Trump Calls For Fed Action As USD Hits New highs

Okay, very good morning to you. Tuesday, 20th of August. Hope you're doing well. Before we kick off the briefing, just a reminder for tomorrow night, Sam and I will be doing a live YouTube session from 6 PM from the office. It's going to be based around a kind of Q&A format. Of which we're going to bookend the session with coverage of the FOMC minutes live. So all you need to do is go on to— well, you're on the YouTube channel now, uh, click subscribe and then hit the notification bell, and you'll be alerted about 5 minutes before the session begins with an automatic push on your, on your phone. Or if you want to watch it on your desktop, there'll be a chat facility, so it should be quite a good event, and also with a market piece of information coming out at the end. So Hopefully you can join us. But otherwise, just moving on to— not so much the headline here, we'll get into that in a second— the charts this morning. Fairly quiet session really overall yesterday. Much of the week as we were looking at it at this time yesterday was based around a couple of key points of interest, in particular on Friday when we hear from the Fed Chair Jerome Powell. Of course, that's That's probably the biggest thing that's happening, although we have some other points of interest like the FOMC minutes obviously on Wednesday. We've got the ECB minutes as well coming out later in the week, but this is quite typical. People are waiting that kind of main event. So Monday was quite quiet, albeit a positive finish across the three major indices, so managing to claw back a little bit of the losses that were seen from, from last week. A couple of other headlines to be aware of from Trump tweeting requesting more rate cuts and now quantitative easing, a Washington Post source article talking about further fiscal stimulus potentially in the form of tax cuts, a few other things as well that, um, interesting Fed comment as well from Rosengren that we're going to review in a second. But looking at the charts this morning, largely a reflection of that, probably the most distinct factor of the morning is a little bit of a continuation of dollar strength. The DXY, albeit flat, it's testing at the moment technically an area of some near-term resistance. And definitely worth keeping an eye on the major currency pairs. In particular, Cable still remains one that's very closely on our radar. It had a decent kind of recovery, if anything, last week. A bit of a pullback from what had been what looked like closing in on a retest of that post-EU referendum low that never really quite materialized. But we're still just around a point away from that at the moment, so still keeping an eye there. Euro trading at the 1.11 handle this morning, uh, overall pretty flat. But again, with overall prevailing dollar strength—

isn't—

and I'll show you some other charts in a second— um, the difficulty that the US are having at the moment from both the Trump, more importantly, point of view, but also from the Fed, is that with all the other global central banks easing, it's kind of the fact that the US is a little bit further ahead in the monetary kind of cycle of where they are, and their economy is generally performing, albeit slowing, showing some signs of slowing down. Things are just worse elsewhere globally, and so as a default factor, then the dollar kind of outperforms and If there's any positive signs in the trade war as well, that obviously helps the kind of overall sentiment for the dollar. And so that's not good, of course, for Mr. Trump because it continues to make the US, in his eyes, ever more uncompetitive against what he feels is market manipulation on behalf of a lot of other foreign central banks to artificially weaken their currency. So we'll have a look at that in a second. Outside of the FX markets, things are very quiet. Fixed income, the 10-year is basically flat. A little bit of a higher move in bunds this morning. I think if I look at the calendar, there is a, uh, some talk about an auction. I'm not sure if it's whether it's today or tomorrow coming out from Germany that could be quite interesting, just given the negative yield curve at the moment. Otherwise, oil pretty flat. Uh, gold the same, down marginally, but nothing really too interesting this morning. So I'll let Sam go into that more. Let's get straight into the news. Um, this was the first one I want to talk about. This came out yesterday and did help bump the market up a little bit. And this was according to a source in the Washington Post. It was talking about senior White House officials are discussing the possibility of a temporary payroll tax cut in an effort to boost the economy in the face of a potential slowdown. Now, this is quite interesting because, you know, there was an article in the FT I was reading that was written by quite a senior chap at BlackRock this morning, and he was talking about the fact that central banks are running out of ammunition. And, and this is where really the fiscal side comes in. And certainly this has happened before. In the wake of the financial crisis, payroll taxes were temporarily cut by President Obama at the time in order to boost consumer spending in the initial phase of the recovery post-financial crisis, but that expired in about 2013. And so it hasn't happened before, but obviously it's another form, if you like, of trying to counteract if there were signs of a looming economic downturn. Interestingly, I wonder how much of this is just trying to kind of fight and