 Good morning and welcome to CMC Markets on Monday the 27th of June and this Monday market webinar. Certainly quite an awful lot to get through given recent events obviously Friday's volatility saw the pound hit a 30 year low since then we've hit fresh lows on sterling. Equity markets have opened lower which is not unexpected given weekend events the political turmoil with politicians from both sides of the political divide squabbling like rats in a sack it certainly doesn't speak to a particularly conducive and stable economic environment going forward but before we get started I need to make all of you ladies and gentlemen aware of a risk warning as we go through the markets for this week look at the key events and hopefully what the key drivers are and likely to be dictated very significantly by events or UK politics in particular and the fallout from last Friday's Brexit vote so once we've done this claim is in the risk warnings we can pretty much get started and actually start to have a look at the markets so unsurprisingly we've seen equity markets open lower footsie 100 is down quite significantly we can see that even though we're off the lows of last week the markets still remain significantly under pressure though having opened slightly lower in Asia trade this particular footsie cash contract it is up from its opening levels but it still remains below the closing levels that we saw late on Friday night obviously I think the the slightly weaker pound is helping in some regards with respect to the outperformance of the footsie 100 but it's not really an accurate guide of what equity markets are going to be going to do over the course of the next few days and weeks and certainly I think the rather I think the rather somber effect of Mr. Rosborne's or his measured tone this afternoon this afternoon this morning even chance for Osborne's measured tone this morning doesn't appear to have really calmed matters that much I think the bigger concern more than the fact that the pound is very very weak is over the banking sector and the banking sector has really been clobbered over the course of the past two or three days and not just the UK banking sector but the European banking sector as well and that I think is likely to remain a significant pressure point over the course of the last few days now we've heard an awful lot of chatter from EU leaders about the necessity for UK policymakers to implement article 50 more or less straight away I think that's highly unlikely the fact of the matter is David Cameron has resigned while he will remain in place over the course of the next few days and weeks until October the likelihood of article 50 getting implemented anytime soon does appear to be pretty slim and certainly Mr. Rosborne's comments this morning have really sort of reinforced that expectation obviously it makes the uncertainty principle that much greater and that's certainly being reflected in the value of the pound which has declined quite considerably over the course of the past week but I think it's also important to remember that despite the fact that we've seen really heavy declines over the course of the past few days we still remain well above the lows that we saw at the beginning of this year in February in the wake of the China meltdown and I think it's important to put this Brexit sell-off in context there are significant concerns certainly about what's going on with respect to the UK but ultimately we still are in the EU and ultimately while Mr. Osborne did reinforce the fact that it's likely to delay investment decisions over the course of the next few weeks and months we're not going to see I think it's unlikely we'll see the UK economy fall off a cliff and I think that I think that's important to to understand because the fact of the matter is we still have a fiscal stabilizer in terms of the value of the pound we're not locked in to the euro and that is going to take some of the pressure off from a from the economic point of view it's going to push inflation up and while we've certainly seen a significant sell-off in the pound what we haven't seen is a significant outflow from the UK the UK Gilt Market has actually gone up and we are now below 1% in terms of UK Gilt Yields which rather does give the light of the fact that we could in fact get a sterling crisis and I'm not trying to underplay the seriousness of what's going on at the moment but certainly in terms of capital outflows the big question is if we do go if we do get significant capital outflows where are they going to go to if you look at German bonds they currently yielding a negative interest rate if we look at if we look at the actual yield curve across Europe it's pretty flat or negative Japanese 10-year bonds JGBs are yielding minus point two zero five percent German bonds are yielding minus point one percent ultimately the yield curve out to ten years on Swiss German and Japanese bonds is negative UK guilt yields are a 0.95 percent so in that context I think even if investors do pull money out of the UK they're going to find it very very difficult to actually get a yield anywhere else but the US which obviously does present problems with respect to the US economy because the last thing US wants is a rising currency and that's another