 Hello and welcome to CMC Markets and this Monday market update dated the 13th of February 2017. My name is Michael Hueson and I will be taking you through a quick overview of this week's key events from my point of view, but before I get started I have to display the obligatory risk warning which I have to show you before every one of these particular events and then we can pretty much crack on and get started. So just digest that for a few seconds and then we can really get into the guts of what I'm looking at this week. Before I got off to a bit of a slow start today, Markets are slightly positive, certainly the FTSE 100 continues to edge ever so slightly higher, slightly better performance out of the German Dax and the Cat Courant. But once again we've got geopolitical concerns I think in Europe weighing on equity markets in Europe, more probably more so than say for example the FTSE 250 which is once again making new record highs, the FTSE 100 which is lagging a little bit behind but is being supported by a significant rebound in commodity prices, iron ore prices now up around about $86 a ton, copper prices have broken out of a key resistance level on the top side as well as the 200 week moving average and that's the first time copper prices have traded above the 200 week moving average since February 2013 and some people have sort of decried the 200 week moving average as being not particularly important in the context of the overall scheme of things but ultimately the reason it's so important I think is because of the fact that it's also coincided with a significant breakout to the top side from the previous highs that we saw only in 2016 but which has also capped the move higher in the price of copper throughout most of the first part of this year. So if you look at it in the context of this move here which I've drawn out on this rectangular consolidation on the copper prices that we've been in since pretty much the middle of November we've traded between the highs of 273, 243 so in a fairly decent range over the course of the past few months we've broken out of that range and we broke out of that range on Friday so that combined with a significant break higher in through the 200 week moving average I think gives added weight to the breakout so we can talk about moving average breakouts but also I think they need to be used in conjunction with a breakout of a significant resistance level and here we have that. We have that it's fairly unequivocal you've got 1, 2, 3, 4 and in the 5 and the break now what we need to see here is if we take this move here and project it higher then potentially we're looking at a test of the 300 level or the $3 mark which was basically up where this resistance line is from the highs that we've seen from the peaks in 2011 so this move higher in copper prices is important in the context of the overall break of the previous peaks and the breakout of this consolidation that we've been in over the course of the past three to four months so I can certainly see potential for us to move back to this trend line here back up towards 300. What mustn't happen for this to unfold is we mustn't move back below this resistance level this previous resistance level and the 200 week moving average so I talked about this a little bit in my video last week on Thursday I talked about the fact that we were pushing up against this really key resistance level I also talked about the move lower in oil prices and the fact that we were looking potentially to look for a retest lower now that didn't happen now why didn't that happen we saw some significant builds in crude oil inventories but nonetheless we weren't able to sustain that move lower I think whatever the reasons were for that the fact that we didn't break out of this key support level here was a significant factor in that I talked about the fact that we broke low we take we traded lower two days in a row in a similar way that we traded very sharply lower of these two days here we weren't able to take out these lows but what's more important here is that we actually haven't broken out of the range that we've been in since the beginning of December and that for me I think is important as well we've seen these OPEC cuts we've seen 90% compliance we've seen Saudi Arabia potentially cut the most but ultimately what we haven't seen as yet is a break of the highs that we've seen throughout December and the beginning of January which really pretty much keeps us within the overall range and I think that's important in the context of where we go to next because ultimately people talk about higher oil prices they talk about lower oil prices ultimately markets generally tend to range around about 70% of the time the other 30% of the time they generally tend to trend and ultimately what we're seeing at the moment with respect to crude oil prices is we're in a range bound market and until such times as we've seen some significant evidence of a breakout of that range that's really the way you should be looking to trade trade the overall range as opposed to trying to preempt a potential breakout simply because the law of averages dictates as that's generally what markets tend to do until we get a breakout you then have a tight stop loss it minimizes your potential losses if and when the market does break out which it will do eventually the big unknown at the moment is which way we will go so and ultimately I don't even have the answer to that particular question we did break below the 50 day moving average on WTI but we didn't get a similar confirmation on Brent and those of you listened regularly regularly to my webinars will always say that I usually want to see confirmation of a trend breakout or a moving average