trump driving direction as a flood of key data hits the market this week

Weekly Outlook Monday 30th January by Richard Perry, Market Analyst

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therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please

ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such

transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only

invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report.

WHEN: Fri 3rd February at 1330GMT

LAST: 156,000 & +0.4%

FORECAST: 171,000 & +0.3%

Impact: After December’s rate hike, the FOMC meeting

this week may be relatively quiet for markets (direction

will likely be seen from FOMC minutes in two weeks),

so focus turns to Friday’s Employment Situation report.

Las month the headline was a mild disappointment but

the pick up in average hourly earnings was a driver of

dollar strength. The prospect that increased earnings

would drive inflation further down the line. Earnings

growth will again be watched as will the laborforce

participation in addition to headline payrolls. Treasury

yields, the dollar and commodities will all move.

Key Economic Events

Date Time Country Indicator Consensus Last

Tue 31st Jan n/a Japan Bank of Japan monetary policy -0.1% -0.1%

Tue 31st Jan 10:00 Eurozone Flash CPI (core) +1.5% (+0.9%) +1.1% (+0.9%)

Wed 1st Feb 01:00 China Manufacturing PMI / Services PMI 51.2 / na 51.4 / 54.5

Wed 1st Feb 09:30 UK Manufacturing PMI 56.0 56.1

Wed 1st Feb 15:00 US ISM Manufacturing PMI 55.0 54.7

Wed 1st Feb 19:00 US FOMC monetary policy +0.75% +0.75%

Thu 2nd Feb 12:00 UK Bank of England monetary policy & inflation rpt +0.25% +0.25%

Fri 3rd Feb 09:30 UK Services PMI 55.8 56.2

Fri 3rd Feb 13:30 US Non-farm Payrolls (& Average Hourly Earnings) 171,000 (+0.3%) 156,000 (+0.4%)

Fri 3rd Feb 15:00 US ISM Non-Manufacturing PMI 57.0 57.2

T: +44 (0) 20 7036 0850 │ E: [email protected] │ W: hantecfx.com

1 N.B. Please note all times are GMT, data source Reuters

Macro Commentary

Markets still seem to be very much beholden to a number of key factors, however one man, Donald Trump is a key

source. Still very much in the early days of the Trump Presidency (just over a week) and the politics is very much at

play as Trump is trying his best to keep his campaign promises. So far, markets have maintained their positive

stance on his policies. Despite the move to renegotiate the NAFTA trade deal, scrapping the US involvement in the

Trans-Pacific Partnership and a pledge to “build the wall”, these protectionist moves have so far not overly

concerned the markets. In fact the concern seems to have come prior to the inauguration as opposed to now. The

key market driver remains the direction on Treasury yields and despite a brief questioning of the positive correlation

with the dollar last week, the relationship remains strong. Also, perhaps of a surprise is that the protectionist

policies are not strengthening demand for safe havens. In fact, the yen (the classic forex safe haven) is now

underperforming the major currencies, whilst gold is also now beginning to trend lower and of course Treasury

yields are also tracking higher once more. Of course, there is plenty of time for these trends to turn around if Trump

cranks up the protectionist rhetoric, but it seems as though the dollar positive moves are regaining momentum. This

will be a volatile week with PMIs, the FOMC and payrolls, so data is important, but Trump remains the key factor.

Must Watch for: Employment Situation Report (Non-farm Payrolls & Av Hrly Earnings

Non-farm Payrolls

Consensus of 171,000 would still be a drag on the 6

month average but in keeping with low unemployment


Foreign Exchange

Can the dollar sustain a turnaround? There were signs at the end of last week that the dollar was beginning to

turn a corner again and the bulls regain control. This came with a bullish key one day reversal on the Trade

Weighted Dollar Index, as the dollar started to pick up once more to follow the recent improvement in Treasury

yields once more. For now, Donald Trump’s executive orders seem to be a positive for yields and this should

mean that a mild divergence between yields and the dollar should not last for too long and can be expected to

return to a more positive correlation this week. There are some near term trends on forex major pairs that are

now being broken as the dollar begins to improve again. The January rallies on EUR/USD, GBP/USD and

AUD/USD whilst the trend lower on USD/JPY are all now being broken. The key question is whether these are

consolidation breaks or the beginning of a trend turning move. We should learn more this week. There is a

plethora of high volatility, market moving economic data points throughout this week that will keep traders on

their toes. The PMIs will be key, especially for the US which showed a surprise miss on Q4 GDP, whilst China

will also drive the risk trade impacting the Aussie and Kiwi especially. The FOMC could be a bit of a quiet one,

but as ever, forex traders will be glued to the Non-farm Payrolls.

WATCH FOR: PMIs, FOMC and Non-farm Payrolls to impact the dollar. The BoJ might be relatively

benign for the yen, whilst sterling will see more volatility on the Bank of England Inflation Report.


2

FX Outlook

USD/JPY

Watch for: The bulls are fighting back and a

break above 115.60 would be a key move

Outlook: As a gauge of the outlook for the dollar

bull run, Dollar/Yen is a good barometer. This is

why the breaking of a three week downtrend last

week is a key move. This could become the

beginning of a renewed dollar bull run higher but

there is a key resistance that needs to be

overcome at 115.60 before the bulls can gain in

confidence again. The resistance at 115.60 is a

key lower high within the corrective phase and

an upside break would complete a small base

pattern which then signal potential upside of

around 300 pips. Until this move is seen and

momentum indicators confirm the move, this

could still just be a consolidation phase forming.

However the bulls seem to have stemmed the

tide for now.

