 Hello and welcome to the first look at the week ahead of 2017 on Monday the 9th of January. Before I get started I have to do a quick risk warning. The only thing that I talk about in this video should not be construed as trading advice, it's just for general information purposes only, and it's guidelines to the key levels on the various markets that I'll be covering with respect to this week's presentation. So once we've taken time to digest the various risk warnings we can then get started and have a look at some of the key events that I will be keeping an eye on for this week. We're going to start with the aftermath of Friday's payrolls report. Friday's payrolls report was a little bit disappointing on the headline number 156,000 new jobs, new US jobs. The unemployment rate rose ever so slightly to 4.7% from 4.6%, but what the markets decided to focus on was the big rise in average hourly earnings which came in at an annualised 2.9%. And that's what really I think drove the dollar higher on Friday and we're seeing a little bit of a pullback on that today even though the pound is taking centre stage this morning after those comments at the weekend from Theresa May about her focus on immigration as opposed to membership of the single market. Now she hasn't really said anything new with respect to that, but the currency markets have interpreted that as raising the prospect that the UK could well leave the single market and the pound has pushed back to levels last seen at the end of last year and about October when it went as low as 1,2080. So the pound is the worst performing G8 currency today, closely followed by the Norwegian Kroner and the Canadian Dollar and the reason those two currencies are weak is because oil prices have slipped back as well. So for the purposes of this week and my focus this week it's going to be primarily on the reflation trade because in the aftermath of Friday's numbers the Dow Jones finally got around to try and retest that 20,000 level. Now that 20,000 level is just about intact on the futures, on the Dow Jones futures. We're currently trading at around about 19,945, so we have pulled back once again from that 20,000 level. If we look at the weekly chart we can see that there is a significant area of resistance around that level. We've had a number of goes at it without actually being able to gain a foothold above it. FTSE 100 has been the outstanding performing market today. We've once again made new record highs on that. We can see that from this chart here and I think that's primarily as a result of the weaker pound. We did initially post a high of around about 70,000, just in the aftermath of the open. We have since slipped back a little bit on the back of the fact that ultimately European markets have been a little bit on the weaker side today after the gains that we've seen over the course of the past few weeks. Let's not forget the fact that we have seen some significant gains pretty much across the board over the course of the past few weeks and we haven't really seen that much in the way of profit taking. FTSE 100 has made a new record high. The DAX has slipped back a little bit on the back of what I would suggest is actually fairly decent economic data out of Germany, though Italy once again has been the sick man of Europe. Its unemployment rates jumped from 11.6% to 11.9%. We've seen a very strong down move in the last four hours on the German DAX and I think that's primarily as a result of a little bit of weakness in financials and a little bit of profit taking after the gains that we've seen over the course of the past week or so. We haven't really been able to build on the gains that we made at the beginning of this year or be it we are still trading at the highest levels that we've been at since November basically. Since December we've been pretty much trading one way on the back of a weaker Euro. The Euro is still a little bit on the weaker side but we haven't actually been able to push much below 105 and while we remain above that 105 level and I think it's going to be very, very tricky for the DAX to really push above this significant resistance level that we saw at the beginning of the year and this is the level that I'm really targeting for further gains on the DAX. We highlight these highs from August 2015. We haven't really gained the momentum that we really need to really push above this resistance level. Those January highs that we saw in the aftermath of the push higher at the beginning of last week haven't really been able to sustain them in the short to medium term despite the fact that the Euro has slipped back from its highs that we saw in the middle of last week but we still remain well off the lows that we saw at the beginning of the year at 103-40 and the key level I think on the Euro is around these peaks that we saw at the end of December around about 106-20. At the moment we look to be in a bit of a range between the mid-103s and the 106 area. The Euro does appear to be trading a little bit sideways despite the rally that we've seen in some of the banking stocks over the course of the past few days and we've talked about the reflation trade. We've talked about the potential for higher inflation driving equity markets higher or particularly financials and they've been one of the best performers over the course of the past few months but there does appear to be some evidence that that reflation trade is starting to run out of steam certainly in terms of