 Good morning and welcome to CMC markets on Friday the 18th of August and this quick preview of the week beginning The 21st of August but before I get to that I think is incumbent upon me to have a look at the events of the past few days the effects That they are having on equity markets in general and obviously what to expect With respect to Jackson Hole annual central bank symposium, which is coming up towards the back end of the week But let's start first and foremost with the overall Sentiment surrounding equity markets now investors have had a lot to contend with Over the past few weeks concerns about North Korea the US the US response to North Korean's weapon nuclear weapons program Obviously political concerns are now coming to the fore with respect to the Trump presidency given his response to recent events in Charlottesville, Virginia and Now the falling away of support from the US president from various members of not only his own administration but also businesses in Terms of the advisory council his subsequent disillusion Dissolution of his advisory councils and the fact that he is not only losing support from business He's also losing support from members of his own part when he's becoming Increasingly isolated which rather begs the question going forward as to whether or not all of that optimism That we saw at the beginning of this year with respect to tax reform Infrastructure spending is actually going to happen at all because ultimately President Trump is unable to implement any of that and the political costs supporting him become so great Then the prospect of him becoming a lame duck president ten will increase Exponentially and as a result it could be very difficult for him to implement anything at all Notwithstanding the fact we also have significant negotiations about the raising of the debt ceiling in September All on top of all of that We've now seen the re-emergence of terrorism on mainland Europe with recent events in Barcelona So I think unsurprisingly Investors are now starting to take a little bit of risk off the table that de-risking Volatility is going up. We're seeing movements go into gold We've seen movements of capital go into the Swiss franc and we're seeing to a certain extent movements of capital Into the Japanese yen. So what does that mean for equity markets? Well, some of the markets one of the key markets that I've been keeping an eye on for quite some time now has been the German Dax We can see that the weakness in Europe has predated an awful lot of the events of the past few days And we are very significantly on a downward track where the Dax we bounced off the 200 day moving average last week We do appear to be heading back towards it The significant support around about 11,880 11,890 Been in that down the channel and interestingly enough It also corresponds with a similar pattern on the euro stocks 50 As we can see from this daily chart here again the support around about 3,380 We can see that quite clearly there the rebound just off the 200 day moving average just above that And then the pullback to the resistance line from the highs in May now an awful lot of some of the weakness has been As a result of a slightly stronger euro and we heard From the european central bank and the recent ECB accounts that some members have significant concerns About the recent rise in the euro and where is that better borne out by this bloomberg chart here Since april we've seen a significant rise in the euro index the euro trade weighted index We're up nearly 10 in the space of four months now with central bankers. It's not really about I think central bankers don't generally tend to get too concerned about a five or 10 percent move in a currency If it happens those over say for example a two or three year period when it happens in a four month period There is a concern That that could introduce an element of deflation disinflation or inflation Sharp currency moves are generally never really welcomed Simply because an awful lot of big companies don't have currency hedges in place over a short period of time But also I think it can inflict a little bit of an inflation or disinflation shock on either side Of the currency ledger and I think that's one of the reasons why I think mario dragui Decided not to make any announcement at jackson hole later this week with respect to ECB monetary policy and a potential tapering program given recent events in cintra In portugal and his comments about an improving eurozone economy I think he's going to he wants to be an awful lot more guarded About being too confident and to a billion about the eurozone economy. The fact of the matter is inflation still remains fairly weak in europe and as a result Deferring any decision or any comment about a tapering of asset purchases Is probably left to the back end of this year and I think that's why we probably won't get to hear anything about that Much before september or october and I think what's one of the reasons why we've seen the euro Start to drift back over the course of the last few days and this trade weighted index here I think is a very good arbiter of why the ECB is concerned about the recent rise in the euro There's the april low and there is the august high a very very sharp move in a very very short space of time so Obviously, that's mr. Dragui probably jackson hole is going to be pretty much a non-event Um There is I think there is some speculation that we could get some indications about what the fed might do Um come september and balance sheet reduction But I also I think we've already been seen from the recent fed minutes That there probably will be an announcement on some form of tapering Um at the september meeting We won't however be seeing a rate rise. I think that's pretty much nailed on the markets Are not pricing it in and they're only pricing in a 40 probability that we'll see one in december So really I think the main focus at the moment is really about balance sheet reduction And I'm not really not much else So what else am I looking at this week? Well, let's look at some of the key levels on euro dollar because I think that's what Me could dictate where we go to next we talked about the weekly euro And we've talked about the fact that it topped out Towards the end of july beginning of august. We have been trending lower over the past few days We've got trend line resistance from the recent highs above 119 Coming in around about the 118 area. This is the four hour chart With a simple slow stochastic on it and a couple of moving averages in the and the main the main Support level that i'm focusing on here is the 116 20 area just around about here. This was the previous 2016 highs It's it should act as a significant support area on the way down And while it does so I think at the moment A short period of euro dollar trading sideways With slight bias to the downside is is probably the way we're going to go Looking at the pound against the dollar once again Sterling hasn't really got much of a lift from the recent decent data that we've seen over the past few days But it is starting to look very oversold Currently it's just about holding above 128 20 128 10 and while it does so I think the recent uptrend can remain intact And that's the trend line from these march lows here Now if we do break below there then I think there is the potential for us to move down to around about the 200-day moving average But overall I don't expect to see significant downside in The pound against the dollar now we've heard an awful lot as well about euro sterling and the prospect of a move to parity Well, quite frankly, I've seen this movie before we didn't see parity in 2009 And I don't think we're going to see parity anytime soon in 2017 or 2018 It makes good copy to call for parity and it gets you on the tally But ultimately there's still an awful lot of resistance levels to come between now and then and as such I think if you draw a line through these highs here, then the next resistance level for euro sterling is around about It's just round about 90 93 which was the 2016 highs I think it's way too early to even contemplate talking about parity on euro sterling There's still an awful long way to go and an awful lot of other shoes to drop with respect to europe Notwithstanding the italian elections next year So that's it for this week. Let's go in a quick check to make sure I haven't finished anything I haven't missed anything and actually I have we've got the second estimate of second quarter UK GDP That's likely to come in at one point and 0.3 percent rather on a quarterly basis We might see a slight outward adjustment on that now that we've got more data We've got Germany and french flash PMIs for august And a couple of decent and a couple of important early earnings announcements from carillion first-half earnings WPP first-half earnings and hewlett-packard enterprise is q3 earnings So that's it for this week. Thanks very much for listening Michael Houston talking to you from CMC markets