The Trading Week Ahead: 27th - 30th August 2019

Okay, very good morning. I hope everyone is well. Tuesday, 27th of August, uh, getting straight into the, the briefing. As you can see from the side of me, got the calendar highlights for the week ahead, so we're going to discuss where some of the interest might be over the coming trading sessions. Obviously a UK bank holiday yesterday, so So beautiful sunshine. Hope everyone had their sun cream on. Um, bank holiday though, meaning that volumes yesterday particularly light. I think the S&P traded volume was about 20% lower than normal, which is absolutely to be expected. And so yesterday's session relatively quiet as the G7 was kind of wrapping up, and that really is going to dominate much of our discussion for the briefing this morning. Otherwise, quick look at the charts then as to how we reside at the moment. It's, uh, as again, fairly benign opening, I would say. We have slightly lower index futures in the equity space on what has been an incredibly volatile period for US equities. As we, we're going to look at Donald Trump, is— I don't think he himself can make his mind up at the moment about how he wants to approach dealing with the trade talks with China. But overall, a fairly more conciliatory tone in the G7. Did see equities just creep up a little yesterday, but just giving back a touch this morning. Gold slightly positive, but again, fairly contained price action, certainly seen overnight. Just a little bump as Europe's come in this morning. In addition, the US 10-year is up about 7 ticks at the moment. In the currency space, dollar index slightly softer, and that is just lending its hand to some very moderate support to EURUSD and cable at the moment. But again, as per usual, I'll let Sam take care of the, the technical look at the markets. I'll just wrap up some of the main headlines, which starting with the G7, um, you'll remember. And actually, one of the first charts I want to jump to is, it's actually this, and this is looking at the S&P 500 and one-day percentage change. And as you can see, this encapsulates the, the kind of year-to-date price activity of the S&P. But what's really quite in stark contrast to the rest of the year is these real extremities that we've been seeing in price movement on the daily close in the S&P, kind of episodes of multi-percent. When I say multi, I mean 2+ percent, getting close to 3% losses on 3 occasions in August, 1% being fairly common on the upside in recoveries. So just absolutely seesaw as markets react and try to remain fairly agile to respond to the latest developments on the trade war situation. Kind of Trump ramping it up, China responding, then Powell coming in, that adverse feedback loop we kind of talked about. But the problem is, is that, you know, when Jerome Powell spoke at the end of last week, it was almost— and Sam making the point this morning— it was almost like Trump absolutely lost his mind for a period of a couple of hours. I mean, he even spelled Powell's name wrong with the first tweet, and the markets just collapsed at that point. And then it was followed up with at the G7— this came out, this was really at the beginning of the G7, this was like on Saturday. They have altered the headline a little bit, but originally it was: asked President Trump, asked about whether he could rethink tariffs, he said sure. Why not? And kind of roll back everything that he was doing at the end of last week, saying that he was having the idea that he was having second thoughts. However, as you can tell by the headline, the White House pretty quick to come out and say, well, hang on, that wasn't the case. But such is Trump's want and need to try and massage the, the market sensitivity in the right fashion that he needs, which is positive equity response. You know, it's been a lot, lot of volatility to try and pick through. Now, a few other things that have been happening overall, the closing statements given by Macron and Trump. Trump left the G7 taking a slightly more conciliatory tone, has been the general takeaway on China. He pointed to recent calls and a speech by China's top negotiator as signs that Beijing wanted a deal. And so therefore he's still of this belief that, you know, there's a great deal coming. However, that journalist who essentially writes for— editor of the Global Times, one of the state-run Chinese publications on Twitter— and he's been very much the voice piece on that social platform for responding to Trump. And that They said that, based on what I know, Chinese and US top negotiators didn't hold a phone call in recent days. The two sides have been keeping in technical contact at a technical level. It doesn't have significance that Trump suggested. China didn't change its position, and China will not cave to US pressure. So as much as Trump at the G7 said we've had really positive phone calls, China have basically said no, we haven't. So there's been a real, I feel, distinct shift here, which I think ultimately might even lend its hand to continued volatility, because I really do think that China now have really seemed to have hit their stop and have had enough, and they're definitely taking a different approach now. And it almost feels like Trump is chasing a little bit to manage this, and hence the reason why you're getting this flip-flopping in communication, which is highly destabilizing as far as market movement is concerned. And I do actually think that this is going to continue going forward. This was another important tweet because originally this was the Washington Post one here down the bottom. Trump said he regrets China trade dispute after recent escalation. So this is in reference to Friday, but then China came back and said, regret? This should be seen as President Trump changed his tone after ordering