push back against this media narrative of that inversion of the yield curve You know, I was looking at the kind of Google metrics of people searching of recession and these types of things, or word counts of articles mentioning that word, and it obviously spiked last week. And it's one of those things where as long as the, the parties at play, that being the government and the central bank, can get hold of that and try to mitigate the runaway herd belief about a recession, then actually then you can kind of stop stop that self-fulfilling kind of prophecy to some degree, because ultimately that, to a large extent, can be what drives these inversions, is when it becomes this kind of almost fixed belief that because it's happened before, it will happen again, and that ultimately then leads to the same thing happening, if that makes sense. So how much of this type of, you know, drip feeding in this type of article is— as much as actually you read it It seems it's a long way off of this idea being implemented or even brought forward to Congress. But it's just interesting that this tends to come out after what we had last week, which is obviously a kind of buildup of this idea of a downturn is looming. And so to counteract that, quite interesting attempt, I feel, by the administration to sort of drop these types of source comments, which we know where they come from, in all honesty. So that was, that was interesting one yesterday. The other one was this chap. I'm not sure if you do recognize him or not, but he is the Federal Reserve Bank of Boston president. So in terms of the 12 regional banks in the US that form the kind of monetary policy committee members, this chap is the head of the Boston one. His name is Eric Rosengren. He is a voter this year and he Interestingly, in an article said he signaled no willingness to support further interest rate cuts, saying the US economic conditions are still good and that easing policy would encourage a worrying debt buildup. So again, he said that he signaled no willingness to support further rate cuts. Now, one thing to be aware of here is this is that hawk-dove spectrum, if you like. And as you can see here, in 2019, Rosengren is a voter. But other than Mester and George, Rosengren is one of the most hawkish members out there. And so he has dissented before, disagreeing with recent cuts. So it's not that surprising. But if you think about this idea of, um, dollar appreciation, this certainly is, is not helping, uh, Trump's ambition of keeping the dollar weak, because it's this type of commentary that obviously starts to then counteract some of the markets, you know, quite dovish expectations about deep rate cuts when you've got people like this dissenting, albeit fairly in line with their general stance on policy. Another thing that I did see last night that I think you do need to be aware of when we get to the open of Wall Street a bit later. And this came out in the Wall Street Journal, again citing sources, but effectively saying that, um, if I get the main crux of the article, a group of states is preparing to move forward with a joint antitrust investigation of big technology companies, according to people familiar with the situation, adding another layer of scrutiny to industry already under the federal spotlight. So again, this is important for the fact that those big, uh, kind of names that can be highly influential if you're trading the index future, so the likes of Alphabet, Google, Facebook, Amazon, all these types of companies, obviously if they see a meaningful reaction to further antitrust probes, um, that could be an interesting factor for the open on Wall Street later on this afternoon. Not, not the first time we've heard of such type of action, but a continuation of this, and the more impactful it could be on the bottom line of these companies, then the more it's got to be factored in in terms of the price in the context of the here and now. This was— I mean, we talked, we talked so far about the strength of the dollar, and, and this really is capturing quite a lot of the attention Obviously, dollar gain fueled in part by comments of Fed Rosengren, as we've just discussed. But the dollar has soared to new 2019 high. I mean, if we look at that on a chart, this is what we're looking at. This is a picture of the Bloomberg Dollar Spot Index. And as you can see here, having retested a high that was seen very early this month, that puts us up in a retest of an area right at the beginning of June. And then that means we haven't traded really this firm in the dollar since where we were in December of 2018. Now if you remember, that was in a period of where the market was in a short-term kind of correction phase that was led by the fact that the Fed was still committed to multiple rate cuts— or rate hikes, excuse me— at that time. The weakness of the dollar here was that big rephrasing or policy change of direction where they basically said no, we're not going to cut, which was quite a radical shift for them to counteract the downturn at the time, but we've come all the way back up. So this is one of the balancing acts really for Trump. More positive he might be on the trade talks, then the more then that starts to kind of build up the idea that, well, probably lesser need for aggressive rate cuts, more buoyant for the US economy, um, in terms of the any evidence of a slowdown if you remove that big macro risk. And that by default then strengthens the dollar, but the stronger that gets then the more it can be to the detriment of the US competitiveness. So