The Trading Week Ahead: 9th-13th September 2019

Very good morning, hope everyone had a fantastic weekend. Monday the 9th of September, as per usual Monday morning, this is very much a look ahead for the week. As you can see to the side of me, this is the, the kind of economic calendar of highlights, inclusive then of data meetings. I generally include everything on here, so any political things that are going on like the prorogation of UK Parliament, which is expected to happen this week. So we're going to talk plenty about Brexit over the next few minutes. But then I'll hand you over to Sam. So I'm going to spend very little time actually looking at the charts from a technical perspective. I'll leave that to him to go over in more detail. Generally what we do as a tandem, I'll, I'll pretty much take all of the technical analysis from last week off the charts and let him just start afresh so he can talk through as he's doing it and why he's doing it. When Sam comes on in a moment. But looking at the charts this morning, the currency markets, the dollar index is pretty flat overall, but some slight softness seen in the major pairs, particularly cable. And I think rightly so, given the movement that we saw last week. I mean, we had such a decent run-up in cable after we had the passage, if you like, or we are awaiting the royal assent, of course, today. That bill going through the lower house of parliament and then the upper house for confirmation of the fact that Brexit could well be delayed until, uh, January of next year. And so a bit of profit taking coming in. There's plenty of news and more resignations that have come from cabinet members over the weekend, which we'll have a look at. Otherwise, elsewhere, gold pretty flat, um, reflective really of just generally the news that's come out over the weekend, which has been relatively light The Asia-Pacific session was slightly positive after we had confirmation at the end of last week that China had once again cut the reserve requirement, the triple R ratio, that helping release some liquidity in the system to help offset what was some weak trade data that was seen over the weekend. So if you're looking at the center charts here in the futures space, the DAX, NASDAQ, and S&P 500 futures all seen moderately higher this morning. S&P, of course, in a pretty tight range, just finding some resistance up and around the range high that was restricting some of the price action towards the end of last week. T-notes consequently down a touch, about 6 ticks, and oil up about $0.64. A couple of news items there also to be aware of ahead of the Joint Ministerial Monitoring Committee meeting happening in Abu Dhabi. Later this week on Thursday. So let's jump straight into the news, and we will circle back around to this calendar in a second. But I did briefly mention China, so this is what happened end of last week. We had Beijing cut the RRR. China cuts its bank reserve ratio, freeing up $126 billion for loans as the economy has slowed. So this Not really coming as a great surprise. Trying to remember now, I think this is possibly the 9th cut to the RRR seen since the onset of the, well, the last few years, let's say. And so it's just in fitting with the pledge that they've made in order to do essentially whatever it takes to mitigate the downturn that's been clearly evident from the global slowdown emanating particularly from the stress on on their economy from the ongoing trade war. The onshore yuan falls. Shanghai shares were up about 0.4%. And we also did see at the weekend China's August exports unexpectedly shrunk as, of course, US shipments slumped. So again, just giving further warranting that the action of why they did what they did at the end of last week. So that was kind of led the slight risk-on tone to this morning, but it's nowhere near a kind of a runaway sentiment, I would say. So fairly neutral overall. So I'll still be keeping an eye on the equity markets. I think they'll probably settle here until the US come in, to be quite honest. A couple of big things coming up on the calendar, of course, later on in the week. This does come, though, in the bigger picture of things with Um, the non-farm payroll report, we obviously saw no real sustained impact from that, but a, but a weaker headline than expected. And of course then this all lining us up quite nicely for the interest rate decision to come from the Federal Reserve, which is going to be next week on Wednesday, of course. One thing though is that as far as markets are concerned, we are still expecting a cut of 25, not 50 basis points at this point. But the, the ECB looking to, to lower interest rates this week. You've got the Bank of Japan last week talking about the idea if they'd be interested in talking about this idea of going further negative rates. You've got the Fed looking to cut rates along with their guidance that they're going to reissue next week. And you've got China cutting the RRR. So Despite the overall global concerns that there are, we remain in this phase that as long as central banks globally coordinate and remain in this accommodative stance, for the moment it seems to be enough to keep sentiment just ticking over for the time being. Enough of that though, let's get