US companies to leave China. Regardless of his specific expression each time, we're taking— we're seriously making preparations for scenario in which China-US trade relations deteriorate further, even much worse than now. So again, it's almost like China's calling his bluff now, and I think Trump potentially getting a little twitchy, um, given the fact that China's saying quite openly and explicitly here, well, we're willing to let things get worse. And the fact now that China, if you remember, has managed to, um, control this, uh, or devalue this symbolic importance of 7 with the Chinese yuan against the US dollar, I do think now that does give them some more room for maneuver, given they know now that there isn't going to be this mass exodus of capital outflows out of their country, which was before a slight a slight risk. So yeah, lots have been happening. I think from a trade point of view, I definitely think that, as I said, this pattern of price activity of large daily intraday swings, I think, will continue for the moment. And if anything, I think if Trump does start to, to lose a little bit control, that means he inevitably needs to start sounding more positive And if anything, does that start to like translate into more positive market movement again? Because it seems as though Powell definitely is not going to be his savior at this point, not unless there is a dramatic, um, shock in markets where the Fed are forced then into action, into easing further. But at this point, Fed's still going to cut 25 basis points in a couple of weeks' time, and still market pricing in multiple cuts thereafter. But this trade narrative certainly, I think, is going to be still a tricky one to manage if you're trading intraday. And all I would say is that I think you've just got to be super vigilant in the intraday environment in terms of actively managing your trades, perhaps not sitting in anything for too longer a period than what is necessary. So that kind of more prudent approach to the timing and duration of trades might be a good way of going about trying to evade some of the fundamental risk to these headlines and tweets. Some of the other things that came out of the G7 was the French president doing his best to try and bring forward a kind of solution in towards this conflict that's been growing in the Persian Gulf between Iran and particularly the US. And so he tried to instigate talks between the two parties And Trump, as much as he said that under the right conditions he would be up for having face-to-face talks with Iran, Iran's Rouhani has come out this morning and said that there's no talks with the US until sanctions are lifted, of which you would imagine is incredibly unlikely to happen. So that being said, with all the best will in the world from French president to try and get this over the line, it doesn't look like that's going to happen anytime soon. Then Boris Johnson, he was obviously his first outing on the international scene, if you like, and apparently handling himself relatively well in respect to definitely no blunders. I think he's— it's that usual Boris kind of tactic of, um, you know, his kind of charm offensive in just being, um, you know, fairly almost light-hearted pretty charismatic in a way, and that seems to have gone down fairly well with his European partners. However, the status quo remains. Johnson said he was prepared to take Brexit talks with the European Union down to the very last minute before the October 31st exit deadline, and if necessary, to take a decision to leave without a deal on that day. So there's nothing really that came out of concrete nature from Europe or Britain. The only thing was is that, you know, no one was offended in any way, which means that with what, 63-odd days I think it is left, they're still looking to cut a deal at this point to avert the worst-case scenario. So yeah, I wouldn't say this is a direct buy the pound situation, but it certainly was worst case avoided in terms of absolute loggerheads between all of the European officials and Boris, which did not occur. The other thing— this is outside of the G7— to be aware of, again, reduced risk in regards to what was an episode of kind of yield spiking in Italy as spreads were widening and the FTSE MIB was under pressure on the back of potentially new snap elections, which could have led, if polls are to believe, to a more nationalist-led potential push close to an overall majority, or if not, a coalition leading on the, the way of the League under Matteo Salvini. But that's looking like a lesser and lesser outcome given the fact that now the, the DP party and the Five Star look to be pretty close to forming a solution ahead of what is a deadline this week. Where they need to put forward a new combination of political parties after the plug was pulled on the League and the Five Star about 2 weeks ago. The only thing that's causing a little bit of friction at the moment between those 2 parties is who's going to be the premier. Roberto Fico is being put forward, whereas the Five Star leader would prefer the reappointment of Conte, who's the current person at the helm at the moment. So Overall, uh, risk dissipating over Italy, and so you'd be looking for that to be responded to in the appropriate fashion— spread tightening, and if anything, supporting of their local equity market, and an element to help support the euro, at least for the moment, uh, in that respect. However, for the euro, there's a lot of other stuff going on, of course. Looking at the calendar for the week ahead, Few things to be aware of, and I'll just, I'll just touch upon the highlights really. As we get to Thursday, we get the second reading of US GDP. Obviously going to be interesting to see the scope and size of any potential revision to the advanced