the differentials between say for example the two-year yield and the 10-year yield and that's borne out by this chart here. We can see the Trump trade here this is where spread differentials started to widen out on an expectation that Mr. Trump would inaugurate a significant round of tax cuts and spending increases obviously that's prompted concerns at the Federal Reserve or an expectation that the Federal Reserve would hike interest rates on a much steeper trajectory over the course of the next 12 months. We've seen the rate hike and we saw the rate hike in the middle of December but since then those expectations have come down so the gap between the two-year and the 10-year has started to narrow again and one of the things I will be looking at this week is the start of US earning season and particularly US banking stocks because over the course of the past few months US banking stocks have gone on a tear since the inauguration of Donald Trump on an expectation that we're going to get essentially a much bigger differential between short-term yields and long-term yields. I think that's important so what we're seeing here is at the moment a little bit of a tapering off in the differentials between short-term US government debt and long-term government debt. What's also quite interesting is that same differential gap is also narrowing between US 10-year yields and 10-year bond yields. So the differentials in favor of the US dollar over the euro which were at their peak at the end of December and where we saw the new multi-year low in euro dollar around about 103.40 is coming back in the euro's favor. The differential is narrowing to be less in favor of the dollar and that could well be fairly euro supportive. So while this is trending down, this differential between the 10-year US Treasury and the 10-year bond then it's going to be that much more difficult for euro dollar to push much below the levels that we saw at the middle of last week. Now if this differential starts to widen up again in favor of the dollar then obviously that will be dollar positive it will be euro negative. So it's important to understand the differentials between the interest rate differentials that drive a currency exchange rate and at the moment with euro dollar currently finding a little bit of support about 103.40 a large part of the reason for that is because the differentials between 10-year US 10-year and the German 10-year are narrowing in the euro's favor albeit there's still 2% in the dollar's favor but it's about differentials widening out or coming back into sink. So in that context this is why this euro dollar chart is quite important. We look at this euro dollar long-term chart and we look at these series of lows around about the mid-103's and it suggests to me that there is a significant amount of buying interest at these sorts of levels. That being said if we're to break below the mid-103's then the likelihood is we're probably going to head back towards parity and the reason for that we can't forget this big trend line breakout that we saw at the beginning or at the end of 2016 which saw us break below this long-term trend line from the all-time lows in euro dollar which are around about 82.50 or at the beginning of the noughties. We're broken below that and on a monthly basis and we have as yet been unable to break back above that line. So zooming back in again you take a very long-term view that the long-term direction is still down. We're moving a little bit of a base at around about 103.40, 103.50 which means that any rallies to stabilize your dollar need to get back above this line here and the 50-day moving average at around about 106.20.30. Anything else in between is going to be range trading. So at the moment finding resistance around about 106.20 finding support around about 104.80, 105 in the short to medium term with the largest support at 103.50. So that's really I think the trading range that we've got for euro dollar at the moment. And it's a similar sort of story with respect to the pound. We've got a host of economic data out later this week for sterling, UK trade, industrial production and manufacturing production. We did see a significant rebound in the PMIs for manufacturing and construction and that would suggest to me that ultimately the UK economy still remains in fairly decent shape. But on a technical basis what is bad news for the pound is the break below this 122 area that had managed to hold all the rebounds in the pound through the back end of December into the beginning of January. This morning's price action and obviously the decent dollar numbers that we saw on Friday have conspired to push the pound below 122 and that brings it back into focus with respect to these lows that we saw at around about the 121 and the 120.80 level that we saw in the middle of October. Now we did trade briefly below that in terms of the flash crash lows at the beginning of August to down to around about 119.50 but by and large that 120.80 level, 121 is the next key support level on the pound against the dollar so what we need to do to stabilize on sterling against the dollar is for us to rebound back and hold above 122. It's all about levels in terms of currency markets and at the moment while we're below 122 then the bias has shifted slightly towards the downside irrespective of what this oscillator is telling us yes we are oversold but we could drift back down to around about this 121 area if we do gain a foothold