factor that I think we need to price in in terms of a significant sterling sell-off we remain very much in central bank easing mode and I think that's that's highly likely to keep the Federal Reserve on the back foot until pretty much the end of the year we've heard an awful lot of speculation about whether or not the Federal Reserve will raise rates this year US data by and large has been slightly better than expected but overall that non-farm payrolls number that we saw at the beginning of June was a significant wake-up call to an economy that still appears to be significantly showing signs of slowing down now we have got a whole host of US data out later this week of which includes the final revision of Q1 GDP and certainly that is significant in the overall context of where the US economy is in terms of Q1 Q2 is unlikely to be significantly better and we also have a whole host of other US data including US personal spending which in April showed a big big jump to 1% but is likely to slip back in May and I think if you look at durable goods you look at retail sales they still remain a fairly lackluster and I think going forward it's going to make that very very difficult and it's going to give the Fed a perfect excuse to hold off raising rates so let's start our analysis of the various charts by looking at the pound against the dollar and this cable chart and this cable chart is looking a little bit busy so what I'm going to do with respect to this is try and try and get rid of some of these lines so we've hit a 31 year low we've broken below 13650 which was the previous low in 2009 and that in a nutshell is very very negative for the pound going forward and the 1985 monthly close was a 140 150 we did see a close a little bit lower than that overall earlier this year but this downward move here would appear to suggest that we're quite likely to see further losses in the pound against the dollar over the course of the next few days and weeks unless we can get significantly back above 136 and a half over the course of the next few days and weeks then it's highly probable that we will see a test of 130 initially in the interim certainly in the context of this daily chart we do appear very oversold we were at 150 on Thursday night it's hard to believe we're almost down at 132 now we heard an awful lot of chatter over the course of the past few weeks in the lead-up to the referendum vote saying that the pound would lose about 20% of its value in the event of a Brexit now yes we have declined quite significantly over the course of the past couple of days from 150 to 130 but an awful lot of these predictions were predicated on a cable rate of around about 140 142 so if you work out a sterling rate decline of 142 or 20% from 142 you're talking about 24 big figures from 142 which puts you around about 115 or 120 and not the extremes that we got here which is a significant move down from the highs of 150 the reason we got up to 150 was because everyone was expecting to get a remain vote so you've got an awful lot of what I would call front-running of that decision and basically the market got it massively wrong they thought that we get a remain vote based on the movement in the polls and they saw no such thing and that way the market was called massively the wrong side and as you can see from this single daily candle here we saw an aggressive sell-off lower so 150 to 132 yeah that's a really big move but ultimately when you're making a prediction about a 20-25% downside they were making these predictions based on a cable rate of around about 140 we moved 7% higher in the preceding week for those predictions and now we've dropped 14 or 15% lower so what we're seeing here is a significant readjustment of those expectations and certainly against the dollar what's also happening here is we're getting a reapply a repricing a repricing of potential future Bank of England monetary policy expectations a potential for further rate cuts over the course of the next few days Mark Carney last week said that he would be looking or the Bank of England would be looking at 250 billion pounds of extra cash to support liquidity within the capital markets here in the UK potential for further rate cuts and again that's why we're seeing the UK guilt yield slide back down below that 1% level to trade around 0.95% and it's in essence that's why you're seeing this the pound weaken as much as it is because when you compare the differentials between US 10 year treasuries the yield differential is widening out in favor of the US dollar in terms of euro sterling the effects are slightly more nuanced in terms of the sterling declines but certainly in terms of this particular move here here's euro sterling weekly chart if we take this chart out from the peaks that we saw in 2008 2009 where we got to within two euros of capacity of parity we've seen a significant down move in the euro sterling euro weakness sterling strength of 69 we're now looking to retrace around about 50% of that entire move over the course of the next few days and weeks big level is at 83 70 that's 50% of this entire down move 50% retracement and then above that looking at 87 so 83 70 on the top side is a significant resistance level for euro sterling followed by 87 now this is not what I