, after those, the poor numbers that we had on Friday out of the UK, just broken out of that range. So any retest of that area I think will certainly interest people around 1.21. Pivot for now, uh, containing price. Having a quick look over at the Japanese yen as well. So we've just got the dollar side of things strengthening, not just against the, the euro we saw, but also the yen here. We had a bit of a false break of this trend, and I'd still look to, to have this on. Let me just modify that a bit. You can see it's all contained there as well, but both to the upside and the downside. So be keeping a close watch on that should we get any break through, um, of this. And that's pretty much how I would have the yen for now, waiting for the opportunity either way. Um, obviously keeping maybe an eye on what stocks do in the afternoon for any correlation there. And this morning, just having a look over at the moving averages, I'm just going to quickly put the moving average cross on as it already has the two that I want to talk about. Uh, the 200-day moving average holding price up. As we know, we've talked about this, we couldn't close below and it's acted as a good level support. We've now got the 50, the red line here, acting as that resistance level. So worth keeping a, you know, close eye on that. The 50, certainly the last time we, we broke through it and then acted as support back in June, could be looking for a similar type reaction there. Certainly on the daily chart, above where we're trading, other than that 50 You do have some key, really key resistance around 2962, previous all-time high support when we then broke through, and also a decent breakdown area from the first of the month. Uh, so worth keeping a close watch on that. Just over 3% away from that all-time high. If we have a week like we did last week, um, well, the last few days that we had the last week will be up towards, uh, that, that high again there. So more intraday, obviously keep a close eye on that, the 50 DMA, uh, if you can. Obviously just put the pivots on here to have a quick look around. You can see we are just from last 15 minutes or so just come up to test this. And then here you go, you've got that third test now. So I had this marked up and you can see strong enough reaction with the low volume there of that third test to the downside, slightly steeper, but we are getting squeezed in from both ways. If we were to have a more aggressive move to the downside, again, I'd be looking to see can we get a third test of this trend line from the low that we had overnight on Monday night, Tuesday morning, and then obviously the Wednesday test of that as well. Looking to come in at the moment around S1 and of course Friday's low, and that's a key level as well from the high of the 8th. Gold, as Anthony mentioned, was just drifting lower this morning. 1,500, uh, has broken. You've got quite a lot of previous, uh, resistance around there, or I should say around the S1 as well, which had broken through. Uh, next key levels, I know we've got a couple of trend lines that could well come into play. I'm just going to move that above the, um, above the camera to the high of the 18th. You can see that coming into the breakthrough that we had on the 6th, uh, and the 7th overnight. So that retest of it coming in around— if it was to come in now, 1494, which looks like a quite key level. We've also got some support from the 7th there as well. To the upside, any of those retests of those lows that we had broken through would of course be worthwhile having on. And maybe later in the week, likewise with the S&P, but this one to the upside. Just keeping an eye on these trend lines, uh, that was squeezing price over the last couple of sessions or so. So it might be later on in the week we do get that breakthrough. But if the dollar is to strengthen, and it's already up 0.18%, uh, gold might just have a leg lower this week. Whereas, you know, last Monday, of course, the dollar was incredibly weak and we did push higher in gold as well. Quick look over to see what, uh, the DAX is up to on the open. We have pushed higher, however finding resistance up near those R1 levels. And, um, I know the, the S1 and those lows from Thursday— well, I said the low from Thursday was the initials, uh, the, the last support that we had back on Friday, which had pushed things, uh, to the upside. A quite key resistance on Friday, Thursday's high, and also the low that we had back on a second. That's the line in the sand for the DAX this morning. If we can get back up there, you can imagine the 50 DMA for the S&P might come into play, and, and that little trend line would actually get a breakthrough. Quick look at oil to wrap things up. Decent push higher on, uh, on Friday after that— well, let's just put this on that, that low that we had from, uh, well, the month, but it was also, of course, the the low, uh, that we had, uh, well, yeah, from June and January as well. So really key level of support there in oil when the recovery has been as strong. A lot of resistance above where we're trading near the R1 today from those previous highs of the 5th and the 6th. Uh, not too much going on this morning. The pivot to the downside looks pretty important. Important as well, or just a bit below, 10 ticks below, 53.75. Higher the 7th, lower the 6th, and lower the 1st as well. Any questions, as usual, please, uh, do let us know. We'll be doing the strategy report as usual. The pound is coming back up to test that high from the morning, but 121.06, a key level that might give an opportunity for that further leg down to 120. Hope you have a good trading day. And I catch you in the chat.