reading. And then on Friday, you get the flash eurozone CPI reading. And of course, always an important measure just given how generally lackluster inflationary conditions have been in the likes of eurozone, Japan, and so on, that has led to this more dovish-sounding central banks that we've had on a, on a global level. And then going into the weekend, you get Chinese manufacturing, non-manufacturing PMI, which is going to be important to follow, of course, as to continue to see the severity of the, the significance of the trade deterioration that we've had with the US and its impact on the underlying Chinese economy. So That's pretty much the general gist of it. I'd say actually, despite all of these scheduled calendar events, of which you can access on my Twitter account— Sam will issue it within the weekly statue report later this morning— I'd say the main thing you want to be looking at that's going to be the, the pivotal kind of driver of sentiment for this week remains the trade war ongoing between the US and China. And at the moment, it's hard to call about where that is heading. The only thing I think that is quite clear is for me, China now have really changed tact and focus, and they've really almost managed to leverage the negotiation power out of Trump's hands. And with Powell not being as rightly he should be, not playing ball with Trump's requests, and Trump seemingly getting more increasingly frustrated which is leading to much more miscommunication, i.e., changing his view and stance, I think we could potentially be in for more volatility this week, and that then creating, um, you know, just something to be aware of for your, your intraday strategies going forward. All right, that's it from my part. Let me get Sam on. He can look at the charts in more detail about what he thinks of the week ahead. But I wish you A good one, and I'll see you in the chat room throughout the week. Thanks very much.

Hi guys, good morning. Hope you all had a great bank holiday weekend. Just having a quick look over the pound this morning, and well, the dollar in general just weakening a touch. And following Friday's push to the upside, Thursday-Friday push to the upside, you can see that the GBP/USD here, just coming up to 122.50. Now a fair whack away from that, that low that we had back on the 12th of the month. So the pound is testing up at what, quite a key level from the trade that we had yesterday, just above here, about 10 ticks or so. Quite a key level for certainly intraday. And then even then, above that, you've got some nice resistance at 122.71, which I would keep an eye on. And especially when you know, recently it's been to the downside, but here to the upside now. The pound has recovered a bit. You've got a couple of highs that just getting lower, so worth having that, that trend on there. You can see you've already got the, the free tests, uh, on the, on the half hour, and we're just, you know, not too far away from testing all these points of resistance. Uh, if that was all to go, well, you've got to imagine the pound certainly for going into the, the, the early part mid part of the week has got maybe a bit more to go. And just bringing on here the, the weekly, uh, chart of the pound, and you can see, we'll see how we've got this marked up. And I mean, I really like the look of a short should we get to, you know, coming in around still 124. I think, you know, technically having broken that trend line, that weekly trend line going back to 2017, just that whole area looks pretty good, along with 124.81 as a maybe more medium-term trade. Um, but decent enough bounce. I mean, you could, you could argue we've had a test of that 120. Just, you know, I think at one point we were about 30 ticks away. Yeah, you can see that, 30 ticks away, uh, from that multi-decade low that we got in 2017. Um, so decent push, and I, I do like the look of a retest of this whole area as a place to get short. For now, just keeping an eye on the 10 ticks or so above, a bit of a range. To the downside, obviously for many of these dollar pairs, you're going to have where we pushed higher, um, well, in this case on the 22nd from the Macron, uh, uh, Merkel rumors, I should say. But also on Friday, for say the EUR/USD, that previous maybe range that we had. In the case of the pound, this coming in on the 1:22 handle. Before that, obviously the lows of the day, lows of yesterday but also worth having on. Same sort of thing as the top, just that trend that seems to be containing price for now. The euro, uh, having a brief push. And again with the pound, it's— you're just coming up to test some key resistance. Not to say that this is where we completely break through now, as you do have a fair bit just above the pivot at 1.1140, uh, as well. You can see, you could argue here this is worth having on, this trend line that's kind up through yesterday morning to the afternoon and to now as well. We had obviously that big push on Friday and I just like we were saying this morning how he just seemed like he completely lost his head, completely lost his head on Friday and whether he thought Jerome Powell was going to come out and lower interest rates or not. I'm not too sure. Wouldn't put it past him if he did think that. But the euro, uh, strengthened against the dollar. Obviously that dollar weakness coming from his attack on the Fed hit a pretty key level, that high that we had back on the 15th, uh, that late last night. We have drifted down since. I think really to believe we're going to have another test of that, this trend and that pivot and the high, we're all going to have to, to go this week. Um, as actually as we were trading near the low of the morning Well, we weren't too far again away from, you know, getting down to those lows of the year, which yes, do seem further