 Hello and welcome to CMC Markets and this Monday market update. My name is Michael Hueson, I'm Chief Market Analyst here and I will be basically taking a quick look at the markets and having a look at the week ahead. Before I get started with this week's Monday webinar on Monday the 28th of November 2016 I have to bring up the obligatory risk warning, hopefully you can all hear me loud and clear now. Anything that you hear today is it's not trading advice, investment advice or anything like that, it's just a broad overview of what I'm looking at this week, what I think will drive markets this week, some of the key chart points on various markets and it will obviously be culminating with another webinar on Friday, the non-farm payrolls webinar which again we will be covering live here at CMC Markets. I won't be covering it, unfortunately I will be away on business but my colleague Colin Ciesinski will be covering the US non-farm payrolls numbers potentially along with my colleague Jasper Lawler. This will be the last Monday webinar for the next couple of weeks. There won't be a webinar next Monday as both myself and Jasper will be away and we'll be back on the 12th of December but I might as well get started and certainly looking at US markets and whether or not we're going to continue to see the strong rally that we've seen in US markets bond yields sell-off in bond markets and the big rise in the US dollar and it does appear to be some indication that potentially the rally in US markets could well be starting to run out a little bit of a run out of a little bit of steam as is the current dollar rally. We've seen a bit of a sell-off in the dollar index over the course of the past 24 to 48 hours we can sort of see that in this dollar index chart here. We have managed to recover most of today's losses. I think a lot of the losses were based on a couple of tweets that Mr Trump sent out. I think there's a perception that maybe given the rally that we've seen over the course of the past few days that maybe it's time as we're coming to the end of the month that we could see a little bit of what I would call profit taking on some of those dollar long positions. There's also the fact that I think there's potential that the bond markets sell-off that we've seen in the past few weeks could actually be starting to find a little bit of a base in the short to medium term. So we're going to be looking at the bond market. It's going to be looking obviously at the OPEC meeting as well, the sell-off in the oil price that we've seen in the last 48 to 72 hours and whether or not that can be sustained. Obviously that's predicated on OPEC actually being able to cobble together some form of agreement at the meeting that's due on Wednesday in Vienna. And I'm going to start with that. I think I'm going to start with the oil price because the oil price has been pretty choppy over the course of the past few weeks and months largely on the basis of that meeting that we saw at the end of September in Algiers where oil ministers pledged to come to some form of agreement to cap oil output between 32.5 and 33 million barrels a day for OPEC members. And obviously that was the OPEC meeting that we the announcement at the end of September. Since then oil prices have drifted a little bit lower and drifted sharply lower on the back of that announcement at the end of last week which said that Saudi Arabia wouldn't be sending a delegate to this technical meeting on quotas which was due to begin today. And this technical meeting was with non-OPEC so I mean non-OPEC members are really the fly in the ointment here. OPEC was looking to cap production around about 33 million barrels a day as it is production is already in excess of that and Iran wants to boost production to in excess of four million barrels a day and then you've got Russia who are currently still pumping at record levels of in excess of 11 million barrels a day and Russia is not a member of OPEC so you've got to factor that into the equation as well. Ultimately for all the for all the warm words of a deal the likelihood is now that the tone is starting to change and this marked change of tone from the Saudis would appear to suggest that ultimately they can't get an agreement between Iraq and Iran to either cap or cut production from current levels and that really I think means that potentially we could actually not see an agreement at this OPEC meeting on Wednesday and certainly that's being reflected if we look at what oil prices have done over the course of the past few weeks they've been pretty much capped at around about 52-53 dollars a barrel on Brent that was last week's price movement we were up until Friday morning all the way up here in terms of the gains that we were looking to make and ultimately we only closed at a very marginally higher now today we are still slightly slightly higher but again we are we are struggling I think that we will struggle to hang on to any sorts of gains in the absence of any sort of deal so for the interim I'm expecting to see this oil price here continue to trade in the range that it's been in over the course of the past few days and actually while I think there's an awful lot of skepticism that there will be a deal ultimately I think I would never rule out the capacity of OPEC producers to come up with some form of surprise I don't think that we're going to get any sort of meaningful deal but that doesn't necessarily mean that we can't squeeze all the way back up to these sort of peaks that we saw at last week around about 50 dollars a barrel for me 50 dollars a barrel I think is the real key tipping point for me on Brent if as long as we stay below last week's highs then ultimately I think the line of least resistance for crude