straight into— on this weekly calendar you can see one of the main things here I've highlighted in bold and underlined is the potential commencement of the prorogation of UK Parliament. So of course, this was the one that was passed at the end of August, surprisingly, by Boris Johnson. But it does mean that as soon as today, Parliament could be prorogued or happen in the coming days, certainly by the end of the week, that will be underway, not to reopen then until we get the official Queen's Speech, I think, on October 14th. And so hence the reason why we've had so much action of Brexit headlines over the last week or so given that move and strategy by Boris Johnson. So what have we got to look out for? Well, today Parliament obviously reopens. Prime Minister Boris Johnson, sticking to his Brexit plan, will seek to delay— or seek— or not seek an extension or any delay to Britain departures from the European Union. This, of course, though, could go against him in terms of legal law being passed in a royal assent from the Queen later today. And so if he does not abide by that, well, he is in effect breaking the law. So what that has meant is that this was leaked in The Sun or The Times newspaper from overnight: Boris Johnson is in retreat over delay on Brexit. So apparently here he is looking— I love the photos that they managed to catch of these guys. But Boris Johnson has signaled to cabinet ministers that the government will have to accept a further 3-month delay to Brexit if it is forced on him by the courts. Now, to be clear, what happens here is, having gone through the House, lower and upper, it now goes to the Queen. Now, the Queen does actually carry some powers of rights to veto certain things. So technically speaking, the Queen might not give the royal assent, and therefore it's game on again for Boris Johnson. And I would say if that were to be the case and that materialized, the Queen not giving her assent, then the pound would drop pretty dramatically today because the— we'll go into prorogation and then the risk of no deal is right back on the table. Now, what's the probability of that happening? Well, the probability is incredibly small because most people see the fact of the Queen giving her royal assent as symbolic and purely a formality. Now, there are two things that she must consider in order that if there was going to be a change— excuse me— a change of mind. One is if she feels as though that there was a mistake on the actual law of which has passed so far, seen by her judgment. That one is seen as absolutely no way that would happen because, you know, the, the Remainers, let's say, have done a very good and solid job at making sure the wording appeases all the necessary legal requirements. The other one is that she can take advice from ministers. And over the weekend, of course, Boris Johnson was said to have been in conversations with the Queen. Now, could he say, you know, the fact that he's had to expel 21 of his Tory members because they're not following through with what he's saying? Could he say that the fact that the opposition have failed to call a vote of no confidence in his government, the opposition have failed to adhere to the Prime Minister's request to have a general election, that means then that really the Queen should vote down. Well, there's some of the reasons why she could go off the Prime Minister's reasoning and judgment. However, I would say it's highly unlikely that that's to be the case. I think the Queen will want to steer completely clear, uh, of any direct involvement politically in getting tied up into any of this. And I do very much expect that this will just go through as per the plan. Brexit then is delayed as per law, which means the PM would be breaking that if that were the case. So what does that mean? Well, today actually when Parliament reopens, Boris actually is going to call for a general election again. Uh, that again will get voted, uh, or will not get the relevant backing of two-thirds of majority of Parliament. So instead of it being a request for a general election. I would see it more as a political opportunity for the existing government and Boris Johnson to bash the opposition for not committing so far. But as we know, does this mean a general election is not going to happen even though Brexit now technically, potentially by the end of the day, will be delayed? Well, no, because Jeremy Corbyn already said last week that as long as this goes into law, the delay, then he would back the call for a general election. So it's not a matter of, um, if but when, more so that the general election will inevitably take place over the coming weeks or months at some point. Now, a few other things to be aware of. This is— well, let's just jump back to here. One of the other news headlines you probably saw was the Amber Rudd has quit Boris Johnson's cabinet. She was the Works and Pensions Secretary. She said the government was having no formal negotiations with the EU about a new deal, only conversations. She in fact said that 80 to 90% of Brexit work being done was spent preparing for a no deal. So obviously, from her point of view, being someone who originally backed a Remain vote She's kind of saying that, well, we're supposed to be an