yeah, expect more from Trump kind of tweeting and trying to control this situation. It's kind of the one downside perhaps to Trump's strategy of trying to kind of bully the market, whether the Fed, whether through fiscal policy and so on, or whether through threatening government shutdowns and positioning himself and posturing in Congress is that, you know, the more he tries, it's almost like the more you do something, the less potent your actions become. So that's probably the one risk I'd say that Trump does run by trying to really manage these so frequently. And of course, the man himself did tweet last night. This is what he said. He said, "Over a fairly short period of time, The Fed basically, with interest rates, should be reduced by at least 100 basis points with perhaps a little quantitative easing as well. If that happened, our economy would be even better and the world economy would be greatly and quickly enhanced for the good for everyone. So again, Trump, now you remember he was calling for Powell when they did the original rate cut a few weeks ago to go 50, not 25. The Fed disagreed and went 25. Trump now is upping the ante. He's gone for, let's cut 100 and do a little QE as well. So definitely more pressure on, on Powell. And this is all quite tactical. If you listen to— if you were to go back and do an assessment on Trump's tweets ahead of every Fed meeting, he tends to then really be quite critical of the Fed's policies. And given the fact that Powell was speaking on Friday, this is now his, you know, the art of managing the deal. He's now, Trump, putting a bit of insurance policy into play because I don't think Powell will listen to him, and I don't think Powell definitely needs to go nowhere near as far as what Trump wants. But then if the economy responds to Powell, well, fine for Trump. If the economy then starts to weaken further and equities, let's say, start to fall because of a lack of Fed action, well then Trump wins as well. This is one of those, uh, again, it's kind of ABC of managing the situation for Trump, where he's limiting his downside in that respect. So yeah, more of that to come, I'm sure. Other things, just to wrap up the headlines, not really a great deal of movement, I'd say, on the back of this, but we had the RBA the Reserve Bank of Australia minutes overnight. In summary, they said they're ready to cut interest rates further if evidence suggests that that would boost the economy. Members would consider further easing of monetary policy if the accumulation of additional evidence suggests this was needed to support sustained growth. So they're still keeping very much a downside or an easing bias, but I'd say that last comment talking about the accumulation of additional evidence means that there's a fairly significant bar, I would say, in order for them to start, you know, continuing to commit to delivering of more cuts in the future. So yeah, if anything, I'd say the Aussie picked up overnight rather than eased on the back of the, the latter part of that, that comment. And then the final thing is Brexit, the pound not really reacting to this. I'd say any weakness in cable is more a byproduct of some of movement of late. But Boris Johnson, basically in a letter to European Council President Donald Tusk yesterday, Johnson said he wants to replace the so-called backstop provision in a divorce agreement with a legally binding commitment not to build infrastructure or carry out checks between Northern Ireland and the Republic of Ireland. So I'm not sure about you, but I'm getting slight déjà vu. Isn't that what Theresa May said? Or what Theresa May wanted, and he's saying exactly the same thing. So much for changing it up on the most contentious issue of trying to negotiate Brexit. So yeah, status quo, nothing really changes. What have Europe said in response to this? They've said, you know, this is just a waste of time, you've not brought anything new. And again, such as this negotiation has gone, there's a real lack of detail about what some of these alternatives could be, which there's no substance to the discussion. So all in all, not really much new going on here at the moment on the, on the Brexit side. Quick look at the calendar. What have we got on the docket for the day ahead? Um, very quiet in the morning, to be honest. So I'm sure as Sam would explain, I'd just be really more Conservatives sitting on their hands waiting for the US session to really kick off. As I said, I'll be interested to see how stocks react, if any, in the tech space. Some of the big companies on the back of that Journal article that came out last night. And then from a US perspective, on the scheduled economic data, there's really nothing of great magnitude until we get later on this evening for the API weekly crude inventories. No real Fed speakers until much later on in the evening. So I'd say still likely to be, unless anything unexpected materializes, could be a bit of a repeat of yesterday, fairly tame session. I'd be more kind of utilizing a technical orientation to some of the setups without the lack of any real fundamental catalysts really at the moment. Keeping an eye on any further continuation of strength in the dollar. I don't see any reason for that really at this point to change too much. And so maybe just looking, eyeing up the technical levels on the downside for EUR/USD cable could be something of interest. And I'll let Sam discuss that in more detail. All right, that's it for me. Have a good day and I will see you in the chat room. Thanks very much.