would call a zero-sum game this is not just about sterling weakness this Brexit vote also just throws into sharp focus the weaknesses in Europe as well Europe currently is running a negative rate interest rate policy in contrast to the UK so there will be negative effects there will be drag effects on the euro which is why I don't expect to see the similar amount of sterling declines against the euro as I would expect to see potentially against the US dollar and for that we can look very very closely at banks so I'm going to open up my banking watch list here and this gives you an indication of the stresses and strains faced by the European banking sector in the UK banking sector now we heard from George Osborne today and he stipulated he assured us that UK banks were fairly resilient now we can certainly see in the context of this overlay chart that I've got in front of you right now that it's not a pretty picture we can see straight away from here that a lot of the banks all the UK banks are significantly under pressure but they're in a much better place than they were in 2008 2009 our biggest concern is obviously RBS which is the blue line which is which is down nearly 50% from where it was at the end of in the middle of September last year this is a comparison chart Barclays is the grey line the red line is standard charted and the purple line is HSBC and you can see both of those charts there are outperforming not surprisingly because they have much more exposure to Asia and less exposure to the UK but certainly the UK base banks like Lloyd's RBS and Barclays are taking the brunt of the hit in terms of concerns about the effect that lower rates will have on their margins as well as obviously concern about passporting to the Eurozone area in the event that the UK leaves the single market now we are still part of the single market and we are still in the EU until such times as article 50 gets triggered that being said markets generally don't tend to wait for that to hang around to happen though tend to get out in front of it but if you think UK banks problems are significant then European banks are even worse and that's really the pressure point I think with respect to any EU response to the UK's Brexit vote this is Deutsche Bank Deutsche Bank has hit new all-time lows already today and it's broken out below this key reversal pattern that I have talked about in previous webinars and the likelihood is that we're probably going to see further losses in Deutsche Bank now to give you to give this a bit of context let's take out a slightly longer term chart and you can look at the declines in Deutsche Bank over the course of the past seven or eight to nine years in 2007 we're 100 euros we're now just above 10 and there are significant concerns with respect to Deutsche Bank about the banks overall solvency and that's a real problem and it's likely to continue particularly if the ECB continues to keep policy loose and continues potentially to loosen it even further looking at Italian banks is an even bigger concern this again all-time lows on popularity de Milano and this is a even bigger pressure point for European banks because if we look at a long-term chart here this chart pretty much says it all you need to know about Italian banks they are sitting on a huge amount of non-performing loans there's still no significant agreement amongst European policymakers as to how to resolve the problems with the European banking system and until such times as that situation is resolved it's going to make it very very difficult for the European economy to show any signs of recovery even Spanish banks are continuing to remain under pressure despite the fact that Prime Minister Rahoy managed to get a slightly better election result at the weekend but he still fell short of an overall majority and once again here this is Santander we are actually not at the lows that we saw on Friday but we did open higher and basically we've rolled straight over so that that paints a very very difficult picture for the European banking sector and against that backdrop it's going to be very difficult for banks particularly European banks to aid the recovery for Europe at a time when they're trying to not only recapitalize and build up their balance sheets but also try and deal with their non-performing loans and if it's pretty much the same story for Swiss banks as well Credit Suisse and UBS they're also trading at multi-year lows and we can see that with respect to this chart here this is Credit Suisse this is the daily chart for today heading back to 10 Swiss francs another all-time low if we go out to a monthly chart again we can see what an absolute diabolical outlook that gives us with respect to Swiss banks so Europe has got its work cut out if it wants to be punitive against the UK then it runs the risk of damaging itself more than the UK looking at the indices now we can see the German DAX once again despite all the volatility we are still well above the lows that we saw in February so for all this volatility and you can see how stark it is we closed all the way up here on Thursday came back Friday and now we're back here on Monday but significantly we still remain well above the lows here so the next really I think the next real key support level