 Hello and welcome to CMC Markets on Friday the 18th of October and this quick look at the week ahead beginning the 21st of October and it's been a broadly positive week for global equity markets. The S&P 500 has retested the 3,000 level while once again struggling to really maintain a foothold above it. European markets have been broadly positive though the FTSE 100 has underperformed largely due to the fact that the pound has gone for a significant move to the upside. Now I talked an awful lot about sterling a week ago and particularly against the Euro I suggested that we could be in line for some significant sterling gains given some of the indications that we saw on the Euro sterling daily chart and I'll cover that in a minute but for the here and now I also talked about significant resistance levels in and around the 200 day moving average on the cable chart and we've certainly seen a significant move to the upside in the past few days and a large part of that is obviously down to recent events the announcement of a Brexit deal between the European Union and the UK and the fact that a no-deal Brexit has become much less likely. So does that mean the end to the troubles for the pound? Well by no stretch does it mean that? Does it mean that we're more likely to get a deal passed in the UK Parliament? Again the mathematics of that remain very challenging and that's certainly something that I'm going to be focusing on with respect to this video because as I record this video in around about 24 hours time on a Saturday for the first time in 40 years the UK Parliament will be sitting to mull over the merits of this latest deal from the UK government but let's not also forget that Theresa May also had a deal and her deal was voted down three times only in managing to get 286 votes on the third attempt Boris needs 320 and with a DUP opposed he will need a host of labor MPs to break ranks if we are to move on with this sorry saga. So what happens if MPs vote it down what happens next? That's really the big question the numbers do look tight I think there's an awful lot of what I would call voter fatigue, Brexit fatigue, general fatigue with the entire process and I certainly think there is on an awful lot of people's parts a desire to move the debate on from the withdrawal agreement and on to the political declaration and the new relationship. So Jean-Claude Juncker has ruled out the prospect of an extension there is a deal on the table and he's pushing the narrative of is this deal or no deal. If I'm honest I think it's unlikely even if MPs do vote this down that the EU or countenance and no deal they will probably grant the UK an extension but the question then needs to be asked to what end will it be will it be for a confirmatory referendum on the actual deal itself or will it be for a new election there's a whole host of variables at play. So whatever happens at the weekend it's unlikely to be the end of this saga. However if MPs do hold their noses vote for the deal at least we can move on to phase two which is negotiating the new relationship over the next 14 month transition period. So what does this mean for Cable? Certainly in terms of the move higher I think there's certainly we're into the realms of a new range I think the downside there's probably a there's probably a flaw in on Cable now certainly in the short term with 200 day moving average likely to act as a decent support level of around about 12670, 12720. We've managed to hold above that the 50 day moving average is starting to move more positively but the slow stochastic is looking a little bit oversold. So that suggests to me that we could get a little bit of consolidation now with a new range of between 125 and 130. Now I talked about Eurostirling last week and Eurostirling I suggested that the rules were aligning the stars were aligning for a move lower a stronger pound and certainly that has played out. It's played out much quicker than I anticipated but the catalyst was a move below that 8780 area which was also the 61.8 Fibonacci retracement level of the entire move from the lows that we saw this year to the highs that we saw in August. We've broken lower if we zoom in we can see that the last two days trading has been fairly choppy even though we've closed fairly close to pretty much where we opened and we are now like starting to look a little bit oversold. So the narrative has shifted to a much more positive sterling story we could get a rebound back to 8790, 8780 but I think while we hold below this level here and the 200 day moving average the narrative has now shifted to a slightly stronger pound and potentially a retest of the lows that we saw in March and May of around about 8470. So in the short term we could see a bit of a rebound after finding a little bit of a base around 86 probably get a short squeeze in the short to medium term maybe back to 8750 or even 88 this this corridor here but overall certainly the momentum has shifted more towards the downside in euro sterling and further sterling strength. Looking further ahead to the coming week we've also got the ECB rate meeting that's due on the 24th of October and while no changes are expected at this week's meetings it's going to be a totemic meeting in one particular respect and that is it'll be ECB president Mario Draghi's last meeting as head of the governing council as well as his last press conference before handing over to Christine Lagarde. Now in comments recently Mr. Draghi has been doing a little bit of a victory lap boasting about saving the euro while also saying that the ECB can also do much more. Well now it's justifiable that he would want to highlight his successes but I think he's being a little bit premature given that the European economy still remains frighteningly brittle and no better is that illustrated in some of the PMI numbers that we've been seeing coming out of the euro area and we've got flash PMIs coming out also on the morning of the 24th of October and the last manufacturing Germany PMI came in at 41.7. Very very weak number in September now we could see a rebound in October. Manufacturing activities remains very very depressed in the German economy and it is quite likely that we could we'll see German Q3 GDP come in in negative territory putting Germany potentially in a technical recession. So certainly going to be looking for improvements in the flash PMIs from not only Germany but also France because in the September numbers we did see a weakening pretty much across the board with some evidence that the weakness in manufacturing was starting to trickle down into the services sector. We've also got the latest German IFO business climate for October. That's due out on the 22nd and at its last reading the German IFO expressed widespread pessimism about the prospects for the German economy. In September the Institute warned that the weakness being seen in the German economy could start to infect the services sector and as such cut