back above 122.10, 122.20 then this range trading this range trade that we've been in for the past few months is likely to continue we'll probably head back towards 123.20 and around 124 which is contrived to keep the pound in the range that we've been in over the course of the past few weeks and months. So we're going to go back to the reflation trade because ultimately what we've seen over the course of the past couple of weeks is German inflation hit its highest levels for quite some time 1.7% we've seen US inflation and US wages hit their highest levels in a couple of years and certainly US wages hit the highest levels in since 2011 so 5 to 6 years and that suggests that there is potential for further rate rises from the US Federal Reserve I think the key question around that is surrounding timing certainly in the context of what we saw from the Federal Reserve minutes that came out on Wednesday the outlook is still for at least 2 to 3 US rate rises this year the key question is when is the next one going to come at the moment the market is starting to price in the prospect of at the earliest sometime in March I still think that's too early we still have the unknown effect of what Donald Trump will do when he finally gets his when he gets himself into the driving seat of the US presidency and that will happen on the 20th of January at the moment he's still president-elect ultimately the market is pricing in I think perfection in terms of what to expect from Mr. Trump at the moment he now needs to deliver on that and ultimately that still remains very much an unknown quantity so this week the reflation trade could get a further kick higher in terms of Chinese inflation so we're going to be looking at the market calendar and these are going to be the key things that I'm looking at for this week and you can find the market calendar in the full section of the trading platform so tomorrow morning at around about 1.30 we've got Chinese CPI and that's expected to come in at 2.3% that's unchanged but what's been driving Chinese inflation higher and global inflation higher has been Chinese PPI now that was at 3.3% in November and that was up quite substantially from the October number of 1.2% we're expecting another significant increase in Chinese PPI to 4.5% now that's a significant turnaround because back in August Chinese PPI was in negative territory so over the course of about the last six months Chinese PPI has turned around quite substantially from negative territory to be in firmly positive territory and part of that will be higher food prices but it's also the fact that since then we've seen a significant rebound not only in oil prices which has driven input prices higher we've seen that in the UK in terms of input prices in the PMI data but also higher iron ore prices and China has been a big consumer of that particular raw material we've also seen a big rebound in copper prices as well over the course of that period which is borne out in the rebound that we saw from the October lows to the peaks that we saw in November and December so we can see that there's an awful lot of latent price inflation starting to feed through into some of the PPI numbers which in turn will then factor in to the CPI numbers as we head down the line I think the big question is going forward how much of those PPI price increases will start to trickle down the supply chain and go into the CPI numbers as we head into 2017 what we've seen since November and December is prices start to come off and we've seen that in copper we've seen that in iron ore and we are now starting to potentially see it in Brent crude prices we're certainly seeing it today we've seen the big rebound in November and December so that's likely to factor in to the numbers that we saw from a year ago we can certainly see that in these numbers here from the beginning of 2016 and this is something that I think the market is underestimating a little bit over the course of the next few days oil prices were at the beginning of 2016 and where they bottomed out in 2016 and where we are now we can see from this chart even from when we ended 2015 oil prices are up over 50% 50% so that is going to feed into the inflation numbers as we head into 2017 if you then factor in the fact that sterling is significantly lower from where it was a year ago and so is the euro then the likelihood is we're going to see higher inflation feed in to EU inflation as well as UK inflation and potentially Chinese inflation because the one is also weaker over the course of the last 12 months and we can see that the Chinese one there's no better illustrated in this chart here on the offshore we can do that very easily here and we can see that we've seen a big jump in the Chinese one over 4% over the course of the last 12 months or so and yes we have come back significantly over the course of the past couple of days but what we haven't done is we haven't taken out these series of lows that we saw in October having said that this is a reversal which suggests that potentially despite the rebound that we're seeing today in the dollar one we could well see a little bit of a pullback to around about 673, 672 before another go at that 7 level this bearish engulfing week would appear to suggest we might get a rebound back to 6.9, 6.93 on the 1 against the dollar but ultimately the market will be very reluctant to push it significantly higher just in case the Chinese authorities come in to strengthen the one and