prices is to continue to chop towards the lower end of this recent range so I'm certainly looking to see a move back towards these November lows around about 43 dollars a barrel and ultimately to head back to the lows that we saw at the end of July in the beginning of August around about 42 certainly the RSI of the slow stochastic would appear to suggest that that's where we're probably going to go so for me at the moment I think I think while the dollar remains fairly strong I think the oil price is likely to remain slightly skewed towards the downside because at the moment I can't see any prospect of Saudi Arabia Iran and Iraq of coming to any sort of agreement that's really going to make a significant dent in the production capacity or the production output so they could talk about it but ultimately it's I think the markets are starting to look at it and they're starting to price in quite a bit of pessimism as to whether or not we're going to get a deal on Wednesday so what does that what does that bring us to well it brings us now neatly on I think to bond markets because I certainly think that we've seen a little bit of weakness early on in terms of the oil price and in terms of equity markets but I think there is some evidence over the course of the past few days that potentially we could be finding a little bit of a base in this current bond market selloff looking at the guilt price at the moment lesson let's try and drill down into the detail a little bit on that in terms of UK guilt we've we're back above the level that we saw prior to the brexit referendum of 1.4 percent which obviously is is a net positive for sterling we are starting though to show some sorts of signs that we could potentially be hitting a bit of bit of resistance around about 1.24 and a half now if we break through 1.24 and a half this this this level here on the guilt price then we could actually start to see yields come back off a little bit so I'm looking at 1.2490 1.25 on UK Guilts if we get a rally back through here 1.25 then we could see yields start to fall back and this is a pattern that does appear to be replicating itself not only in guilt markets but also in US Treasury markets we've seen a massive spike in yields a massive selloff in prices we've seen US two-year yields hit their highest level since 2010 and that in itself is significant but if we look at the if we look at the slow stochastics we are looking in very oversold territory we do appear to have found a bit of a base on the US 10-year note around about 1.25 it's not to say that we can't go any lower but what I would be looking to see is for a little bit of a rebound in US 10-year note back above 1.26 and that could in turn push yields back down in the on the 4-hour chart we are looking a little bit overbought so that probably does give us a little bit of give a little bit of scope for a little bit of sideways trading but ultimately we do appear I think there is a chance we could have seen a little bit of a short-term top in US yields for the time being now why do I say that well one of the reasons I think is obviously we've got a whole host of US economic data out for later this week which are culminates or booking which is bookended by non-farm payrolls on Friday we've also got the latest Q3 GDP US revision for its third quarter and that's likely to be a fairly decent number some of the Q4 numbers have been fairly positive and ultimately I think market expectations for rate rises from the US for next year are starting to get slightly ahead of themselves yes I think that we will see a rate rise in December it's 100% priced in by the market so I think it's going to be very unlikely that the Fed are going to sort of pull back from raising rates in December which then basically brings us on to the next conversation which markets need to have and it's how many rate rises are we going to get in 2017 now we had a similar sort of conversation a year ago with respect to the Fed raising rates and markets were pricing in for rate rises for 2016 with here we are almost 12 months later and we're still waiting for the first one so I think it's unwise for markets to get overly ahead of themselves when it comes for US rate rise expectations nonetheless the the rally that we've seen in the dollar thus far over the past few weeks does appear to suggest that we will probably get a rate rise in the early part of 2017 barring a significant deterioration in the US economic data and by deterioration I mean a non-farm payrolls number which comes in less than 100,000 on Friday so it won't affect the probability of a December rate rise but a very weak December payrolls number could well impact future expectations for rate rises going forward certainly the retail sales numbers are the durable goods numbers that we've seen out of the US economy over the past couple of months would appear to suggest that consumer sentiment is starting to pick up spending is starting to pick up we've got personal spending data also coming out later this week so ultimately I think it's now all about expectations for rate rises after the December one and less about how less about how many less about when we're going to get our next rate rise and more about how many we're going to get going forward into 2017 so if I look at the if I look at the 10-year note on the US Treasury I think there is some scope for a little bit of a consolidation at these low levels if we look at it on the weekly chart we can see that from how far we've come in the past two to three weeks we've seen a really sharp set off and I certainly think that's warranted in terms of the reflation expectations but ultimately I think now is the time for a little bit of caution because I think the move that we've seen thus far