away now. But with Trump's easing off the pressure, it might be favored to look again for this market to drift lower as well. Where could that come from? I think for— to agree with that view rather than say going short higher up, you know, break of these lows and the trend that's starting to form from yesterday to this morning could be the opportunity to get short there. Or, you know, in case it goes higher, let the market tell you that is going to, to go higher as well. Quick look over at US stocks, and it's quite interesting, uh, just having a look at this market on, uh, the daily chart. And that we've mentioned this before, but every day and week that goes by, it just looks more and more like exactly what we had in October, November. If I just bring that into picture here, you can see, just getting, uh, that in the rectangle there, the price action is pretty much identical, just squeezed down into less days this time. And you can see, uh, that, that trend line going back to October, November, December last year, we just couldn't break above. You could argue that is the highs that we've got now. The original low is then lower than the second one, and now we got that third one as well. So yeah, I think from a, you know, that opportunity to, to see a big move to the downside, it's still definitely on, just the way price action is, is repeating itself here. We get on the, uh, the moving averages, you can see the 200-day is, is very much still a level of support, and the, the 50, uh, level of resistance as well. You can see that red being the, the 50 and the green here the 200. A break of the 200, sure, we can get a big breakthrough and a bigger level as any as that 2737 to really down to 24, this whole zone here as well. But price action looking very, very similar. I wouldn't really be looking to get long. Obviously fundamentals can change that, but unless we were to break above this trend at the top, uh, and that coming in around sort of 40s, 2940. Unless it gets above there, I'm not interested. Whereas for now, uh, it does seem that we're, we're just repeating ourselves. If we do take it a bit more, uh, intraday and start to put on the, uh, the pivots as well and just have a, a look at this closer, you can see to, to the upside as well, you know, you've got this key 28.90 level, which has had good resistance, a good price action before. So I'll be keeping a close eye on that. But for me, unless we were to get above literally today's R2 and close there, I'm not too interested. To the downside, we can see we're just, uh, well, we failed to break yesterday's high. Just below the pivot looks like quite an important point, 28.55, and below there, 42, uh, as well. European stocks, if we just have a quick look, just testing their pivots. If they were to go, you've got some nice support just below there as well, similar to what we just looked at in the S&P. If that was to, to break down, then this one could come a bit quicker, you'd expect. To the upside for the DAX, the morning low before the breakdown at 8, about 26 minutes ago, while keeping an eye on here, just marking that with an X. And also you can see we're just getting squeezed from the upside downside. So a couple of, uh, lines in the sand to be aware of, most notably these areas to circle if they were to hold or not. Quick look at gold and oil to wrap it. You can see the pivot today looks pretty important with yesterday's afternoon and morning's key levels just above there, 1547.3. But also to the downside, what a level of support this has been over the last 24 hours or so. 1535, as good as levels, good line in the sands as you would like for the week ahead. If we were to break to the downside and if we were to see further easing off of those Donald Trump tweets, then just be aware of any of these previous highs as gold just had such a fantastic Friday before gapping to— what's that— 1564 on Sunday evening. as well. I would only get excited to the upside if 1547.3 was to break, and then you are looking at those highs from yesterday in the Asian session, uh, as well. Oil, uh, you can see here just, well, keep knocking on that 54 door above the pivot, but also you've got quite a key level, 5410, from price action-wise, uh, yesterday. That's something I would have marked up. And certainly to, to the downside here, and we talked in the briefing, I think on Friday it was, just how we probably prefer technically anyway, all to look like it's going to break through as those trend lines from last week held and we are now below them. We are just seeing a bit of a trend line break at the moment, so as long as we stay below that pivot, I think this market could drift lower. And then you are looking down at yesterday, uh, yesterday's sort of lower levels of support, 53, 59. From late last night and also the, the low of that week. We'll go into a bit more detail longer term for sure, uh, ahead of the midday when we release that strategy. But a couple of interesting points certainly, uh, to be aware of. This one market to finish on here is— it's just caught my eyes— the euro pound. Certainly, uh, you get where you had that retest, I guess, yesterday. Remember that head and shoulders we were talking about? Breakthrough, retest, and obviously it's attracted some interest to have got got short there. To the downside, you'd be more comfortable holding this position if that level, S1, yesterday's low, was also to break as well. You can see that trend line just looking like it's going to appear around there as well. Any questions, as usual, please do, do let us know. I hope you've all recovered from the amazing bank holiday and England cricketers' heroics So if you are Australian, I'm sorry. There's still 2 tests left for you to get something out of it. I hope you'll have a great day and a great week ahead.