on the DAX remains around about the lows that we saw here at the end of February around about 9,100 on the top side we're looking at 9,700 as depicted by this peak here and these series of lows through here so choppy is probably the name of the game within a slightly lower range that we've been in over the course of the fast past few days and weeks similar sort of story on the Euro stocks 50 again just above the February lows here so that's quite a key level certainly worth keeping an eye on that 2,670 level which was the June lows on Friday and the lows in February obviously you have to factor in in the context of the Euro stocks 50 the Cat Caron and the Italy 40 and the Spanish index the Italian index is down to just over 2% today but it was down 12% on Friday and more significantly it's actually below the lows that we saw in February so Italy remains a significant pressure point given the fact that Mr. Renzi has a referendum on constitutional reform coming up in October so what does this mean for US markets US markets are likely to feel the pressure on the back of the weakness in European markets there is likely to be a worry given the concerns about a slowdown in Europe and we're seeing that being brought to bear by the S&P which now is looking significantly vulnerable to a sell-off now I've got my eye on first and foremost the 200-day moving average but also the round number of 2002 thousand for me I think it's going to be a significantly key level but we do have to be careful when looking at the S&P because we also have to look at the Dow in the context of the move as well because the Dow is also on its 200-day moving average and what I would hope to see in the event of a sell-off in US markets is for both the Dow and the S&P to break lower at the moment the S&P is below its 200-day moving average but the Dow hasn't quite got there yet it's touched it and it's round about that level right now but it actually hasn't closed below it and what it also needs to do I think is really close below this 17,000 level as well to signal the potential for further losses back towards the lows that we saw first and foremost in March which I'm going to draw through here which I'm going to draw through here but also the lows that we saw in the S&P so certainly look for a correlative breakout in terms of the S&P and the Dow because I think they could well signal a significant sell-off 17,000 in the Dow 2,000 in the S&P 500 moving on to Euro dollar by the way please feel to jump in and ask me any questions more than happy to address those questions to you significant here with respect to Euro dollar we had been in a nice little uptrend pretty much since the December lows we've now broken below that and not only that we've broken below the 200-day moving average now that's significant the reason it's significant is because look at the times here that we've seen the 200-day moving average act as resistance and as support it was resistance here in December it acted as resistance here in late February and early March we broke through it we came back acted as support traded higher came back and acted as support here we've now broken back through it so now the key resistance for me on the Euro dollar is likely to remain the 200-day moving average which currently sits at 112 87 112 90 so around about 112 91 113 that's going to be that's going to be that's going to be a key level on your asylum sorry my mistake that's 111 111 I was talking about the 50 in the 100-day which is above it so 111 we need to see the Euro dollar move back of 111 to prevent a move back towards this series of lows around about 108 20 so certainly the downside bias has shifted on Euro dollar towards the downside while we're below the 200-day moving average back towards the gold price because that continues to remain fairly well supported we have seen a move above the 1300 level in the wake of the vote that we saw last week and we've managed to hold above it so the 200-day moving average is the 200 week moving average rather is the purple line that we've got here we've managed to hold above that and now we need to stay above it as you can see from this horizontal dashed line here that 1300 level was a significant resistance level for quite some time it was here in 2015 it was the highs for the year it was the highs so far this year and now we'll work now we've managed to hold above it so any pullbacks in the gold price need to stay above 1300 dollars an ounce to kick on and head towards 1392 1400 moving on as you can see that's the 2014 highs here so that's really the next target for gold prices while we're below 30 while we're above 1300 dollars an ounce the bias remains towards the upside towards 1400 dolly in the Bank of Japan is not going to be happy with dolly in at its current levels which is around about 101 60 65 now we did see a spike down below 100 on Friday to around about 98 95 if we look at the way dolly ends performed over the course of the past four to five years we've gone from 75 all the way to 125 we've come all the way back 50% pretty much to 100.70 which is a 50% retracement level we did go below it in the aftermath of Fridays Brexit result we have snapped back but the bias is quite clear we've now broken below the 200 week moving average and that