watching out for strong us data which could drive a dollar breakout this week

Weekly Outlook

Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should 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

2nd March 2015 by Richard Perry, Market Analyst

Macro Commentary

Markets will be observing a game of FOMC tennis over the coming months. It may not be especially fun, but hawkish and

dovish rhetoric is likely to result in an increasing amount of toing and froing as the year progresses. However, as they do

battle it may be advisable to bypass much of the noise and instead focus on one key aspect, the economic data. On

Friday, Loretta Mester served up a continued hawkish trend (admittedly she is a non-voting member in 2015), to suggest

that holding rates too low for too long would impact on Consumer Confidence and could create a self-perpetuating cycle

of low rates. However Bill Dudley (a voting consistent dove) hit back by pointing out the risks of hiking too soon which

outweighed the risks of hiking too late. The market seemed to pay little attention to either, instead moving on a slightly

disappointing set of Pending Home Sales. Unless someone on the FOMC dramatically changes stance, the comments will

likely do little to sway the market which will be focusing instead on what really matters, the economic data. Janet Yellen’s

testimony last week seemed to confirm this to be the case and that the removal of “patient” from the FOMC statement

would turn the game into one of data dependence. A strong Non-farm Payrolls report on Friday could be the catalyst.

WHEN: Fri, 6th Mar, 1330GMT

LAST: 257,000

FORECAST: 240,000

Impact: Last month’s Non-farm Payrolls report was

extremely strong. Beating expectations and

equally importantly average hourly earnings grew

by 0.5% for the month which was the best month

since November 2008. On the coming months the

market will be increasingly data dependent on the

strength of the dollar and every payrolls report

that passes successful will add fuel to the fire for

the dollar bulls. Consensus is expecting a 12th

consecutive month above 200,000 on payrolls

which could be a catalyst for gains on Treasury

yields and the next dollar breakout.

Must watch for: US Non-farm Payrolls

Key Economic Releases

Date Time Country Indicator Consensus Last

Mon 2nd Mar 15:00 US ISM Manufacturing PMI 53.1 53.5

Tue 3rd Mar 03:30 Australia RBA Monetary Policy 2.00% 2.25%

Wed 4th Mar 09:30 UK Services PMI 57.5 57.2

Wed 4th Mar 13:15 US ADP Employment Report 220,000 213,000

Wed 4th Mar 15:00 US ISM Non-manufacturing PMI 56.5 56.7

Wed 4th Mar 15:00 Canada BoC Monetary Policy 0.75% 0.75%

Thu 5th Mar 12:00 UK BoE Monetary Policy 0.50% 0.50%

Thu 5th Mar 12:45 Eurozone ECB Monetary Policy (press conf at 13:30) -0.20% -0.20%

Fri 6th Mar 13:30 US Non-farm Payrolls 240,000 257,000

Fri 6th Mar 13:30 US Average Hourly Earnings (MoM) +0.2% +0.5%

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

1

US Non-farm Payrolls since 2009

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

Weekly Outlook 2nd March 2015

by Richard Perry, Market Analyst

Foreign Exchange

There was a notable change in reaction to the US economic data in the wake of Janet Yellen’s Congressional testimonies.

Despite the US falling into deflation territory, the core CPI remained solid at +1.6% and the dollar rallied hard. The market

looks set to become increasingly data dependent as we move towards the middle of a year where anticipation is that a

Fed rate hike in likely in H2. The amount of tier one US data released this week could therefore drive volatility in the

majors. Volatility will also be ramped up by the fact that four of the eight major central banks announce monetary policy

this week. There is no expectation of any changes to policy in the UK so close to a General Election in May, whilst the ECB

has already gone all in, and although the Bank of Canada slashed rates last month but is not expected to repeat the trick

again. The real fun could come with the Reserve Bank of Australia. The consensus changes depending upon your source

(Reuters suggests another 25 bps rate cut to 2.00%), but it is interesting that Terry McCrann, the respected RBA watcher

who called the unexpected rate cut last month, believes that the bank will “sit on its hands on Tuesday”.