open party reflective of the different political views. The fact you've had to expel 21 Tory ministers and the fact that you're not really seriously looking to make any headway on Brexit because 80 to 90% of the time is being spent preparing for no deal, not negotiation— well, her position was untenable, she said. And so she has resigned. This, of course, comes a week after his own brother, uh, Joe Johnson has resigned, but he still has his faithful allegiance with Dominic Raab, Sajid Javid sticking up for him, both coming out saying that they're still following the government's plan and they must stick to that plan for the moment. So yeah, a couple of different things going on. The pound backing off a little bit this morning, but I'd say it's already down to its S2 on the daily pivots. Um, yeah, this is more, I would say, bit of profit taking. I think the run-up last week was a bit overdone in my opinion for the current state of play. Uh, potentially quite a few shorts getting squeezed after we had that kind of failed breach through the 120, uh, about a week and a half ago. Uh, and so just a little bit of downside pressure just coming through. But again, the, a risk could be the Queen does not give her royal assent to that bill, uh, was it the Hillary Benn Bill that passed, uh, if that were to happen, I would be expecting, um, a big spike lower in sterling, uh, anything from a point plus I don't think would be out of the realms for a daily session change. However, I'd assign a probability of the Queen not giving passage to that bill at about anything from 1 to 5%. So incredibly low if I was to, to give it that kind of percentage probability. The other thing that Boris is doing today, so you're aware, because you're probably going to get lots of headlines today on the Northern Irish border, because he is meeting the Irish PM, Varadkar, in Dublin today. What's expected from this? Well, not a great deal. They're having a conversation of course. But what the Irish PM has said is that nothing is expected to come of today. If there is any deal or compromise to be done, it's more likely to be done when there's that EU summit happening in about a month's time, 5 weeks' time, ahead of the— what was, or what could be now— the previous deadline of October 31st. So just to point it out, you're going to get lots of headlines about Northern Ireland and the border, I'm sure today. Are we gonna, gonna get any groundbreaking resolution? The answer to that is no. Okay, other things are— go back to the calendar for a moment. Tuesday, uh, pretty quiet, not really too much going on overall. Some Chinese inflation data perhaps could be quite interesting. Remember, we've been having quite a divergence between CPI and PPI. PPI obviously weakening given the state of— like we saw at the weekend, a slump in US imports from China has meant that trade has decreased. So PPI naturally decreasing as manufacturing activity has slowed down. On the flip side though, CPI on the consumer side has been spiking because of food prices in particular and pork prices, uh, given what we've had with the likes of not just trade talks but the, the swine flu that's been impacting the pig situation in that region as well. So probably that will continue for the moment. That could be fairly interesting though to have a look at. UK average earnings data, um, again takes a bit of a sideshow towards the political stuff that's going on at the moment. Wednesday, again pretty quiet. Um, we do get the OPEC monthly report, usually monitored by energy traders to just get the latest on the, the global kind of demand and supply situation. Also the adherence to the OPEC compliance levels, of course. And this comes ahead of the joint ministerial meeting happening in Abu Dhabi, which is going to be on Thursday. Now on that point, talking of oil, this happened at the weekend. I'm not sure if you caught it, but quite a surprise announcement. Um, I didn't remember hearing anything really talking about the fact that Khalid Al-Falih, the former energy minister, was going to be dismissed, but that is exactly the case of what's happened. It's not immediately clear why the Saudi King Salman removed Al-Falih, but analysts and officials importantly have said that the decision is unlikely to change the kingdom's oil policy. Now, his replacement is actually King Salman's son, Prince Abdulaziz, who is a longtime top energy official. And so the point being is here, not expecting too much of any great change in direction to the commitment for Saudi to continue to push for further supply cuts and rollovers of the these deals and importantly keeping Russia on side. So it's an OPEC+ deal, uh, will be key. So oil a little higher, uh, this morning, in fitting generally with the correlations with the cross-asset class mix this morning. Um, I don't really see this as too much of an issue, but something to just be aware of on the oil side. Um, back to the calendar. Thursday then is, is the interesting day and potentially really the highlight of the week, and this is because it's the ECB interest rate decision with the accompanying press conference— call— press conference as well. And I believe you get the latest ECB staff projections. So this is one of the most important meetings