breakout on both contracts given how closely correlated Brent and WTI are WTI are we did see WTI break lower or close below the 50 day moving average but that wasn't confirmed by a similar close lower on WTI so again it's really a question of we're still in the range ultimately you know while we're below the peaks that we saw in December and January I think that's probably going to be the continue to be or continue to be the way of it for Brent crude prices what it what there are a number of other factors at play here and I think obviously that's why equity markets are doing as well as they are we've seen Chinese economic data continue to come in slightly better than expected on Friday Chinese trade data showed a significant improvement not only in the export outlook but we saw a significant improvement also in imports as well and that would appear to suggest that demand is picking up certainly in the commodity space we've seen significant imports not only in oil prices but also in copper prices in an iron ore prices and also in rubber prices as well in China some of that that import data showed a significant pickup in demand for all of those key commodities and I think that's generally why you're seeing a significant push higher in US markets in particular probably European markets less so because of the risk profile in terms of European equities concerns about political constraints or political political fallout from the as yet unresolved Greek crisis obviously the Italian banking crisis is a clear and present danger and as yet it still remains unresolved obviously we also have the French elections which are a considerable concern as well given the fact that Marine Le Pen is likely to win the first round she probably won't win the second round but ultimately I think it's keeping investors slightly on the back foot given the significant divergence that we're seeing particularly in French bonds as a result of concern about the political outlook in France so I've just been asked about the catcoron Euro yen Euro dollar dollar CAD Aussie dollar dollar yen more than happy to go through that and we'll be going through that as we progress this particular webinar but I think what we want to keep an eye out for this week is inflation data because we've got a whole host of inflation data coming out from not only China but also Germany the UK and the US and the likelihood is that we're going to see significant rise in inflation repression and a large part of that will be predicated on the rebound that we've seen in energy prices over the course of the last 12 months this time last year crude oil prices were trading between 27 and 32 dollars a barrel well we're significantly higher than that now that is going to filter through into the mainstream CPI numbers that we do to get out of China the UK and Germany tomorrow and obviously if those numbers come out much much higher than expected and certainly there is an expectation that they will then ultimately that's going to prompt further concerns about tighter monetary policy not only from the Bank of England given Kristen Forbes's comments last week about the fact that her tolerance for higher inflation will start to bump up against the limits of what she considers safe now Kristen Forbes will be leaving the MPC at the end of June so ultimately what she thinks about inflation is tempered somewhat by the fact that she is a minority on the MPC but ultimately if she gets support for that particular stance from Mr. McCafferty who also voted against QE in August then I think the debate could start to generate an awful lot of mileage and could well help support the pound which continues to remain fairly resilient in the face of the triggering or the potential triggering of article 50 which is due to come or which is due to take place next month but let's look at the headline inflation numbers for China Chinese inflation has risen particularly factory gate inflation which I think will be the key driver and will start to trickle down over the course of the next few months it's risen from minus 0.8 in August last year and is likely to come in at 6.6% for January when the figures are released tomorrow UK inflation is due to come in at 1.9% CPI headline CPI 1.9% that was at the beginning of January last year it was at 0.3% so there's a massive increase and it was 0.6% in August of last year so we've seen significant rebound there we've also seen we're also expecting to see German CPI come in at 1.9% for January and that's from minus 0.1% in April last year and Germany in particular is concerned about the impact of negative rates on its savers given that they're minus 0.4 and inflation is running at almost 2% so let's start with euro dollar start with euro dollar because I think for me this is the key this is one of the key reasons why euro dollar hasn't come off as quickly as I suspect it should do given the concerns about political instability in the euro area now the 50 day moving average is acting as a little bit of support now you can argue as to whether or not that's a red herring let's look at how it's reacted over the course of the last six months it has acted as resistance okay we had a bit of a spike through there but it's acted as resistance through there now acting as support but I think more importantly with respect to euro dollar is this level through here and it's around about the 106 area 105 8090 also coincides with the 50 day moving average as well if we look at the 50 day moving average the value of that we can see that from the the value window there if we just hold that still it should give us the value it's it's round about 106 105 90 that can be that can be quickly um that would be quickly activated from there so do that