for me is really significant because that's the first time we've traded below the 200 week moving average pretty much since 2012 that really does shift the bias towards the downside so for me if we get any pullbacks in dolly in then we're likely to find that they're probably going to get significantly sold into big question is when does the Bank of Japan get concerned about potential intervention well I would argue that they're not going to be that concerned about it until such times as it goes below 100 if we get below 100 and we start to really accelerate towards 95 the Bank of Japan is certainly going to start making noises about potential intervention and that for me I think could well come in the course of the next two or three weeks because if we get further weakness in equity markets which appears likely given given where the footsie is right now we need to hold above 6,000 for me on the footsie to suggest that we're not going to see further weakness then we could well see further yen strength further dollar weakness I've been asked about silver more than happy to cover that for you again silver's underperforming gold at the moment and what we really need to see with respect to silver is a move above these series of peaks at $18 an ounce we did try and get above it early on Friday but we were we were not able to sustain that move higher and ultimately until such times as we do I'm very very reluctant to sort of put anything on silver until we get either through these peaks here or we slip back to this series of lows that we've got all the way through here around about $17 and 10 cents so overall I think silver the outlook remains fairly positive but the lack of follow through on the top side does worry me a little bit and and does suggest that we could actually see a little bit of a bit a little bit of a bull trap back towards this $17 an ounce area that we've got coming in through here because if you look at the various series of lows that we've got in April and May and around here in June it does appear to be a significant area of congestion between $1690 and $17 an ounce and that for me I think is a very key area in terms of silver prices over the course of over the course of the next few days and weeks looking at $17 on the dip but we need to really push through $18 to get any series significant semblance of idea of where we go to next and we can see why this $18 an ounce area is so significant we've got these series of highs here we've got these series of lows here it's a big big barrier between $18 and $19 an ounce and that's why we're really struggling to really push back through it moving on quickly to Brent crude because I think that's quite important the bias for Brent crude now does appear to be towards the downside potentially I think we have seen a potential short-term top we are now starting to struggle at these sorts of levels and the pressure does appear to be building up towards a break lower if we're able to sustain this break below the 50-day moving average and this trend line support on Brent crude then we could well slip back towards around about the mid-40s around about $45 a barrel the strong dollar is not helping Brent crude at this point in time but you've also got the overarching factor that this concern about Brexit and the ripple effects of that is probably going to weigh on global demand and if it does continue to weigh on global demand then you'll find that the oversupply works itself off that much more slowly so barring any supply disruptions you've got to think that the upside in crude oil is likely to remain fairly limited I would obviously revise that review revise that view if we broke above this series of highs that we've seen here around about $51 a barrel otherwise the bias I think remains to the downside and a move towards this longer-term trend line from the 2016 lows it's a similar sort of story on WTI and we can see that it helps if I actually open the correct contract which is the continuation contract which we have here again it's a similar sort of story we have broken the uptrend line but what we haven't done is broken below the 50-day moving average and certainly I'll be looking to really break below 45 these this this this series of lows here just above 45 45 55 46 dollars a barrel these twin lows here again we've got a similar sort of resistance up here around about $50 a barrel on WTI so that's likely to act as a significant barrier and a break lower talk below 45 dollars is likely to bring us back to around about 42 43 dollars a barrel okay so unless anyone has any other questions thus far about any markets that I haven't covered I'd like to wrap this up and you can listen back to it online if you so wish once I've posted it on YouTube in the next two to three hours just waiting for any questions if not I'd like to thank you all for attending this week's Monday market webinar and hopefully you can join me again next Monday or at the non-farm payrolls webinar which is 1.15 on Friday the 8th of July not the first the 8th of July 1.15 to 1.45 you can enroll that you can enroll in that on the CMC markets website and learn under the learn section and education learn and analysis otherwise thanks very much for listening and good luck out there trading today and this week