Thanks, and, and yeah, for tomorrow, looking forward to catching up with you all as we go live and Just having a look over, start off with the, the euro, which eventually, more so into the evening, did, uh, did make its way lower. And just having a look here on that longer time frame, just because— let me clear the pivots up. Now, we were talking yesterday in, in the briefing and in that strategy report, same for euro and pound, at the potential of just looking at, uh, the lows of the year to make these, these trend lines. And of course, this will be all about where we finish day, but you can just start to see we've already got that third test, or, you know, we're looking to make that now for the euro. So worth keeping an eye on that, where we, we close the day. And if we were to get below there, um, that low of the year can come quite quickly. Uh, looking more intraday, and I'll put the pivots on here just to give us a further idea of where we're trading. You can see, um, back up towards the pivot this morning has acted as a good level of resistance, along with yesterday morning's low. Um, I, I think, you know, we can get back up there again. I mean, for the dollar strength side of things, if we were to get a break of that trend, and I think could be a half decent opportunity, we perhaps want to start looking to get on these, these trend lines as well, should we push higher from those previous highs that we've got as well, to see if we can get that third test. But we are supposedly, you know, if you look at this area, that area, perhaps looking to make a new range as well. So that data calendar, again, pretty quiet in the morning. So maybe like yesterday, just waiting for that trade to actually happen and maybe break either to the upside or the downside is better, rather than maybe looking to, to get in around these highs again. So potentially looking under there, I think, could be the trade to go with. And, and for the pound, it's, it's pretty similar. I mean, you can see just from the low that we had last Monday, almost coming in to get that third test of, uh, the trend line here as well. So keeping a close eye on that, see how we respond to this trend line, which is also on the futures coming in around 121, uh, as the opportunity could well be on a break of that, uh, and a decent enough move. And suddenly again you're looking down towards the low, uh, parts of year. And then, then people start talking about that 120 again. So a bit of dollar strength into the back end of the evening, despite what Donald Trump would have wanted. Also, to the upside, you can see if we were to go, worth keeping an eye on, on some of these trends that we have been respecting quite well. Obviously, that seems quite far away for, for now. And like we saw yesterday around 8 o'clock, the selling has started, uh, for the pound against the dollar. That euro pound, we'll just have a quick look at as well, which we talked about, just the importance of the level we saw on Friday's, uh, low, which was pretty much exactly the same as the last day of, uh, July. And that still held quite well. Again, however, you are starting to get a bit of a trend. So, but both of these markets, uh, well, all three of them, you have got these trend lines from the those lows, which are worth keeping an eye on because if they were to break, you could see a move either way for the euro and the pound against their dollar pairs as well. S&P to bring in another— another good day to the upside. Two back-to-back strong days, Friday and Monday, has led us to, to get up towards that pretty important level, 2940. Was the high that we had on the 13th, the 8th, and some nice resistance on the 2nd as well. Just looking at this on, uh, a longer time frame as well, let's remove the pivots. We're just starting to— I'll just remove this all here. We're just starting to then get that third test. You can see, so like that euro, we've already hit it, and it'll be important to see where we finish the day. So you've got the 2nd of August, the 13th, and now, uh, today as well, uh, just finding quite important resistance. And the price action we've seen going back to the beginning of August, so this month, does quite remind me— I'm just moving this here to have a look at the October, November, December time frame. And I remember being in actually in, in Dublin, uh, at the time when we just couldn't get above this trend line here on the 3rd of December, despite some really positive days to the upside, we just couldn't get above. And then we had some negative headlines that come through. And just like, uh, the high of the year, which is that trend channel from the previous two all-time highs, technical, uh, analysis can then lead the way to further push lower with some negative headlines that come through. So just worth keeping an eye on what happens here. And certainly if you're a bull, you want that level to to break. You want us to get a test of all that area, that 2940 area, and then suddenly, yeah, sure, we can be having a look back