The Trading Week Ahead: 24th - 28th June 2019

Hi guys and good morning. Monday the 24th of July, first trading day of the week. We'll have a quick look over markets, how we're trading going into the first session, European session of the week, and we'll have a look over the calendar and what stories could drive price for the remainder of the, the sessions ahead. You'll see from the calendar on my right here. This was posted by, uh, by, uh, head of analysis Anthony Cheung overnight, uh, on our Twitter feed. I think Amplify retweeted it as well. So if you haven't seen this, obviously please do head over, and, and it obviously helps to start planning the, the week as it comes. Monday is, other than really the IFO out of Germany, it's going to be a pretty quiet one. It very much seems after the back end of the week with the central banks, you know, finishing up, that it very much seems that today is like the last race at Ascot. No one ever bets on the last race at a horse meet. Everyone by then has either lost their money or won too much money, and you're just basically going on a big gamble, and nothing really ever makes sense, or so my racing friends tell me. So today seems like one just to sit back and plan and not go chasing the market too much. If we have a look where stocks are trading after a fantastic week, it has to be said, back obviously above 2,900 on the, the beginning of it— yes, a beginning of it, sort of this sort of time last week, the dovish Fed obviously helping things push on. However, we are just stalling a touch. And if we have a look, of course, on the, uh, the, the larger time frame here well, stocks making that new all-time high. Is this time going to be different? The, you know, the previous 3 times we've been around this level, you can see we have stalled. And, uh, it does, you know, looking at this, the recovery that we've had for the month of June has been simply amazing to have a look at that. We'll come over to the markets in terms of opportunities to get in, uh, later on, but it does feel like today is, is one better to to just sit on your hands, uh, and wait for the bigger things to come, uh, as we go through the week with G20, uh, later. And we do have, uh, some important data out of, uh, the US as well. Gold, helped by the weaker dollar, uh, and geopolitical tensions, has pushed higher above $1,400, uh, on the futures. Uh, we are now at $1,405. Uh, we're keeping an eye on, on how we trade around that high. Is that going to be a double top? It seems like If you want a neckline for a gauge of sentiment, well, 1404.2 is as good as you're going to get. You can see we found here support this morning on what was a resistance level. The failure to push on, uh, we're keeping an eye on that for anyone that does feel like we are a bit overdone and the dollar should start strengthening, uh, or not. We'll come into that. T-notes, similar to gold, and it's been on a strong run as of late. You can see here May and June pushing higher. But are we just starting to top out? That obviously will remain to be seen. And oil, yes, another big mover in the market after finding support, or, you know, almost getting down to $50. $51 double bottom holding is a good level. We finally then broke out this mini range that we had back on the Thursday, decent push higher. We're now back above $55, which, uh, you know, here was a acting as a good resistance, and now 58 trading. And it does look like we are looking for another push higher as well. Just going back to those, uh, those days to be aware of. So down at the bottom on Friday, you've got the G20 summit day 1 with Trump to meet President Xi. That will be the— if I were to single it down to one thing for this week, that would be what I'd be keeping a close eye on, as well as obviously Saturday and over the weekend. Over the weekend, over the last couple of days, well, on Friday evening, I'm sure you all saw it, the headlines that Boris Jopie's police have been called to Boris Johnson's house. Yes, absolutely, if you hear something, you should call the police. But to then, when nothing's, uh, then no further action taken, to then go and send a video recording to The Guardian kind of sums up, uh, what kind of person that person is. Uh, however, it's a bit of a non-event, bit of a non-story, uh, nothing coming of it. You know, Boris doesn't want to talk about his personal life. People think he has to. It's going to go around in circles. There's a lot bigger things going on. Has this affected his odds in the leadership race? No, not according to Oddschecker. As low as 1/7 with some bookmakers, 1/5 the best you can get with Skybet. But Jeremy Hunt at 4/1, I think that is fair considering obviously it's a two-horse race. You know, it's a second horse pun there of the day. But yeah, I don't think there's too much in the way that this is gonna worry the market. Also, we've had over the weekend Boris Johnson talking in his Telegraph uh, report. This was on the weekend, signaling that his focus was on leaving the EU on the 31st of October. We've heard this all before. Whether he can actually get things done or not remains to be seen. Uh, the pound recovery has been quite strong, back up to 1.28, trading below 1.26 just a week ago. He was suggesting in this article that the date, uh, that the UK would face a democratic explosion if it did not leave by that date. Now that's big words for something that is not a foregone conclusion. With Rory Stewart getting the boot on Wednesday or Thursday last week, that was Theresa May's last backer really going of her deal. The EU have said