EUR/USD

Watch for: The uptrend is not completely broken

but the bulls have lost the impetus.

Outlook: The pair has been trending higher over

the past three weeks, however this bull phase

looks to be breaking. The high in place at

$1.0775 has been intact for several days now

and the uptrend has been breached. Momentum

indicators are beginning to roll over and the

upside impetus has been lost. It could still be

that this turns into a consolidation phase and the

support at $1.0575 will now been keenly

watched as a breach would complete a small top

pattern. Above $1.0775 would re-open the key

resistance band $1.0850/$1.0870.


Equity Markets

Equity markets remain positive on Donald Trump as a sharp upside break came in the first week of his

presidency. Following a few weeks of consolidation, across the major markets there have been moves to all

time highs on Wall Street, and on 20 month highs on the DAX. The correlation between rising Treasury yields

and rising equity markets has been detached in recent weeks, however, there are now signs of the correlation

becoming more positive once more. Can this continue though? The upside on the US 10 year yield has room

towards the 3% area this year, however much beyond that there could be an issue with concern over disorderly

steepening of the yield curve, increased inflation expectations, which could drive a more negative outlook for

equities. However, for now rising yields should still be a driver of equity gains. US earnings season has also

proved to be a supportive factor for risk sentiment. Earnings growth and revenue growth have been positive and

the blended numbers (for companies already reported and those still yet to report) looks now to be setting up

for around 5.3% earnings growth (which would be the strongest in 8 quarters) and just under 4% growth in

revenue. The numbers have been improving as the earnings season has progressed too. This week is likely to

provide a different focus for equity markets, with a raft of key tier one economic data releases. The Chinese

PMI data will be key for risk sectors on Wednesday, and with improving signs in recent months, this could be

again supportive for equities. The Fed impact could be limited but focus will also be on Non-farm Payrolls too.

WATCH FOR: PMI data, the Fed and payrolls will drive risk sentiment across markets. FTSE 100 will be

impacted by the BoE inflation report with any sterling positive move being FTSE negative.


3

DAX Xetra

Watch for: The breakout targets 11,980 but

there could be a pullback near term first.

Outlook: The bulls grabbed control again last

week after five weeks of consolidation. The

breakout above 11,692 implies around 290 ticks

of upside towards 11,980 in the coming weeks

but there could be an initial pullback to the

11,692 breakout. However, with strong

configuration on the momentum indicators,

corrections will be seen as a chance to buy. The

high at 11,892 is now resistance that will be

watched by the bulls this week. The support at

11,510 is a key reaction low with the bulls in

control now until the increasingly important

support at 11,400 is broken.

FTSE 100

Watch for: FTSE 100 is looking to be dragged

higher by the equities bull run across markets

Outlook: FTSE 100 has been an

underperformer in recent weeks as sterling has

started to perform better and the negative

correlation between the two have been a drag on

FTSE. However the support seems to be forming

once more at 7130 which was the old all time

high which was breached by the bull run in

December/January. Old resistance becomes

new support and this level will now be seen as

key for the bulls. The RSI has turned higher from

50 and the Stochastics are also looking to turn

up again. This could be a great chance to buy,

but the support at 7130 needs to hold.

Index Outlook


Other Assets: Commodities & Bonds

There has been shift away from the safe havens back towards risk positive movers for commodities. This

means that the rallies on gold and silver have lost their shine, whilst the oil price looks to be more supported.

The strong dollar position will also be a drag on gold which has lost its psychological support of $1200. The

improved risk outlook has helped to pull base metals prices (iron ore and copper) higher in the past week, whilst

the China PMI data will also be a key driver of these markets this week. Oil has been trading sideways but is

still showing signs of looking to break higher within the range, despite being seemingly still shackled over the

past few weeks. The OPEC agreement on supplies remains supportive, but increased US output would be a

concern for the bulls. A range is likely to continue above $50.

Treasury yields have started to pick up again in the first week of Trump’s presidency. This suggests a more

positive risk market outlook and should help to foster gains for the dollar and equity markets. The spread

between the US 2 year yield and 10 year yield looks to have regained the upside initiative and this reflects a

steeper yield curve. This relationship needs to be monitored for any potential “disorderly steepening” which

would be a concern for risk appetite, but for now the relationship remains a positive driver for markets.

WATCH FOR: The huge amount of tier one data will drive volatility throughout with PMIs, FOMC,

Payrolls especially in focus.


4

Gold

Watch for: Losing the $1200 support has turned

the outlook more negative once more.

Outlook: The rally on gold came to an end last

week as the psychological and old key support

at $1200 was breached before the $1187.50

reaction low also to be breached. The cautious

traders would be looking for a close below

$1187.50 to confirm the breakdown, however a

continuation of trading below $1200 would also

be a key negative bias. Momentum indicators

are also turning increasingly corrective with a

confirmed sell signal on Stochastics and MACD

lines close to a similar signal. The next key

supports to watch on the downside are $1170

and $1146. Resistance is now key at $1220.

Markets Outlook

Brent Crude oil

Watch for: The range that has formed between

$52.80/$58.35 shows little sign of breakout.

Outlook: The market is increasingly rangebound

as the near term technical signals seem to

impact for maybe a couple of days before

looking to retrace again. Since early December

and the breakout following the OPEC

agreement, the market has traded between

$52.80/$58.35 and for now shows little sign of a

The daily technical momentum indicators are

increasingly neutral with the RSI and Stochastics

both flattening around 50. Until there is a closing

breakout either way and confirmed by

momentum indicators, the strategy would be to

continue to play the range.



5

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trump driving direction as a flood of key data hits the market this week

Economy & Finance