towards, uh, that low of the area we broke, ran around 56, and of course 3000 and the all-time high. But important point I would have, uh, marked up there as well. Having a look over at gold, see how we're trading today. Let's put this on to 60-minute. Obviously you can see just from that daily candle, uh, a drift lower yesterday. And we did late yesterday come back to test the, the Friday low, which has acted as pretty good resistance. And the, the bottom area, which again is a zone, 1504-203, we found pretty good support there as well. So keeping an eye on all those levels still. Uh, we're starting— you can I mean, it's not the most amazing trend in the world, but you can see from the high that we had back on the 16th, we're just getting squeezed in there a bit. I think with the low volume certainly you're gonna have in the morning, again, just probably worth looking at this as a bit of a new range for the market to, to be in here for gold. From $1,300 to, uh, to $1,203 is where I would be focusing on there. To the downside, if that was to go, obviously you've got the the whole area, uh, from that lower spike around, uh, the S2. But with that just being a bit of a stop run, if you like, I'd still have marks up below the 12th at 1498, and of course the 1500 level. If we were to break that trend line and get above the, the range, obviously we're then looking towards the R1 and some nice resistance from the Asian session, uh, yesterday. Quick look at oil before we have a look at European equities. Which are just trying to test those highs as we speak. Uh, oil, like with stocks yesterday, just grinding higher really from the afternoon into, into the close. And, uh, just let me just draw— we had this trend line on yesterday just to see how that was coming in. Was it this one? Well, not, not the best respected, but You can see we've continued to push higher. I actually quite— look, and I've got it marked up on my charts on the computer on the left. I quite like the look of the pivot today. You've got quite a lot of resistance we just couldn't break through yesterday before finally getting the go into the European close. And 5572, that kind of area on the futures is somewhere I like the look of. To the downside, unless we're really to break all of that and then this trend I do prefer this market pushing to the upside. Also worth having a look at this just over the last, uh, sort of few weeks. Now, it isn't the, the best trend in the world, but you can see we've just come— well, actually, it's not bad to be honest, it's pretty good. Uh, I'll be keeping an eye on, on should this— should we come back into to test it just above where we're trading. Uh, so the pivot important to the downside, but also this trend line uh, which is pretty much marked up with the, the high that we had of the, uh, the morning of the 6th— it was not the 6th, the 14th. 56.54 would be that another test of that trend line. So really important little mini range here in oil from 54 down to 73. That's where— I mean, that's the key levels that I'd have marked up. A daily close above that trend, then we can be looking towards the Uh, well, that's certainly the higher— the 13th. Well, so we break below the trend that we're starting to form from these recent lows. Well, the market can really start to turn. So the S&P and oil on massive important trend lines. The euro and the pound, uh, and euro pound— so euro and pound against the dollar and euro pound all coming to important trend lines to the downside. Quick look over at the DAX just to To confirm what we were talking about a couple of seconds ago, just how we're coming to test those highs. And worth keeping an eye obviously for the US equities as well, what happens, uh, here with the, the DAX. If we were to get a break of that, then the S&P looking to, to get to its high, uh, as well. Just bringing in, uh, that point, worth maybe just reiterating this, uh, resistance we were talking about in the briefing yesterday, just how important that, that whole area was, uh, 11,844, give or take a couple of points either way. So a break above the, the high from yesterday, the R1, and, you know, this is the, the key level perhaps for the week. And to the downside, like with the S&P, the pivot is pretty important. Already had a couple levels of support there. Break of that, and then you're looking down to the morning, uh, low from around 9:45. So a bit of a gap below the pivot, and more importantly, up towards yesterday's high above there, then we can start to get a bit more excited. Any questions, as usual, do let us know. The pound actually just coming under more pressure here. So that trend line that we, we're talking about, just to, to wrap it up, important to, to keep an eye on this. Let me just draw that on. You can see we're having a go here at getting below that. Uh, 121 just being tested again. So keep a close eye, uh, on that level there in the pound. Not looking too good. Any questions, please do, uh, let us know. But I hope you all have a great trading day.