- Geopolitical tensions continue to rumble on in eastern Ukraine, although negotiations between Ukraine and Russia are on-going.
- Dollar strength is having a significant impact across financial markets (especially on major forex pairs and gold).
- All eyes on the ECB and what they choose to do (or should that be not do) this week with regards to QE on Thursday.
- Eurozone sovereign bond yields continue to fall and suggest that the market is pricing in further ECB easing.
- The slide in gold is being driven by a stronger dollar, interspersed by occasional jumps higher on geopolitical tensions
- Equity markets continue to improve with Wall Street continuing to push to new all-time highs and European markets trading around key upside resistance levels.
- Volatility has settled down, with VIX stabilizing around 12.
- KEY RELEASES: ECB monetary policy, Non-farm Payrolls
EUR/USD – Continue to use any intraday rebound as a chance to sell
- ECB members continue to look to talk the euro lower, whilst bond markets are pricing in QE.
- Furthermore the on-going dollar strength is adding a double whammy of downside pressure.
- A retest of the September 2013 key low around $1.3100 is imminent with the big head and shoulders top pattern targeting $1.3000.
- Technical indicators are incredibly weak.
- Watch for: ECB monetary policy and Non-farm Payrolls
GBP/USD – Continue to sell rallies within the 7 week downtrend
- Price action in the past 2 weeks suggested perhaps the argument was becoming more balanced but this was hampered by the weak UK manufacturing PMI.
- Strong US data could drive Cable lower this week, but the Bank of England (may come out more hawkish) is an interesting variable too.
- A retest of the March low at $1.6460 is now open.
- Above $1.6645 to improve the outlook.
- Watch for: Bank of England monetary policy, Non-farm Payrolls
USD/JPY – Breakout targets 105.44 key December high
- The outlook has turned firmly long term dollar bullish now.
- Driven by recent dollar strength and sustained by positive US economic data.
- The bulls are firmly in control with a bullish flag pattern that has formed on a move above 104.43 that suggests the December high at 105.44 will now be tested.
- Key supports now 104.43 and 103.50.
- Watch for: Further strong US economic data(ISM data, Non-farm Payrolls) to drive expectations of a Fed rate hike.
Gold – Use rallies as a chance to sell, the breach of $1273 has re-opened $1240
- Dollar strength is a drag on gold and with an absence of the “war premium” perception that investors no longer deem necessary gold is in decline.
- Expect a channel decline where rallies fall over at lower levels and are seen as a chance to sell.
- Next support at $1258.85 but little really until $1240 key June low.
- Watch for: US data driving dollar strength (subsequently gold lower) and geopolitical tensions escalating in Ukraine
Indices – Continue to prefer S&P 500
Indices still holding up well, but there could now be a lack of drivers at the end of earnings season.
September is a historically very tough month for investors – could it once more be time to take profits on these recent runs higher?
S&P 500 outlook is strong, whilst DAX remains volatile around the Russian geopolitics, FTSE more sedate in its gains.
- S&P 500 continues to make gains above 2000, with support around 1990.
- DAX needs to break through the 9600 pivot level resistance and the 61.8% Fibonacci retracement of the big sell-off at 9612. Support around 9400.
- FTSE needs to close above the key reaction high at 6834 to continue the rally and open a retest of the 6895 highs.
WATCH OUT FOR
Tuesday 2nd September
- US – ISM Manufacturing PMI
Wednesday 3rd September
- China – Services PMI
- Australia – GDP (Q2)
- UK – Services PMI
- Canada – BoC monetary policy
Thursday 4th September
- UK – Bank of England rates decision (plus statement)
- Eurozone – ECB rates decision (plus press conference)
- US – ADP Employment Report
- US – ISM Non-manufacturing PMI
Friday 5th September
- US – Non-farm Payrolls
- Canada – Unemployment
Monday 8th September
- China – Trade Balance
Tuesday 9th September
- Japan – BoJ meeting minutes
- UK – Manufacturing Production
- UK – Inflation Report Hearings
Wednesday 10th September
- New Zealand – RBNZ monetary policy
Thursday 11th September
- Australia – Unemployment
- China – Inflation
- Eurozone – ECB monthly bulletin
- US – Weekly Jobless Claims
Friday 12th September
- US – Retail Sales
- US – University of Michigan consumer sentiment