basically just temper the declines that we've seen over the course of the past couple of years because over the past couple of years the one has weakened by about 10.7% and that is going to be a worry going forward I think the rebound that we've seen in the US dollar at some point in the US earnings and that's something that I will be keeping an eye out for the remainder of this week because looking at the US banks is going to be particularly interesting given the gains that we've seen in US banks over the course of the past few months if we look at Bank of America whose earnings are out later this week we can see that since November we've seen the Trump bump quite significantly over the course of the past past 8 weeks 8 to 10 weeks we've seen a big big rebound in US banks but you look at where we were just under a year ago Bank of America's share price is up 59% so just given what I've shown you with respect to the widening out of yield differentials that I talked about earlier it's going to boost US bank profitability and certainly in terms of banking profits over the course of the past 12 to 18 months US banks have outperformed the European and UK peers so it could be argued that an awful lot of this increase in profitability if we look at US banks is by and large already priced in if we look at the performance since the beginning of 2016 Bank of America is up 33% if we look at JP Morgan Chase again we've got similar significant levels of rebounds in the share price so the argument is how much of this improvement in profitability is already priced in again we've got the Trump bump here from early November so we've gone from $70 up to almost $90 not quite there got to about $85, $87 maybe the financials given the narrowing in the yield differentials that I talked about earlier maybe we are about to see a little bit of a correction in US financials having said that if we compare to what's happened over the course of the past 12 to 18 months to say for example where we were 2007-2008 we can see that US banks are significantly above the levels of the financial crisis particularly JP Morgan Chase probably Bank of America not so much let's have a quick look at that over a longer term time frame and you can see that JP Morgan is very much the outperformer when it comes to the rebound that we've seen in say for example Bank of America and we've also got Wells Fargo Wells Fargo is a much better barometer of the internal US economy because it has a much more domestic focus and we can see how that's performed over the course of the past few weeks and certainly I think there is going to be some concern about the scandal that surrounded Wells Fargo and the misselling of the misselling scandal that we saw at the end of last year that's been largely reversed in the wake of the Trump bump but again here there is some evidence that potentially we could see a little bit of a correction over the course of two sessions so I think really for US banks to continue their move higher what we really need to see is their earnings announcements beat expectations but not only that their forecasts for 2016 also I think need to beat expectations as well they need to deliver a fairly upbeat outlook for 2017 and you have to temper that I think with expectations of higher rates because ultimately the US mortgage market is very susceptible to any increase in interest rates so their profitability will be dependent on the yield curve the differentials between the yield curves remaining at their current levels and not coming in further at the moment the likelihood is they're probably going to remain constant but an awful lot of that will be very much dependent on how wages perform over the course of the next few weeks and months and certainly the inflation numbers are going to be important in that context as well and I think that's why Friday's data Friday's US data will give us an insight into that as well because we also have on Friday following on from the PPI data CPI data that we saw out of China we're seeing out of China tomorrow morning if we scroll all the way forward we can look at first and foremost import prices for the US but also PPI now PPI is producer prices it's also factory gate prices they are expected to jump as well 1.6 1.5% from from slightly lower levels in November more importantly how is the US consumer doing we already know the UK consumer is doing fairly well or is spending probably at the expense of retailer's profit margins but nonetheless UK retail sales are at multi year highs annualized highs of 6.6% and ultimately it's not going to be a surprise to see that slow down US retail sales have been much more muted we are expecting a bit of an increase in US retail sales around about 0.5% but if we look at a spreadsheet of how these numbers have actually performed over the course of the past few months I'm quickly going to show you that now if I can get my Excel spreadsheet to open yep here it is right here we can see that this column here 2016 2017 2016 2016 just change that quickly we can see November retail sales slowed down a little bit in the US but the first part of that quarter on the end of Q3 and the beginning of Q4 was fairly strong so as we look at December and the pre Christmas period and the post Thanksgiving period the hope is that the slow down that we saw in November was temporary and that US retail sales picked up in the aftermath of that little bit of a slow down that we saw in November having said that big