probably is not warranted on the basis of what President Trump may deliver or President Elect Trump may deliver there's still an awful lot of what I would call water to flow under that bridge before Mr Trump is inaugurated in January at the moment we've got promises of a fiscal stimulus now what now I think what we want to see is the reality of it and I think we're going to have to wait a while for that to unfold but certainly I think the set off in the bond markets that we've seen over the course of the past few weeks is due for a little bit of a consolidation I still think there's potential for it to go further but in the short term I think we're due a little bit of a rebound and I think in that context that could actually see a little bit of a top a short-term top in the dollar that's no better born out in the set off that we've seen in the cable today but also the set off that we've seen in Dolly N and I think it's a I think it's the yen that I think we've really got to keep an eye out for for clues as to the long-term direction of the US dollar because I think if I look at the Dolly N that's giving me some very good indications that we may have seen a little bit of a short-term top in the dollar what I would hope to see in this particular chart here and at the moment we've we've peaked just below 114 I think what we what I'm looking for now is this is very overbought this particular oscillator but that doesn't necessarily mean that we can't continue to go higher but what I don't want to see on this particular chart is if I look at if I look at today's highs which is around 113 we really need to stay below 113 in the short to medium term but also what I'm looking for is I think a break below these consolidation lows through here in the short to medium term so I think in the interim I'm looking for a little bit of a pullback on Dolly N to around about the 113 level and I don't know what I've done there just going to zoom just reset that there we go and looking for a break below 111 35 on the downside to signal this top this is a top and we could well go lower so we'll be keeping an eye on 111 35 Dolly N on the downside and keeping an eye on 113 on the top side for a potential move lower what's also quite interesting in the Dolly N chart is if we look at it on a much longer term basis if we look at it on a monthly chart we can see that that that move there is fairly bullish and we could certainly potentially go back to 115 60 but from the down move that we've seen from the peaks of 125 85 there is potential for us to go a little bit higher but ultimately I think the potential is limited towards the 61.8 percent for financial retracement level of the move that we've seen thus far and at the moment we haven't as yet closed above the 50 percent level so that could actually give us scope for a little move on the month end what I find particularly interesting though is what the Yen crosses are doing particularly Stirling Yen because Stirling Yen we've seen a really nice rebound on Stirling Yen it does look a little bit overextended and certainly if we look at the Stirling Yen chart there is certainly potential for a significant reversal here on the dailies however this is where looking at the long-term picture can give you an overall view as to where a not Stirling Yen can go to next and when we look at the long-term chart it gives us a completely different picture and it does appear to suggest that while we could drift lower over the course of the next month or so this is a potential reversal on the Stirling Yen monthly and actually could indicate that maybe Stirling on a longer term basis has found a short term has found a decent base for a bit of a recovery after the declines that we've seen over the course of the past two to three months so what is this telling me well this is telling me on a short term basis we've potentially got room to move lower towards around about 136 and potentially 134 135 so on a short term basis Stirling Yen probably going to drift back down to around about 138 136 but I think potentially we've seen the lows and we could actually start to correct higher on a longer term basis a short term bearish longer term bullish this is better born out I think on Euro Stirling or Stirling Euro particularly if we look at it on a monthly chart here this is quite a bullish candle we've still got two months to go on the month so again need to be very very careful here about the way this is trade but this is a bullish currently this is a bullish engulfing month so what we don't want to see is a sharp Stirling Euro sell-off in the next couple of days we need to we need to hold on to these gains but certainly if we look at it on the basis of the daily and the weekly charts we do appear to have reverse an awful lot of the bearishness that we've seen since September and that for me I think is is is mildly encouraging in terms of the overall rebound that we've seen in Stirling Euro or Euro Stirling if we look at it in Euro Stirling terms it's a fairly similar picture what we've seen here and I've drawn a little trend line on this chart here from the lows that we saw in July and we've managed to rebound off that trend line there we are now starting to push back up I think the next resistance level is around about 86 we could overshoot slightly to probably the 100 day moving average at around about 86 40 but overall I'm actually potentially thinking that euros we've seen we've seen the high in Euro Stirling and potentially could start to test lower but this is the key level that I'm targeting to hold on the upside on Euro Stirling this level around about here on 86 40 so keep keep keep an eye on keep an eye on that particular level on Euro Stirling and I think potentially look to put a stop