they're not going to change the deal, and Boris Johnson is going to obviously try his own one to get through Parliament that the EU would then just reject anyway. So to come out and say something so hawkish about leaving on the 31st of October October is pretty brave, and you can picture the headlines come the back end of that month and then on Halloween when we again have to ask for a further extension. He went on to say, this time we are not going to bottle it, we are not going to fail. Yeah, it's in my opinion, and I think it's shared by many, for us to get things done by the back end of October is wishful thinking. The back end of July, pretty much this date now, we'll know who the next Conservative leader is and the next Prime Minister. We'll obviously have the back end of August is recess for government, and then you've got the new EU Commissioner being elected before we then can get down to business. And there was actually a report from The Independent over the weekend suggesting that the Conservative Party are reportedly making plans that would permit the next PM to hold off from putting their Brexit plans to Parliament until autumn, which could limit the time to reach a deal to just over 3 weeks before the 31st of October. It's been 3 years trying to get some sort of deal, but now new Prime Minister is supposed to do it in 3 weeks. Having a look at the pound, and I said it's over 1.128, and really this is going to be helped by by the dollar weakness that we've seen. You can see the sharp recovery, if you like, of the pound here. I do think, like we were saying last Friday when we were talking about the biases for the day and the week ahead, that the dollar does feel a bit overdone. Um, whether you want to look at this more technically to, to have your sort of gauge of sentiment, you know, you could be looking— I mean, it's as close as around Let's draw this trend line on. You can see the importance of the level around 127.66, the pivot below that 59. If we get to get below that, close the day, then we could of course drift lower. And that might be the way to look at things here because obviously you have the weaker dollar on one side, but also the pound situation doesn't really look like it's going to get much better. If we have a look at the, the direction that we went on from May, we of course are still a a fair way off that. Probably worth having a look at some Fibonacci levels from, uh, that sell-off to that low. I mean, the 3.82 holding quite firm. Now if we look back historically as well to the February lows, the Valentine's Day low, there's another meaningful vote. Quite a key level that we're trading now. A bit of a rejection this morning. Has this just been the good opportunity to get short again? Uh, obviously time will remain to, to show what will happen there. But it's an important week, uh, for the US as well. We have some, some data out. We just go back to that calendar, um, the, the Chicago PMI on the Friday. You've also got the, the PCE number as well, which we know that the Fed look at. If that was to come in, and that's really what I'll be focusing on the Friday, the core PCE number, we know the Fed look at it. So if we were to get a weaker reading, well, this strengthens the case for further, uh, cuts, and maybe it is going to be a 50% cut rather than that 25% cut, that, uh, or 0.25% cut that people are thinking about. However, if we were to see a good, good number, well, then, then the market might have to change its, its view, and the dollar might have to start strengthening again. Going back to the dollar, and it was interesting having a look at the reaction to the Fed on Wednesday. If I just bring— well, just circle up or rectangle the area. So we did push higher. We're now— I mean, if we go from the Fed, you can see actually Friday, Thursday, you know, I've got the wrong day there. I'm gonna say it wasn't a massive reaction. You can see we have pushed on quite a lot since. However, if we look right back on the day it was happening And this is against the, the euro, but the dollar was on a 2-week high. So unbelievably, going into a dovish Fed, uh, announcement, interest rate decision, we were on a 2-week high of the dollar, or just touched. So a bit of unwind off that, not necessarily to say that they were ultra dovish more so than it's expected, but the dollar had strengthened into this meeting. So maybe just an unwind of that. I do think there's going to be a good opportunity to short say EURUSD again, and the way this market has behaved over the course of the year, it might be worth just trying to identify any potential trend lines going into the week and breaks of those. Then you can get that continuation, uh, lower. But back to, uh, the calendar and looking at opportunities for where the dollar strength could come. Friday could well be that, uh, with the, uh, the Chicago PMI and the core PCE numbers which we know the Fed prefer, and looking at as it, uh, you know, strips out more volatile components such as energy. Analysts expecting a 1.6 reading as of now. And then, you know, some analysts have gone on to say that if they were to overshoot the forecast, it will strengthen the argument of Fed Chair Jay Powell, who says weaker inflation this year is transitory, a scenario that would spur markets to rethink the case for a July rate cut. But however, on the flip side, of course, if it's worse, then it's just going to boost that idea. Which brings us on to, uh, that the G20. And going back to, uh, well, this sort of time last week, I was speaking with, with Ant about what I would do if, if