WATCH FOR: Forex markets could be the place for volatility this week with the manufacturing PMIs on

Monday, Services PMIs on Wednesday, monetary policy from four central banks (RBA, BoC, BoE and ECB)

and rounding off the week with focus on the US labor market with of course Non-farm Payrolls on Friday.

EUR/USD

Watch for: Having broken below $1.1260 the

way is open for a test of $1.1098

Outlook: For several weeks the support had

built above $1.1260. However this level was

breached on Thursday and a two day close

below suggests that the breach has been

confirmed. Momentum indicators have

begun to fall away with the RSI and

Stochastics confirming the breakdown,

whilst the MACD lines are crossing back

lower. Coming as this does without any real

rebound in the euro, the pressure is

mounting for a retest of the $1.1098 January

low. Above $1.1450 is needed to defer the

sellers.

AUD/USD

Watch for: High volatility around the RBA

but expectation of further downside

Outlook: The uncertainty surrounding the

prospect of a rate cut on Tuesday should

mean that volatility will be elevated this

week. The technical outlook shows that the

pair has been supported since the February

rate cut, however this could be simply a bear

market rally. A 6 month downtrend, bearish

configuration of momentum studies such as

RSI failing around 50 and Stochastics rolling

over again suggests that this is another

chance to sell. A bearish key reversal adds to

the argument that the sellers are ready to

resume for a retest of 0.7623.


FX Outlook

2



Indices

With significant hurdles being removed the German DAX has been freed to go on a bull run. With a reduced impact of

conflict in Ukraine and a potential “Grexit” from the Eurozone being put on the back burner for at least the next four

months, markets can concentrate on what will really pull the DAX higher, €1.1 trillion of ECB QE. The FTSE 100 has been

dragged reluctantly to an all-time high, but continues to underperform and the progress is slow and painful. With almost

30% weighting in basic resources and oil majors, perhaps the shackles will be removed if the PMIs and payrolls data

muster positive surprises. With the influence of Wall Street earnings season all but over, we turn to macro growth factors

to drive markets forward this week. The S&P 500 found a boost from the marginally dovish outlook from Janet Yellen last

week, but the Fed is going to be increasingly data dependent moving forward. That means that the tier one economic

data this week will have a lot of attention. Risk sentiment will be guided by the Chinese PMIs, whilst the US ISM

manufacturing has fallen for the past 3 months and the bulls will be hoping for this trend to be halted.

WATCH FOR: Attention turns to the growth drivers with the manufacturing PMIs early in the week sure to

impact on sentiment. The US labor market becomes the focus in the latter part of the week with the ADP

employment report will be an early indicator of Non-farm Payrolls on Friday.

FTSE 100

Watch for: FTSE 100 continues to struggle

higher, but now towards 7000

Outlook: Despite four days of trying, FTSE

100 is still waiting for a confirmed move into

a new all-time high. Incredibly, there have

been four successive closing levels within 15

points of each other and none have come

above the December 1999 peak of 6951.

There is little to be too negative about on

the FTSE 100 on a technical basis, with

momentum indicators not showing any

reversal signals and a sequence of 6

successive higher lows. However the

underperformance is excruciating as 7000 is

into view.

DAX Xetra

Watch for: The DAX remains the darling of

the major markets with further gains likely

Outlook: The DAX outperformance is

notable. A gain on the week of 3.2%

compares to the FTSE 100 which has added

just 0.4% and the S&P 500 lost 0.3% The DAX

is looking increasingly impressive on a

technical basis with move that has pulled

well clear of the 100% Fib projection target

around 10,950 (which now becomes

supportive) and the upside towards 161.8%

and 12,020 is now open. Momentum

indicators may be a touch stretched which

could limit upside, however buying into

weakness is certainly an opportunity.