again there we go right in the corner on there so the 106 level on the left hand side over here key support I think on euro dollar also coincides with these series of lows through here and it really sort I think it really sort of boils down to what your feelings are on the strength of the dollar because also what's we're going to be keeping a particular eye on tomorrow and Wednesday is Janet Yellen's testimony chairman of the Fed chairwoman of the Fed she will be testifying on Capitol Hill in Washington to the house of representatives the senate banking committee on Tuesday but also the house financial services committee on Wednesday and part of that testimony will be how she views the US economy she's going to face a number of questions on rates the path of interest rates and fiscal reform or fiscal policy and potential reform to the Dodd-Frank act that President Trump has signified that he wants to make significant changes to also been asked about gold and silver yet more than happy to do that I will I will certainly come on to that in the course of the next 15 minutes so so looking looking at the dollar and I think this is once again let's look at the dollar index because I think that's going to be particularly important I talked about this last week that key support level just below 100 so far managed to hold now can we see further gains in the dollar well certainly I think we're finding a little bit of resistance just above current levels through here I'll just latch that on this around about 101 120 can we go a little bit higher potentially we can we can come back to this potential left shoulder up here which is around about 102 because if this is an irregular head and shoulders top then ultimately we we have pretend we have potential to go a little bit higher in the short to medium term but it is finding a little bit of resistance just above current levels around about 101 20 which sort of also feeds into the narrative of a little bit of a little bit of support on euro dollar so looking at euro dollar but also if we look at sterling dollar we've we found another area of support again with the 50 day moving average now we would have got caught a little bit when we broke below 124 last week when we went down all the way down to 123 50 now that was that was a classic bear trap there it would have caught most people out it caught me out but nonetheless I still remain fairly bullish on the pound against the dollar for no other reason the fact that I think an awful lot of the worst news with respect to cable is priced in and I think ultimately given the way these moving averages are starting to converge yes the 100 day moving average is still pointing down for me the key level is this series of lows through here 1 2 3 4 yeah we did get a little bit of a spike down yesterday that was reversed quite quickly from those hawkish comments from Kristen Forbes which has certainly helped I think in the overall scheme of things we didn't stay down there very long we stayed down there about eight hours we've now managed to hold above this key level around about 124 20 124 30 and while we do so I'm still of the opinion that we've got potential to move back to these highs that we saw at the end of January we had a very dovish quarterly inflation report I think the Bank of England is still very reluctant to admit it made a mistake in cutting rates in August and ultimately I think the data is going to prove continue to improve continue to prove that it was a mistake to cut rates and that then feeds into the narrative of obviously Wednesday's data when we get average earnings data which again I think is likely to continue to show that wage growth remains fairly resilient against a backdrop of a fairly tight labor market unemployment I think it's going to continue to remain around about the 4.8 4.9 percent level wage growth is going to still continue to be in the region around about 2.8 3 percent and while that is in line with retail prices which are around about 2.7 percent it's still below CPI even though the gap is continuing to narrow inflation wages are still rising ahead of inflation and have continued to do so since 2014 so while that gap continues to remain positive in terms of wages I would expect the pound to continue to remain fairly well supported so 124 on the downside if we do break lower and we're able to consolidate the move lower then obviously there is potential for us to go back to 122.50 but on the basis of what we've seen over the past week or so I think there is steady I think there's steady interest to buy the pound particularly against the dollar around about 124 one of the reasons why I'm probably more bullish on the pound than I am is is euro sterling euro sterling is continuing to find it very very difficult to rally we can certainly look at it in the context of these moves here now this chart does look a little bit cluttered and I apologize for that so let's just move the line so you can get a better idea of where we are good support around about these sorts of lows through here but also you've got train line support coming in there but again you know I've talked about this at length over the course of the past few weeks I think we are building up a top in euro sterling it looks like a head and shoulders reversal ultimately it could take a while to pan out but ultimately I feel more comfortable selling rallies in euro sterling than I do buying euro sterling and I think that for me I think is important but we do have a significant area of support around about 84 70 84 80 but if we look at the distribution of these particular candles through here in particular around about these these peaks from Wednesday the 8th there is significant resistance around 85 85 50 85 