its outlook for the economy over the next two years. So the IFO remains a very very pessimistic about the outlook for the German economy. So that could potentially weigh on the Euro. Having said that the potential for a Brexit deal has boosted European assets over the course of the past week or so. We've certainly seen that born out in the performance of the DAX which we've seen break out towards the upside. Now this chart that I showed you last week we hadn't actually broken through this downtrend line now we have and we've broken higher but quite significantly yesterday we saw what I would call potentially a gravestone doji. Now that's not necessarily a bearish signal but it's certainly not bullish. Now at the moment we've managed to hold above 12,600. We have broken towards the upside. We've hit the highest levels for the DAX in over a year but there does appear judging by the price action to be some element of caution around this particular breakout and with the S&P also struggling around about that 3,000 level and with US earnings coming in a little bit mixed some are better than others but ultimately the earnings outlook is looking a little bit tricky. We've had the US banks out this week JP Morgan Bank of America City Group Wells Fargo. They've all been a little bit of a mixed bag some better than others but certainly they're not blowing the doors off. We do have to be a little bit cautious about the outlook going forward certainly in terms of the central banks as well. So let's have a quick look at the S&P because I think that's worth having a look at. Once again I talked about a potential move back to the 3,000 level. We've certainly seen that but what we haven't seen is a significant move above the highs that we saw in the middle of the summer. That's not to say that we won't get there but certainly I think there is an awful lot of nervousness vis-à-vis with respect to trying to push it aggressively higher and actually if you look at the Russell 2,000 which is the US small caps you can see here with this particular chart that that particular chart is not really giving us an awful lot of encouragement with respect to the state of the US economy because I think if you look at the US economy in the round there is evidence of a little bit of a slowdown. Certainly seeing that in terms of retail sales that was slightly weaker than expected but overall I would suggest that it's probably trickling along quite nicely but it's probably only going along in around about third or fourth gear as opposed to the rest of the global economy which is struggling to get out of first. So still doing okay but certainly not going to pull the world out of a recession particularly if there's any further weakness in the economic data that we've seen over the course of the last few weeks. Also big week for UK banks it's UK banks earning season coming out and we have got three banks that I'm going to be focusing on this week which could prompt quite a few trading opportunities. Let's start first and foremost with Metro Bank been in the news for all the wrong reasons I'm over the course of the past 12 months and it's not difficult to see why when you look at that chart it looks pretty awful. It still remains a bank in serious trouble it's just raised 300 million pounds at no watering yield of 9.5%. There is a silver lining the departure of chairman and founder Vernon Hill may well be the catalyst required to turn the bank around after the 900 million pound accounting error that saw account holders pull 2 billion pounds out of the bank in the first six months of this year as doubts grew as to whether or not it might survive. The share price is down over 85% year-to-date and even lower from a year ago it is over 26 pounds a share. It's now just under 2 pounds so you could argue that potentially there is potential for further upside but I think the big Tesla Metro Bank is whether the worst is behind them and trust is a big issue if you're dealing with a bank and I think trust remains fairly brittle in terms of the management structure of this particular bank so hopefully this coming week's Q3 earnings announcement will restore some of that trust. Certainly in terms of the price action it's likely to continue to remain volatile. It's also been a good week this week for UK banks we've got RBS with its latest numbers for Q3 coming out on the 24th of October it's going to be a very busy day on the 24th of October with the ECB PMIs and we've got RBS as well and the prospect of a deal a Brexit deal has really boosted UK banks in the past few days we've seen it break above the 200-day moving average for RBS and I think if you actually look at the numbers from RBS it's actually the underlying business has been doing okay. Alison Rose has recently been announced as the new replacement for Ross McEwen and there's no question that the continuity for RBS will be welcomed by investors as will a slightly more certainty around the Brexit environment but this improvement in trend in terms of profits needs to continue in Q3. The flying the ointment continues to be PPI now it's here we could see further significant provisions given the late surge seen in the lead-up to the August deadline so any profitability in terms of this week's earnings announcement could be tempered by larger PPI provisions because of the surge towards the August the 29th cutoff date that we saw in Q3. It's going to be a similar sort of story if you look at Barclays numbers as well similar sort of move higher on hopes that MPs will pass the Brexit deal and we're coming to the close of this particular stage but what is significant about this and I've drawn this line here so that you can see it is big big resistance on Barclays share price at 170p £1.70 so I think you could argue that this week's trading update for Q3 some of the good news could well all be priced in mortgages remain a key profit center for the bank so the slowdown in the UK housing market could well act as a drag costs are coming down management of stated they expect four-year costs to come in below 13.6 billion so if that if if on the cost base this continues to be improvement that could be a positive but again as with RBS further PPI provisions could be a headwind for the bank other things to keep an eye out for which I don't really have time for in this particular update will be Amazon's Q3 numbers also on the 24th Microsoft on the 23rd Q1 Boeing Q3 on the 23rd of October so a fairly important week for earnings a fairly important week for the ECB and another important week for Brexit and certainly in terms of sterling volatility we could well see quite a bit of volatility there three days this week we have seen 200 point plus ranges in the cable that is likely to continue over the course of the next few days particularly if MPs decide to vote down this new Brexit deal let's hope they don't that's it for this week thank you very much for listening to Michael Houston talking to you from CMC market