INDEX Outlook

3



Other Assets: Commodities & Bonds

The fact there seems to be little real dent coming n the US oil supplies has hampered the rebound in WTI in the past

week. Instead of engaging a declining trend the EIA oil inventories climbed by a further 8.4m barrels. The price of WTI is

clinging on to an improving outlook by the fingernails now and the spread between WTI/Brent has grown to over $12

which is the widest in over a year. There had been a suggestion that OPEC may hold an emergency meeting prior to June,

but this seems to be increasingly unlikely with little desire for this to happen from Saudi Arabia.

A stable core US CPI resulted in US Treasury yields pushing higher and which continued into the weekend. Strong US

economic data is increasingly driving investors out of Treasuries as the prospect of a rate hike at some stage in Q3 grows

ever more likely. Core Eurozone sovereign yields remain well anchored at the prospect of ensuing quantitative easing,

however perhaps it is a surprise that Greek yields have not yet pulled dramatically lower, despite the agreement

between Greece and the Eurogroup. Perhaps this suggests the caution the market still views Greek debt with.

WATCH FOR: A raft of tier one data to drive US Treasury yields, whilst any suggestions that global growth

(especially PMIs and Non-farm Payrolls) is beginning to find some support could help to support oil.

Gold

Watch for: A series of mixed signals now

forming questions the bearish control

Outlook: Gold has been trending lower

since the $1306 January peak. However,

with a bounce off $1190.90 the outlook

has started to improve. Momentum

indicators are beginning to pick up and

pressure is being put on the $1223

reaction high that would mark the first

key resistance within the sell-off. The

downtrend comes in around $1234 today

and this could still just be part of another

bear market rally, however caution is

recommended.

Brent Crude oil

Watch for: Continued consolidation on

Brent Crude

Outlook: Since the January low at $45.19,

Brent Crude has embarked upon three

phases of consolidation. In breaking the 5

month downtrend, the latest consolidation

is forming support above $57.80 which is

another higher low above the previous key

low at $53.07. Momentum indicators are

still supportive, and the support of the 21

day moving average (at $59.00) remains

important (interestingly, though WTI has

broken below the support of its 21 dma).

There are no immediate signs of an upside

break of the $63.00 resistance, but equally

there is also a lack of selling pressure.

Perhaps it will be a data driven move.


COMMODITIES & BONDS Outlook

4

T: +44 (0) 20 7036 0850 │ F: +44 (0) 20 7036 0899 │ E: [email protected] │ W: hantecfx.com

Risk Warning for Financial Promotions

This report is issued by Hantec Markets Limited, who is authorised and regulated by the Financial Conduct Authority (FCA) in the UK, No. 502635. The report is prepared and distributed for information purposes only. Trading in Foreign Exchange (FX), Bullion and Contracts for Differences (CFDs) is not be suitable for all investors due to the high risk nature of these products. Forex, Bullion and CFDs are leveraged products that can result in losses greater than your initial deposit. The value of an FX, Bullion or CFD position may be affected by a variety of factors, including but not limited to, price volatility, market volume, foreign exchange rates and liquidity. You may lose your entire initial stake and you may be required to make additional payments. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions. Before deciding to enter into FX, Bullion and/or CFD trading, you should carefully consider your investment objectives, level of experience, and risk appetite. You should only invest in FX, Bullion and/or CFD trading with funds you are prepared to lose entirely. Therefore, only your excess funds should be placed at risk and anyone who does not have such excess funds should completely refrain from engaging in FX and/or CFD trading. Do not rely on past performance figures. If you are in any doubt, please seek further independent advice. This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such. All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.

Trust Through Transparency

Hantec House, 12-14 Wilfred Street, London SW1E 6PL

T: +44 (0) 20 7036 0850

F: +44 (0) 20 7036 0899

E: [email protected]

W: hantecfx.com



watching out for strong us data which could drive a dollar breakout this week

Economy & Finance