70 80 I've talked about it on the chart forums here while we hold below the 85 70 80 area the bias remains for a move back towards the 84 70 area and potentially lower now obviously if we move back above that 85 80 area then the previous peaks come back into play but again here there's significant resistance around 86 50 86 60 so ultimately I still favor I still favor a policy with respect to euro sterling of buying sterling buying sterling on dips and that will remain my raison d'etre if you like for euro sterling until such times as I'm convinced that that momentum has changed okay so let's quickly look at euro yen talks talked about haven't looked at dollar yen yet I will do euro yen is probably much more problematic because you've got basically two weak occurrence two fairly weak currencies and two central banks that are adopting a weaker monetary policy whereas when you're comparing say for example the Bank of England in the euro or the Bank of England and the yen it's it's slightly less cut it's slightly more cut and dried and ultimately I don't think there is any scope for the Bank of England to cut rates further whereas the ECB might feel compelled to keep policy looser for longer but I don't think they're going to be looking to cut cut rates anytime soon because of the interest rates because of the because of the rate of inflation at the moment but ultimately euro zone inflation is much weaker than it is in the UK simply because the weaker nations are holding say for example countries like Germany back so euro yen slightly more problematic in terms of where it goes to next but certainly I think in the context of where we are it's trading pretty much sideways in a corridor between the lows that we saw around about 119 and the resistance level that we've seen at the end of January around about 123, 122 and a half so for me euro yen is not really that conclusive dollar yen on the other hand does appear to be trading in a bit of a sideways range there's solid support down here at around about 111.60 I still think there's significant resistance around 114.30 and I've talked about the dollar yen in the context of my chart forum comments here 114.30 I think we need to get back above 114.30 to signal a retest of these particular levels here at around about 115, 114.80 you've got a series of highs through here and at the moment what these candles here are telling me is that there is a significant amount of indecision between buyers and sellers to suggest that while the bias is probably to the upside because of the significance the significant aggregation of lows around about here I think we're in a range for dollar yen and the dollar yen on the wide of it I think is going to be 110, 115 because ultimately I think that's probably the optimal price or the optimal range for Shinzo Abe and Donald Trump because Donald Trump doesn't want too strong a dollar Bank of Japan doesn't want too weak a yen to invite criticism from the new US president so 110, 115 is probably the optimal range for dollar yen politics notwithstanding for you know for I think for the status quo to be maintained so that's why I think euro yen is going to be a little bit problematic in the context of where it goes to next euro dollars in a bit of a range dolly ends in a bit of a range thus euro yen is in a little bit of a range so looking at Aussie dollar it's not really that much difference from last week we're pushing up against the significant resistance level from the peaks that we saw in 2015 and while we do so I think it's going to be very very difficult to really buy Aussie at these sorts of levels we're pushing up against resistance from the trend line this is 2015 highs but also we've got the 2016 peaks all the way through here that suggests to me that irrespective of the strength in commodity prices which has helped push the Aussie up we haven't seen the Aussie really push back through the 77 level and 7750 level and I think the reserve bank of Australia is going to be very uncomfortable with the Aussie much above the levels that we've seen at the end of last year and obviously the resistance that we're seeing I'm pushing against over the course of the last few weeks so for Aussie dollar I think we're at the top end of the recent range it's going to struggle to really push much above 77 and as such I think the bias is for us to probably drift back down towards 76 and 75 over the course of the next few trading sessions looking at dollar CAD again it's a much very much a play on the oil price and looking at this four hour chart we can see we can see it here definite downtrend in place certainly with respect to dollar CAD we could probably push back to around about 130 150 130 160 but overall I don't expect it to have the momentum to push significantly higher and unless there is a significant sell off in the oil price now the oil price could push dollar CAD up towards the top of this line but ultimately big big support around about 130 and I think that's probably I think that's probably the way of it over the course of the next next few trading sessions brings me on to gold prices because gold prices I think we we found a better support around about 1220 what does worry me about gold though and it's this little candle here it's a key reversal day which would appear to suggest that unless we can get back above this 1235 area then we could be then we could be gearing up for a retest of 1220 and potential test of the 1200 level which we saw in the middle of January this sort of candle formation it's not it's not doesn't always work but it does give me a little bit of pause because ultimately what it can do is signal a little bit of a sideways or a downward correction before we start to move higher again