for the ECB we've had in a while. Not only is it outgoing for Mario Draghi before he hands the reins over to Christine Lagarde, but we are expecting action from a policy perspective. So what I've done here is I've I've printed out, as we can see here, Time for Shock and Awe is the Reuters headline, and they've produced here a couple of graphics that will help explain the situation, what's happening in the euro area. And so first, um, graph here is looking at money market expectations for ECB rates. So it's looking at the EONIA money market curve, so kind of like what we look at typically with the Federal Reserve when we're looking at the FedWatch tool. This is a reflection of a similar thing. So basically, this orange line here is the floor here in this area of money market rate expectations. Now, what the bottom axis is here is a timeline. So you've got everything from basically 1 month out to 30-year on the far right-hand side. And then the right axis, you've got the level of the deposit rate facility. So at the moment, the deposit rate obviously is here, -0.4%. The general consensus on the street is for a cut of 10 basis points to 0.5%. The Reuters median forecast of depo rate for next quarter and through 2020 is for -0.6%. So markets are already priced for further cuts beyond what we've already had. And the floor of money market rates is actually down close towards -0.7. So just like market positioning for the Fed comparative to their actual central bank communication, i.e., markets always being much more dovishly priced, that's exactly the same case for the ECB. So as far as money markets show, we're looking for a trough in eurozone rates in about 3 to 4 years before then the sharp recovery that is anticipated to be seen. As for QE, this encapsulates everything right from the beginning of the quantitative easing program from the ECB to the unwinding of it, to then the, the fact that QE actively has been stopped ever since the beginning of the year. We are expecting then Draghi's term to end and him to announce this Thursday that QE is set to recommence from October. That means then that potentially we could see the restart happening either then or towards the end of the year as we go into 2020. So we'd be expecting this to pick back up again. This is one of the other reasons why, uh, the ECB are feeling as though they need to take action. The red dotted line, of course, is the ECB's inflation target of 2%. And what we have here are 3 metrics. You've got the Consumer Price Index and core inflation rate, so both of which reside around 1.1% and 1.2% at the moment, so particularly low. We did see a slight spike in 2018. I'd imagine that was really linked to energy prices, core inflation remained relatively flatline. This is the one that's been of most headache for the ECB, that core inflation for the last 3 years has gone nowhere. And what we have been seeing amid as well the economic slowdown in the euro area is that the eurozone inflation link swap, basically the 5-year, 5-year breakevens, have continued to, to edge down lower, meaning that basically further money supply why more quantitative easing is needed in order to fuel inflation again, particularly if we're going into an economic downturn as well at the moment. And then the final few things here is, well, what is the situation for total excess reserves of credit institutions subject to minimum reserve requirements in the euro area? And so excess reserves— at least we saw this coming as of course the ECB wants to liquidate the system for any potential downturn that could be on the horizon, given what we've been seeing with the various inversions of the yield curve and so on. And comes at a time when Eurozone sovereign debt yield heat map— I know this is quite small, but essentially, if I just zoom this in for one second, these are all the countries going from Germany at the top to Greece at the bottom. And obviously If you look at this, the entire German yield curve is negative. Uh, remember the starting post for German yields, obviously much lower given the higher credit quality of its debt, whereas Greece, obviously the complete opposite end of the spectrum. So all of Greek yields, uh, being more speculative in nature given their lower credit ratings, are much higher. But you can see here more than half the board is in negative territory at the moment. So this is one of the key things that a lot of people will be talking about when the ECB meet later— how effective can their quantitative easing program be, and the parameters of which they do their purchases at the moment. Will they need to be tweaked in time? Okay, so that's the kind of ECB situation. All of that to come, of course, on Thursday. So that is a big one. And so if you're thinking about your trades around the euro currency, perhaps really as we get closer towards Thursday, all the more it's probably going to sap a lot of market volume and liquidity into that event, for then it's such an important one to see what happens next. The bottom line is that as far as Mario Draghi is concerned, this is kind of like his farewell meeting. It's— and not only are we expecting action, but Draghi seldom has, has really failed to not deliver in previous historical occasions, and we'll