I was Trump. And having, you know, the, the tweets last week, however, long ago it was, where it was looking now that Trump was saying they're gonna meet and it's all gonna be, you know, great. We were just saying perhaps he's just shot too early here. I know it's in the election year and he wants the stock markets on all-time highs, he wants these good trade deals, but if you're China— and they have been relatively hawkish on the, over the weekend about, you know, how they have the patience to hold off, they're not going to be the bullied into it. You know, if I was China, I would— I'd do the same. I would make Trump sweat as long as possible. I know there's been a big impact on the economy for China, but if they wanted to play it, you know, from a more clever point of view, they could just hold off and then actually have the, the later part of the year when, you know, Trump is really campaigning for that reelection. If he doesn't have this China trade deal done, he will struggle. And, you know, that is leverage on the other side. And and Sleepy Joe Biden might just wake up. So it'll be interesting to see what can get done at the G20. I don't think the markets are necessarily expecting a deal to be announced. We have pushed higher a lot. I mean, going back to, um, you know, just last week, just the idea that they were meeting was enough to strengthen markets massively, helped I guess by the dovish Fed as well. Um, but yeah, it should be a pretty, pretty interesting end to the week. So looking at that calendar, you know, quite a start to it, more range-bound. Let the markets tell you what's going on, and, uh, and the scheduled releases and perhaps more unscheduled announcements at the G20 might be the better opportunities for a longer-lasting move. Uh, China, what they were saying in the People's Daily, uh, administration, the paper, they were Saying the US must drop all tariffs imposed on China if it wants to negotiate on trade, and only an equal dialogue can resolve the issue and lead to a win-win. That's what the newspaper was saying. Any hint that they're prepared to get talks back on the road, on track towards a deal, would be welcome news for the economy, the global economy really. And then that, on the flip side, that positive news then may, you know, give that warning, you know, take that warning away and the Fed may not cut rates at all. So if you're Trump now, you've seen what the Fed are looking to do, you've seen now there's talks of a 0.5 rate cut. Trump's going to be hawkish, isn't he? So therefore, if not, if it does look like there is a deal going to get, you know, get done and significant progress will be made, well then the stocks, you know, stocks should, uh, should continue to push on. However, I don't think he's going to do that right now. He's got a bit of ammo with the Fed, uh, and, you know, I do think, you know, his baby Dow Jones is, uh, what he cares most about in this election, and he will time it as best as he can. But it might be interesting to see how hawkish as well on the flip side China are as we go through these, uh, these talks as well. Uh, last week obviously we saw, uh, a lot of central banks with the Fed, the Bank of England, Bank of Japan. We saw some, some comments from some ECB. So we'll just have a quick run through of those things here. If you flip back to the euro, we have pushed on higher since then. The, uh, the interest rate decision 7 PM last Wednesday, uh, Powell took it as close to a rate cut as possible without executing one, would be the summary. He and his colleagues removed a previous pledge to be patient. That removal was obviously ignited further dollar weakness, and we traded around that day 113 on the futures and we're now 114.5. So not the biggest move in the world, but still a big, a big reaction from where we were trading in that sideways range in the build-up to the meeting. And, you know, the uncertainty highlighted by the US trade war will remain, and Trump knows now that he can be a bit more hawkish come Friday and Saturday. So I would say the dollar side of things, it could be a good opportunity to get a reversal of that. But stocks, I wouldn't be too aggressive just yet about thinking that this market is going to, you know, push on and on and on. Just be careful perhaps going into the back end of the week. And of course, the, the data we talked about, the PCE number, if that is good, then on the flip side, Powell again can, you know, step back and say, well, we've, you know, seen this transitory inflation number as we mentioned. We're now not going to cut rates, and suddenly the dollar strengthens quite a bit again, and we are back to those, uh, those highs on the, on the index. ECB yesterday, well, we, we know, uh, uh, it was, well, was it the 18th? So Tuesday, where we had the Draghi tweet in the morning, or not Draghi, comments in the morning, only for Trump to, to come back and blast him on Twitter. The tweet here: Mario Draghi just announced more stimulus could which immediately dropped the euro against the dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others. So the ECB, while they didn't have a central bank meeting, Draghi found himself at a Twitter, Twitter war with, with Trump. Not something he would have signed up for all those years ago. Of course, he's setting, stepping away in autumn, and Bundesbank President Jens Weidmann sought to make himself a more viable candidate as well to succeed Draghi by acknowledging the ECB's crisis-fighting tool is legal and valid. If he was to get the nod, it would be a hawkish one for the euro, despite