I mean the trend in gold prices is higher there's no there's no disputing that certainly what we've seen since the end of December reflects that but it also reflects the weakness in the US dollar and I think a lot of the where gold goes to next will be determined by how dovish Janet Yellen sounds when she testifies on Capitol Hill tomorrow and I think what we should pay particular attention to tomorrow is Janet Yellen's views on the US labor market how much slack she still considers there is in the US economy and whether she's worried about the significant decline that we saw in wages growth in the last non-farm payrolls number a non-farm payrolls number was particularly good at 246 000 what was what surprised me a little bit was was was how the dollar reacted to that and I think the reason the dollar reacted the way that it did was because of the weak wage growth certainly if we look at the way the markets are pricing in the prospects of a march rate rise they're only pricing in a 30% probability of a hike now that could change tomorrow particularly if Janet Yellen is at pains to keep the prospect of a rate hike on the table and I don't think she's going to take it off the table but certainly her vice chair Stanley Fisher has suggested there's still a significant amount of uncertainty about Donald Trump's tax plans now he's talked about the prospect of something phenomenal and big league in the next two or three weeks but ultimately in the next two or three weeks it's going to be very very difficult to really formulate a plan push it through congress get congressional approval for it to get a clear idea of the effect it will have on the US economy and for that reason and I think for that reason alone I think it's going to be highly unlikely that the Fed will move on the 15th of March I think it's just too soon we talk about the potential for three rate hikes this year if they're going to go for three rate hikes this year then I think they really would have to move in March now you could argue that they could go in June September and December and that's quite possible but certainly on the basis of this here at the moment the markets aren't pricing in the potential for a move in March now that could change that could change if tomorrow's oh sorry this week's US CPI numbers come out much hotter than expected and certainly on Wednesday US CPI is expected to jump from 2.1 percent to 2.4 but then again so is Chinese CPI German and UK CPI is expected to jump to 1.9 percent so US CPI jumping on its own is not enough to drive the dollar higher particularly if other countries inflation data always jumps also jumps as well because you're talking about the differential between the between the two yield curves so it's also a compare and it's also a compare and a contrast so in the context of the differentials that will be ultimately what drives the move higher or lower in the currency markets so gold prices I'm a little bit concerned that we may be due a little bit of a correction lower but only if we can't get back above 1235 if we break below 1220 then I think we could go for a little run down to the 1200 level where I think we should find some you know fairly decent buying interest in the short to medium term silver prices I hate silver because it's just so volatile but ultimately what we've got here again a nice little uptrend in place but what distorts the silver market is the fact that it's also in its use for industrial purposes so as such it's not such a good proxy for say for it's not such a good proxy for central bank policy than say for example gold is certainly this breakout here does suggest that silver prices have got potential to go back to $19 an ounce why because this is a potential reversal here through here you've got this break of you've got this break of resistance through here at 1717 10 that for me I think is significantly bullish and ultimately I think given that breakout the potential for a move higher is probably higher in silver prices but that's not to say that we can't have a little bit of a pull back in the short to medium term back to this trend line through here but certainly the break of the 200 day moving average if we can consolidate this move through 18 then I think there's potential for us to go back to 19 but I would probably wait for a bit of a pullback first than then piling into this particular trade here because this break of the 200 day moving average for me is not conclusive enough and also the oscillator is looking fairly overbought so and it's finding a little bit of a struggle to get through this $18 an ounce level which also happened to coincide with a little bit of support down through here so keep an eye on that $18 an ounce a little bit sticky around there could prompt a little bit of a pullback towards this trend line support here but I am encouraged by the fact that we've broken through this $17 area through here just get rid of one of them get ready with a couple of them redraw that through there there we go okay so this break through here I'm encouraged by the fact that we have broken higher but we could go for a little bit of a pause here drift back and then go again okay so is there anything that I haven't covered thus far ladies and gents that you want me to expand upon because otherwise I'm going to wrap this up I think I've pretty much covered everything that I needed to cover unless anyone has any questions I will I'll wrap this week's this session up I will obviously post this on YouTube in the next couple of hours if anyone wants to sort of listen back to any of the points that I've covered but ultimately I'd like to say thanks very much for listening and I will speak to you all at the same time same place next Monday