be expecting the same thing again this time around. Going through then to finish off the week, Thursday US CPI and then Friday US retail sales will be important, of course. So that is pretty much it from me. I'm gonna post this video up onto the YouTube channel later on this morning. If you did have any questions at all about anything we've covered, please feel free to leave a comment on the video below. Me and Sam will be happy to answer as we go through the rest of the day. Otherwise, have yourself a good week. Lots of Brexit action likely going to be front-loaded this week because of the fact that Parliament will be prorogued this week. And as I've discussed, I'm going to get another call from a general election. That's not going to happen from Boris Johnson. He's going to get voted down. Royal Assent will go in. So all things being equal, then that will lead us into this down period where Parliament will be shut until we come back in the middle of October. But it doesn't mean in the interim period there's going to be lots of news in the, in the time in between. Okay, hand you over to Sam and he can talk over the charts and setups for the week ahead.

All right guys, take Okay, thanks, and hope everyone had a, uh, a good weekend. Obviously, shame about England and the cricket, but congratulations Australia, and of course Rafa Nadal, which I'm sure Anthony is a bit annoyed about as he's getting closer to taking over Roger Federer. But we'll have a quick look over the the pound and the euro to begin with, as Ant mentioned, likely to be front-loaded in that end for the pound. And of course, ECB coming up, so want to keep a close eye on what happens there. So starting off with the pound under pressure this morning, and I was just having a look on the trading platform against some other pairs, and there's some good levels coming up on the idea that we can get a bit of a retracement this morning to then get short again. And with the pound, you could argue that would be around 122.57, which is, well, the current— or the previous low of the day. Just looking for areas like that, that if we were to get any retracement, we can just get that continuation. Of course, headline risk is, is something to take into consideration, but at the moment the pound weak across the board, and euro pound as well just pushing above the R1, which is also coming to couple of key levels just above where we're trading, which we'll have a look at in the moment— in a moment, I should say. 124, that, that retest of that multi-year trend line that broke, never really got close enough. I think we're about 50, 40 ticks away from that, uh, from coming in. But for, for the pound, if we can get any retracement, uh, on all the pairs, that's how I'd really be, be looking to, to take that on. Below where we're trading, obviously you got the, the low that we had back on Thursday, 22.16, which would be the next real support level below where we're trading, and 122 on the futures. I just think, uh, for optimal entry, a retracement to previous lows would be what I'd have, uh, marked up. And Euro pound here, just looking on a 4-hourly chart, you can see if we were to just push a bit higher up, we just come back to And yes, it is another test, but you can see just how good a support point it was previously, uh, in August. These lows here, we're not too far away from coming to test that there, 90.23, around that area, which of course was good price action point in previous weeks and months as well. So worth keeping an eye on that for the euro and the pound, just another retest of that level. But considering how how good it was a support area. You've got to imagine without a headline it would struggle to initially get through there. Euro, obviously it's all about Thursday, it's all about Thursday ECB. And, and having a look at this, you can see we, we came to, to retest on, on Thursday what was such a key level. The failure to, to break and close above there has seen us drift lower. And just putting this back on to a 60-minute chart, you can just see the importance of the low of the day that we had today as a whole area itself. If I just draw a line up there, you can see you've also got some lows that we had back on the 4th, the 5th, and almost Friday as well. So you'd have that as a, as a big zone to, to have marked up in, in the week ahead. Below there, and it could well open up, and then you would be looking at some of these highs that we had back on, uh, the 2nd, uh, of, uh, and 3rd of September. So really key support coming in around 1.1020. Uh, the pivot not too far away from getting tested. It's obviously an area to have marked up. You can see just looking at, uh, the previous days, just how choppy it has been around there. It might well be worth, and, uh, just marking up a bit higher up towards that R1 where you've got some cleaner price action. 