loss back above 86 86 40 or there or thereabouts looking at Euro Dollar the picture doesn't look anywhere near as cut and dried but I certainly think in Euro Dollar there is potential for us to go quite a bit lower and this is born out by the monthly chart here this is the trend line from the 2000 lows at 84 and we've broken below it we're right on the cusp of it here and this this I think here is the key level really it's 105 20 on a monthly basis I really want to see where we finish the end of this month by Wednesday as to where or not we keep where we can go to next we've managed to we've managed to spike back above this trend line here and but we haven't been able to actually consolidate through it ideally what I want to see for a stabilization in Euro Dollar is a move back through 107 30 until we get that then I think the bias remains towards the downside let me just call that back for a minute that's giving me a slightly better indication of where we are so still looking to sell Euro Dollar on rallies I think the key is the key resistance level I think for me is this this low through here around about 107 10 so 107 107 30 I think for me is the key line in the sand if we break through 107 30 and I think we could go back all the way back to 109 but while we're below 107 30 then I think the mentality is on Euro Dollar to sell the rally which now sort of brings us back on to gold prices well actually brings me back brings me to gold prices because we've seen a nasty little sell-off on gold prices on the back of the the reflation trade or the Trump trade I'm still not minded to be too overly bearish on gold prices at this point in time for me we are still within the range that we've been in since the beginning of the year we still are up on the year and it's significant for me that despite the fact that markets are pricing in two to three rate rises gold has actually managed to hold up as much as it has and I think a large part of that is down to the uncertainty surrounding what's going on in Europe right now but and this is this is a big this is a big caveat here the fact that we've broken below 1205 which was this series of support levels through here does worry me somewhat in terms of the overall bullish gold trade I think unless we can get back through 1205 then we could well start to drift lower towards 1154 which was this level here that I targeted from all the way back in the middle of last year so while we're below to up 1205 I think the bias remains towards the downside for gold prices we're seeing a bit of a rebound now but I think that's largely on the back of a slightly slightly weaker dollar and while the dollar has managed to recoup some of its losses I think I think that this this this break of 1205 could be significant and we could see a little bit of a drift lower in the short to medium term brings me on to equity markets because we've seen a significant divergence between US markets and European markets and this is something that I think will continue to be the case until such times as we break a significantly important level on the Euro stocks 50 and the German DAX if we look at the S&P 500 as a case in point we've continued to break records on that we've continued to break records on the Russell 2000 we've continued to break records on the Dow Jones so for me I think momentum is everything here yes this is overbought but ultimately while we're above this series of highs here at 2194 on the S&P then the bias has to remain towards the top side now that we've broken above these previous all-time highs at 2195 you know ultimately you have to play the momentum trade the momentum trade is for US markets to continue to push higher and while we do so then ultimately any dips need to be bought irrespective of what this particular oscillator is telling you it's the same for the US 30 here even more so here we've seen a massive move away from the previous highs that we saw all the way back in 2015 we can blow that all the way out take it all the way back here 18670 similar sort of story but if we look at the performance of European markets it's a totally different picture this is a chart that I've been consistently warning people of over the course of the past month or so this 10800 level on the DAX continues to be a massive barrier for further gains in European markets and until such times as we take this level out then ultimately European markets are going to remain very very difficult to make any progress on we've tried it one two three four five six seven eight on nine occasions and we've failed to break above it and it's a similar sort of story on the euro stocks 50 as well so until such times as you take out this key resistance level on the euro stocks 50 but also this trend line resistance from the 2015 peaks which also currently comes in around the 200-week moving average then European stocks I can't I can't see any prospect of any significant upside until such times as the political risk and it is the political risk here we've got the Italian referendum coming up on Sunday the 4th of December the likelihood is that Mr. Renzi is probably going to lose it that means that the Italian banking problems that have been at the forefront of the markets and the way they've been perceiving European markets are likely to continue to weigh on investor risk and you know people's risk profile when it comes to looking at European markets and European banks in general because ultimately the Italian banks of the Canary in the coal mine until such times as European regulators European leaders deal with the problems of the European banking sector then to my mind European stock markets remain not uninvestable but certainly I think you need to be very very cautious about being piling into them