Monday: CN GDP, Industrial Production, Retail Sales, Unemployment Rate, Fixed Asset Investment, GE PPI, Monthly Bundesbank Report, UK PM May Updates on Brexit Plan B, US holiday - Martin Luther King Jr Day
Tuesday: SP Trade Balance, UK Average Earnings, Claimant Count Change, Employment Change, Public Sector Net Borrowing, Unemployment Rate, GE ZEW Economic Sentiment, US Existing Home Sales, CA Manufacturing Sales, NZ CPI, World Economic Forum in Davos, US Earning: IBM
Wednesday: JN Trade Balance, BoJ Interest Rate Decision, Press Conference, GE 5-yr Govt Bond Auction, UK CBI Industrial Trends Orders, EU Consumer Confidence, US House Price Index, Richmond Manufacturing Index, TIC Net Long-Term Transactions, Weekly API Inventories, CA Retail Sales, World Economic Forum in Davos, US Earning: P&G
Thursday: AU Employment Change, Unemployment Rate, JN Manufacturing PMI, Leading Index, FR/GE/EU Manufacturing/Service PMI, IT Trade Balance, FR 3/5-yr Govt Bond Auction, ECB Interest Rate Decision, Press Conference, US Weekly Jobless Claims, Manufacturing/Service PMI, Weekly DoE Inventories, Kansas City Manufacturing PMI, World Economic Forum in Davos
Friday: GE Ifo Business Climate, UK Mortgage Approvals, CBI Distributive Trades Survey, US Durables Goods Orders, US New Home Sales, Weekly Baker Hughes Rig Count, World Economic Forum in Davos
Another week where Theresa May has survived, and the Pound has also finished higher against the Dollar – making it 5 in a row. With just 67 days until the UK is expected to leave the EU, time is clearly running out, but with the expectations of a hard Brexit and no deal being priced out by the expected extension of Article 50 it remains an interesting time for the short-term price action for the pair which I will cover later. Elsewhere, last week saw a strong move higher is risk assets.
The S&P 500 importantly closing above its 50DMA, Trend-channel resistance, its 0.50% Fibonacci (ATH to Dec low) and the 2650.00 area. The record long government shutdown appearing to have no weighting so far on a market driven by de-risking of a recession, a dovish FED and a recovery in Oil price. To finish up last week’s summary, you had some dovish comments out of Europe, a continued recovery for Oil prices in what was a relatively quiet week apart from the obvious Brexit circus.
No Meaningful Developments
A report from Goldman Sachs over the weekend stated how they believe the Pound will be the highest performing G-10 exchange rate this year. I currently agree with this view but also with their reasons for this statement. They pointed towards a later, softer Brexit but also citing the possibility that Brexit in fact may not even happen. As you can see from the Calendar above and the picture below, we are expecting Theresa May’s update on the Brexit status later today after 14:30 UK time.
Whether we have Brexit or not, Brexit is providing ample opportunity and volatility to the markets in what otherwise feels a slow start to 2019. My colleague, Saif Ali informed us of the volume traded on the day of the ‘Meaningful Vote’ and whilst quite clearly being the highest of year, it does suggest that traders are again highly interested in what is going on here. Below I have attached an interesting diagram describing potential outcomes for the GBP on different scenarios.
For GBP, the next couple months are all about Brexit, and even with the help of charts like this, I am sure it will not be as straight forward. If Article 50 is extended, why is it extended? And for how long? Short-term, just the headline coming out ‘Theresa May extends Article 50’ I see as a positive for the Pound, but what follows that could see an immediate reversal which is what this diagram is suggesting with the added ‘calls a new election’.
Looking at the chart for GBPUSD, I have highlighted some key areas, specifically around 1.2680 on the Futures market which I think will be important should we test it. A break and close below that and the potential trendline would effectively be a last chance for the bulls to defend. If that was to go as well, then I would not be surprised to see a larger follow through back down to 1.2700. If we have positive developments, then last week’s high and 1.3100 seem the most key levels of resistance.
Stocks soar but will it last?
In the S&P 500 we finished Friday nearly 16% up from the lows of last year. Was that just the start of a bigger push back to the all-time-highs or have we just seen the final move higher before the big move lower? I have spoken to many people who believed the sell-off we saw at the back end of last year was only the beginning and if you go on twitter you would have seen similar tweets suggesting that as well.
So why did we push higher? Well, the reasons we moved lower has become old news, the Midterms, Downgrade of Growth, Italy, Germany, Raising of Rates and lower Oil price have been replaced with Dovish Central Banks, a recovery in Oil, the markets forgetting about troubles in Europe and some positive developments for Brexit sentiment.
Technically, we have broken some key resistance points and this week’s earnings could help with some direction, but I would also be looking at Oil for an indicator as to whether this market still has a bit of room to go to the upside. Both WTI and the S&P topped out and bottomed out within days of each other last year so keeping a close eye on that correlation will be imperative. 2620.00-2680.00 is a key consolidation area where I would affectively have a support and resistance zone drawn. Bearish below and bullish above, where we close individual days and weeks are, as always very important.
I have attached another couple of markets which look interesting technically. For Oil to move higher, which in turn would benefit the S&P (Energy Sector around 8-9% and a higher Oil price leading to increased global growth) I feel we need to break and close above the 4th December High and 13th November low. If we were to consolidate lower, then the bears in my opinion would take full control if we break below last week’s low and the potential trend-line drawn from the low of last year and the low of this year.
For the EURUSD, the trend-channel you see will most likely be key for short-term price action. Should price continue last week’s trend lower (Dovish ECB comments leading the way for this) then 1.4000 looks very important with another potential trendline in the mix.
As always, any questions that you have – please feel free to email me directly or contact me via Twitter - @snorth19. I leave you with a Year-To-Date chart which looks completely opposite to the months of November and December last year. Understandably, some traders may have struggled at the beginning of 2019 as conditions have changed. Remain focussed and draw up levels of interest to dictate sentiment would be my advice. Trade what you see not what you think. Have a great week!
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