1.1059. So maybe, uh, with Friday's high to low, that's the, the range to focus on for the week, um, and your lines in the sand, of course, for, for going forward there. So to the downside, around 1.1020, uh, and 1.1059 to, uh, the upside, uh, as well. Have a quick look over at US equities, uh, which of course have pushed higher after breaking out of that longer-term range, that upside. And we were saying, you know, don't want to get long unless we close above there. We did on, on the 5th, and when we came back to retest, obviously the R1 on that day, not quite, uh, 1.2945, which is still a very key level for the week. But we have continued to push higher since then. And the— I'd say, well, you've got 3,000 to the upside, that's an area people will be looking at. We are perhaps just running out a bit of momentum, just failing to, to close above those previous highs. And you can see, uh, here we're almost getting that third test this morning of this trend as well. So that around the R1 is, is a key point today. That's as good a line in the sand for before we get to 3,000 that you could want. And then obviously to the downside, we've perhaps perhaps got this new range here where we had the high from Thursday, the lows from Friday, around 2971 as well. So a couple key levels this intraday before we get to 3000. And any test of 2945 again, you know, you could imagine there'd be some good support, headline permitting, uh, of course. The DAX this morning, obviously 35 minutes into, uh, that opening increase in volume, it pushed higher to snap back lower. Relatively quiet and subdued, uh, as an open itself, but obviously worth keeping an eye on that. And the key level, albeit choppy this morning, Friday's high, which has been tested already a couple of times as well. Keep an eye, obviously, where we gap slightly higher on the futures at 12,180. That'll be another level to have marked up. Gold and silver, uh, unfortunately Unfortunately, if you are— well, I guess if you've been long for a while, you're happy to have taken profit. And, you know, this move coming lower is, is probably just a bit of a correction that was needed with the, the Trump comments on that Thursday. You can see that push lower, but we are just starting to test these lows a couple of times. Silver, very much similar to gold in this respect. We're just knocking on the door again this morning. We keep coming down to test this area. 1510 it is on, on gold. And if that is to go, I know you've got all the, the lows— let's move this above the camera— from 1502, but 1500 psychologically on the futures will be worth having, uh, an eye on there. And then of course, where— when could this drop happen? Well, not the worst idea, and just having a trend line there to see if we can get the third test and then a break through. But 1510, important for the, uh, with the day, but also the week perhaps as the last, uh, support point before getting down to 1500. To the upside, the pivot is key. You can see decent price action there as well. We'll go through obviously some of these levels longer term in the strategy that we go through, but certainly for gold and silver in terms of just these lows that keep getting hit over the last few days very important points. Uh, 18, you know, just— well, we almost touched it on the futures this morning. But also some key levels around that S1. You can see here from the beginning of the 26th, and then we tested it a couple of times before breaking through. That would be somewhere to have marked up there. But silver not looking, you know, too bullish right now, as if gold really needs to hold that level. Quick look over at oil to, to wrap things up. And as I mentioned, just drifting higher this morning, has just settled down a bit and has been drifting, uh, down. If we put this on that, that longer-term chart, it's, it's been tricky, I guess, to, to really think about where this market is, is going to, to go. We had the, uh, the break of a, a trend only to, to sort of snap back on Friday. We are now back above that. We can just see how messy that has been. And we're testing— or we tested, we say, Friday, the top end of the 13th of August. And now we're sort of in this, this area where it's, I guess you could say, a bit no-man's land. While the last, and including today, 1, 2, 3, 4 days to the upside, you feel that 57.52 really has to break, and then the next level has a bit more to go, dollar and a half above that, around 58.82 as well. So, you know, could be an important week for oil. Certainly if we have a look more intraday, put those pivots on, you can see the retest of what has been a choppy trendline anyway would also this time be the, the morning high from the, from Friday as well. So 56.50, pretty key to the downside. And of course R1 and retest of of Friday's high, an important area as well. As usual, any questions, uh, please do let us know. Safe havens is coming under further pressure this morning. The Bund now, uh, down 49. T-notes, uh, rich for the morning, a decent move already, breaking that pivot as well. And gold and silver under pressure. Keep an eye obviously on, on those equity markets which aren't really really moving as such. The euro up towards that pivot as well. We said probably a bit of a, a bit of a choppy area. However, already any questions, as usual, uh, please do let us know. Looks to be a decent week. Obviously UK the focus to begin before we look at that ECB on, on the Friday— on the Thursday, sorry— as we see in some nice US numbers as well to wrap up Thursday and Friday. So it should be a decent week ahead. Hope you all have a good one, and I'll catch you all later on.