valuations whatever you think of them they may be very compelling and they certainly may be undervalued to relative to US markets but ultimately and until this this particular boil is launched it's going to be very very difficult to see any scenario that's going to push European markets above these key resistance levels on the DAX and the Euro stocks 50 and between now on the 12th of December we've also got a European central bank rate meeting which is due on the 8th of December so again there we're going to see what Mr Draghi what the ECB's views are with respect to the European economy and certainly I think we have seen inflation numbers pick back up in the Euro area if we look at the Eurobund we can see that that has experienced a similar sell-off in yields we are still though in the long-term uptrend that we've been in for the bund market since 2011-2012 and until such times as we were able to take out that trend line then again it's going to be a similar sort of story for bunds and yields there we've seen a big big sell-off in bunds we've seen a rise in yields but that yield differential between the Euro and the US is continuing to widen in the dollars favor and while it does so it's going to make it very very difficult for the Euro dollar to rally with any significant with any significance whatsoever and it's a similar sort of story with respect to bund yields and gilt yields the differentials there are basically closing in sterling's favor because I think it's very unlikely that the Bank of England will be able to cut rates any further than they already have done the 25 basis point rate cut that they instituted in October has been more or less wiped out by the fact that UK gilt yields are now back at the levels they were before the European referendum so the yield differentials for being short sterling are no longer there and that for me is another reason why I think we've potentially seen a short-term base in the pound against the dollar which brings me back to this cable chart here I think while we're above 123.30 then I think rather than being a short-term short-term risk to the downside I think the short-term risk in cable is more to the top side people like to be short sterling it's it's it's the consensus trade that's why I don't like it I don't like consensus trades for that very reason because they get crowded and until such times as we get we're able to take out this line here 123.25 then ultimately I still think that it's as dangerous trade I know but sterling is a buy on the dips and you know that that's my that's my that's my view on it I've got one other thing to do we've seen a massive rebound in commodity prices particularly copper and iron ore we've seen that here on this copper weekly chart but we are now starting to run into a very big resistance level on the weekly chart the 200 week moving average so certainly going to be keeping an eye on that also if we take it out slightly a little bit further we can see where the peaks were in 2010 2011 we've got a nice little trend line through there but it's important not to underestimate the fact that we haven't been able to take out these peaks here so this level here on copper could limit the upside in terms of mining stocks on the FTSE 100 it's around about 275 that sort of level there so what I would hope to see is a move through 280 or on the copper price 277.27 which is the value of the 200 week moving average so $2.80 to be on the safe side if we can close above $2.80 then we'll probably see further gains but at the moment it's finding a little bit of resistance at current levels and I would be I would be very very cautious about being too aggressively longer the commodity play at these sorts of levels because I think an awful lot of the fiscal stimulus trade is already now priced in and now it's really a question of whether or not first and foremost Mr Trump can deliver on it but also whether or not Chinese demand will pick up and we'll get some idea of that with the latest Chinese PMIs that are out later this week so for me I think to sum up this week keep an eye on bond markets I think there's a potential that we could have had we could have made a very short term base on them keep an eye on commodity prices again there's potential for us to have topped out a little bit there the dollar is starting to show some signs of potentially topping out keep an eye on that dollar index and ultimately keep an eye on the data US non-farm payrolls on Friday US ADP on Wednesday we've got the non-farm payrolls webinar on Friday we'll be covering that live from 1.15 you can sign up for that on the education section of the CMC markets website but ultimately I think as we come to month end and as we come to the beginning of December I think an awful lot of people will have either made their money for the year and ultimately we could see volume start to start to thin out a little bit towards month end as we come into a significant amount of tail risk or political risk for the weekend the Italian referendum I would think I would I would not advise running anything over the weekend we've learned from bitter experience that given the current political climate it's very unwise to do that we already we've already seen a couple of very big gaps in the market sterling related if there is a an awful lot of what I would call uncertainty as a result of the referendum vote at the weekend then we could see an awful lot of volatility in European markets on the Monday and you don't really want to be the wrong side of that otherwise if there are any questions I'm more than happy to answer them if not I'd like to say thank you very much for attending I'll post this on YouTube shortly otherwise thanks very much for listening and we'll see you all on on Friday