ticket items in the US have picked up as consumer confidence has risen but certainly I think rising inflation could start to temper that going forward so let's look at the outlook for Brent crude commodity prices in general because I think that's going to be a certain that's going to be a certain indicator as to whether or not these inflationary pressures that we've been talking about will be sustainable in the short to medium term at the moment we're finding a little bit of a barrier on Brent crude around about $57 we did spike above that a little bit over the course at the beginning of the year but at the moment Brent crude does appear to be finding its level at around about $56, $57 a barrel getting a little bit of a sell off today I think a large part of that is because of the rise in rig counts US rig counts that we saw on Friday they hit their highest levels in 12 months at $665 we also had data out this morning that Iraqi exports hit a record level in December and ultimately while these OPEC cuts that we've heard an awful lot about due to come on stream in January from the 1st of January it's going to be very very difficult for countries like Iraq Iran to start thinking about cutting back on exports in essence what I'm saying is will the actual reality match the promise to cut at the moment rig counts in the US are rising the fact is that Iraqi exports hit a record in December so did Iranian exports hit the highest levels for quite some time and the question is will they have the self-discipline will these exporters have the self-discipline to cut back on production we heard last week towards the end of last week that Saudi Arabia was talking about cutting production even further into February again it comes back to will the actions of the OPEC producers match the rhetoric and at the moment the market is not sure we've got a slightly weaker dollar today but we've also got slightly weaker commodity prices as well so $57 is the key level on the top side looking at the twin lows that we saw at the beginning of this year probably going to have a little bit of support around that sort of level on the four hour chart at around about $54 a barrel these twin lows that we saw earlier here on WTI it's probably going to be a similar sort of level we can see that on the chart points here take it back to daily and we can see that again here just below $55 a barrel support around about those twin lows around about $52, $51.80 but again anything above $54 a barrel for WTI it's starting to become a little bit difficult to sustain and if we look at gold prices despite the fact that we've got some very positive US data gold prices have shown no indication that they want to dip much below $11.70 in the short to medium term and ultimately if you're looking at higher rates in the US then gold is generally the first casualty of that we saw a bit of a sell off on Friday but we haven't actually been able to break below $11.70 and that suggests to me that maybe the potential for a weaker dollar over the course of the next few trading sessions is a distinct possibility certainly in the context of how the dollar index has been performing we haven't as yet been able to take out this very strong down move that we saw in the middle of last week the dollar index is finding a little bit of resistance the big resistance is at $104 we've got slightly shorter term resistance around about $102.50 at this area here I'm keeping an eye on that I'm also keeping an eye on Dolly Yen a significant resistance level for the US dollar and that's at these twin peaks that we saw at $118.65 these two levels here thus far we found a little bit of a resistance at $118.65.70 we saw a little bit of a test lower at the end of last week but we then saw a strong rebound in the wake of those US numbers so at the moment it's trading at $118.65 I think if we get a break either side of this range here then that could give us clues to the next directional move but in the longer term we must be cognizant of the fact that there's a big big trend line resistance on Dolly Yen from the peaks that we saw in 2015 which comes in just above these two peaks at $118.65 $118.70 which could limit any further move that we see would cap it at around about $120.50 so overall I think as we look at the week ahead I'm probably slightly bearish on the US dollar in the short to medium term and that would suggest to me that ultimately the downside is going to be limited on Euro dollar the upside is going to be fairly limited on Dolly Yen potentially that we could actually see a little bit of a rebound in currencies like the Aussie dollar and the Canadian dollar as well and I think the big level that I'm really looking at on the Dollar CAD in the context of a potentially weaker oil price is this trend line support that I've drawn in from this 2014 lows here which I talked about on the Friday non-farm payrolls at around about $131.50 so keep an eye out so my theme I think for this week is a slightly weaker dollar on the back of a little bit of affirming in bomb prices and slightly lower yields if anyone has any questions on anything that I've talked about over the course of the last 30 minutes please feel free to direct them to please feel free to to reply to this chat request reply to this chat request here otherwise I'll wind this webinar up for this week and if you have any questions contact me on Twitter at mhusen underscore CMC otherwise I will talk to you all same time, same place next week