him trying to make him more viable here. So we had some dovish comments out of, uh, of the ECB, out of the euro last week. And you can see that the day before— if I just bring this into picture here— the day before the Fed, you can see that reaction, although the complete reversal and more following, uh, 24 hours later after that. Bank of England, uh, what did we have? Let's have a quick look over, uh, at the pound. On the, the Thursday, we drifted higher into the announcement, came back lower, and then since, uh, from Friday afternoon where we've seen a lot of dollar weakness, we have pushed on. We're just coming to that key level though on the pound. I'll keep an eye on that, those Thursday and Friday morning highs to keep a close eye on. The Bank of England, what do they say? Acknowledging rising concerns on the UK leaving the EU, really they can't do anything until that's, uh, that is sorted, especially if the, the UK leave without a deal. So they've kept rates on hold. However, Mark Carney said they still see the need for interest rate hikes in the coming years if their forecasts bear out. So of the, uh, the two previous dovish meetings that we had from the Bank of Japan and, uh, and the Fed, the Bank of England slightly more hawkish. However, not really resembled in markets, uh, as of, as of yet. The Bank of Japan has mentioned they were dovish, but they kept things on hold, minus 0.1%, uh, remaining there. Kuroda reiterated that the Bank of Japan stands ready to add stimulus if momentum towards its 2% inflation goal is threatened. So keep an eye on that inflation number for the Bank of Japan. If that was to weaken, uh, you've got to imagine there's gonna be a follow-through, and actually they might have to look at alternative measures. Uh, unbelievably, in, uh, an era of, um, monetary policy easing. You've got the Norges Bank who have raised rates for the third time since September and signaling more tightening to come. So fair play to them. That Scandinavian economy, which is backed by the world's biggest sovereign wealth fund, is starting to show signs of overheating after surge in oil investment. So at least someone is, is raising rates as well. Quick look over the calendar again, just to reiterate, today is looking pretty quiet. I wouldn't be expecting, uh, too much, uh, really, other than the, the German IFO, which will be worth keeping an eye on, uh, certainly for, for the euro and the DAX alike. Uh, that's coming out in 26 minutes. Uh, the forecast, uh, for that, uh, IFO business climate, 97.4, so tiny drop down from the previous reading. Um, so that will be the really the main highlight, uh, today as we go into Tomorrow, uh, you've got Jerome Powell speaking again, so that'd be something to keep a close eye on. Has he got any further comments to say following the, uh, the dovishness of the Fed and the market reaction that that saw ahead of the G20? Does he want to say anything? That will be something I'm trying to keep a close eye on. You've got the weekly API and DOE in its usual Tuesday and Wednesday slot. Oil has obviously pushed on quite a lot. We've had some relatively hawkish comments out over the weekend from Iran as well. Let me just bring these into picture. I mean, not actually— about 46 minutes ago, the Iran naval chief warns that Iran could down more drones. Whether they would do that or not, I think that would escalate things a bit. Trump going back on his word over the weekend, saying that he actually wasn't ready to send the attack on Iran. He was dismissive of that despite tweeting it 24 hours previously. Also over the— well, last night, over the weekend, Iran Deputy Foreign Minister says its decision to decrease its commitment to nuclear deal is a national decision and irreversible as long as its demands are not met. Off this, off these comments, off the China hawkishness ahead of the G20, I have to say I'm slowly slightly surprised the, uh, the US markets are still near those highs. I know we're, you know, in a bit of a chop right now near, near the all-time high. Um, yeah, a bit surprised we're not coming off a touch, but oil remaining around $58, pretty key to see what happens at this area. It does seem like the, the R1 offered a good level of resistance along with this trend line. The pound is coming under a touch of pressure. And you can see actually therefore now just breaking through that level and finding support on that trend line. So this is a key zone, 72 to 77, that I'll be keeping a close eye on. Uh, gold, uh, that neckline that we talked about, 1404, is key. I'll be keeping a close, uh, monitor on that as well. Back to the calendar just to wrap things up. Uh, you've got retail sales numbers out of Japan, so we're keeping a monitor on, on how they— or how Japanese data comes out ahead of their next meeting. Whether they're gonna have to start doing things into the middle part of the year, uh, will be quite interesting. Got a couple of speaks— speakers as well, uh, on the Wednesday and Thursday. Bank of England's Carney, Fed's Bullard all speaking, and the Votny, uh, on ECB. And you've got Tory leadership hustling Thursday as well. Uh, I think it's a pretty much foregone conclusion with Boris to, to win it. Um, time will tell if it can get more interesting, but right now not the case. Friday, on paper, the most interesting day. G20, big US data, um, that will be the, the main focus. And we do have some European numbers out in the morning as well. Uh, I hope you all have a great trading day. A good week ahead, and I look forward to catching up with all of you throughout. Take care.