 Right, good afternoon ladies and gents, welcome to this month's monthly update between myself and Colin Szynski in our Toronto office and this week or this month I should say, we'll be previewing this evening's FOMC meeting, trying to dissect the likely course of action with respect to either the tone of the statement or whether or not and what sort of tone essentially I think that Janet Yellen will adopt in the wake of the, I think, ambivalent, I think or ambiguous, ambiguous, see I said it, ambiguous data that we've been getting out of the US economy but before we get started let's put up the obligatory compulsory risk warning which I'm obviously compelled to do by my compliance department so let's get that out of the way and then we can pretty much crack on and get started. So as I say we've got quite a bit to get through but I think the two primary drivers of market sentiment at the moment are obviously concerns about grief and I'm not really going to talk about that at the beginning because I think that's pretty much done to death. Let's start Colin, FOMC, the Federal Reserve, I think we can both agree that they're not going to raise rates this month. No, that would pretty much rule they wouldn't march when they cut their forecasts. And for me there's a whole school of debate as to the timing or otherwise of a Fed rate rise. I think it's unlikely that they're going to do it this month and it's unlikely they're going to do it in July given obviously what's going on in Europe and all the uncertainty surrounding a Greek default. So really it's a question of first and foremost the tone of the statement and also I think what the dot charts look like. Now you've done a nice little diagram for us Colin so why don't you describe what we're seeing right here. These are the dot charts. These are the dot charts and what these are is literally they take all of the FOMC members' forecasts for the Fed funds rate at the end of the year and plot them on this chart and how these charts change over time is quite significant. When I look at this and this is what's published, the Fed does so this is their chart. I don't even bother with the out of years because that's nice but I mean that doesn't concern us. It's really the left one here and when we started the year there was a huge cluster up and around one and a half, two percent and at the last meeting in March where the last time so that was December they were up there and there was another cluster in and around one percent and in the March meeting all of this came down to the big cluster narrowed in between about 0.75 and one percent, half a percent and one percent. We're at a quarter of a percent now so these two dots at the bottom are basically the people that think there will be no increase this year and then if we go up we'll say that one dot above it would be one increase. This big group here would be two increases and this group of three would be three increases between now and the end of the year. After today there's four meetings left so we can look at this a couple of ways. First off you can say okay well one increase at the end of the year would mean they go in December meeting and they sneak it in two weeks before the end of the year. Two increases there's two ways you can do that either you can go September, December or you can go October, December. If you're going to go to three increases then you've got to either go every meeting from September or you start in July and you can take a meeting off depending on how things go. What we're looking at still is the majority at this point of Fed members are still calling for two to three rate hikes by the end of this year. We'll see how this changes with when this table is published this afternoon. If this big group starts to come push down again farther into the zero or one percent rate hike camp then certainly that's also not only to say less rate hikes but it also pushes out the start date for timing. I'm going to talk a little bit about what the rest of the forecast means. I mentioned that back in March most people at the beginning of the year figured June was it today was going to be the day of rate lift off and of course that didn't happen and the signal from the Fed at the time that this wasn't going to happen they were going to push it out was that in March they cut their forecast their Fed fund forecast I just talked about but also GDP and inflation. It's pretty hard to start raising interest rates when you're cutting your forecasts. In the intervening time we've had forecast cuts from the IMF and others to the US economy. The question is are they catching up to the Fed or does the Fed need to catch up to them? It's hard to say but I think what we're looking at here in terms of the go ahead Michael and then I'll talk to the three outcomes. Basically the forecast cuts we've seen from the IMF and the OECD with this month so the three months after the Fed so I would argue that they're probably not catching up with the Fed they could actually be front running the Fed. Definitely a possibility. In which case we could actually see growth and inflation forecast downgrades this meeting and not left the same and if that happens then that potentially could push a right hike back to the back end of this year but go on. Absolutely so I think there's three scenarios that we could see with regards to the forecast. As Michael said if they cut their forecast again you can rule out September and likely that they wouldn't do anything until the very very end of the year. I still think they may do something this year just to get it in kind of like we saw a couple of years back with the when they started tapering they got went in and rated the very end of the year at the December meeting so it's possible that that's still a very open possibility at this point. If they do nothing and change their forecast it still leaves the door open to September and I think in the statement they're going to kind of worded to give them maximum flexibility. In the past they had the Fed had been very much on transparency tell everybody we're not going to do anything for years. The Fed's kind of gone back the other way now and they're trying to give themselves more flexibility through their speeches and statements of the last few months. The third scenario which is the least likely one which is that they actually raise their forecast if they did that the street would likely see that as a signal that they'd be ready to go as soon as July. So if we my feeling is an increase in forecast unlikely but would mean July steady as she goes on forecast would mean September or October and a cut to forecast would mean probably possibly December for interest rate left off. Yeah I mean that pretty much I think sums it up quite nicely and I certainly think in terms of what US yields are doing we did hit two and a half percent earlier this month which is obviously this down move here that we saw in the US 10 year note when prices dropped to just above 125. Now what we've seen here on the Japanese candlestick chart is what I call is almost a bullish engulfing day. Now usually bullish engulfing days are harbingers of a significant upward move in prices. At the moment we're running into a little bit of resistance at 126.65 which also happens to be the March lows and also the May lows that we saw last month. Now that then presupposes what would cause prices US Treasury prices to go up and yields to go down and for me that would be a dovish Fed. So if this is a bullish reversal on the US 10 year note then we could well get a dovish Fed and we could then push through this resistance level on the price and go back up to the 200 day moving average. So for me I'm still probably more dovish or bearish on the dollar than I am bullish. People I think there's an awful lot of people out there who seem to think that because of all this grief scenario a euro dollar has the potential to go lower but we've had a very good payrolls number earlier this month at 280,000 and that did cause a significant dollar rally but what it didn't do is it didn't push it below one ten and a half and given we were only around about 112 you would have thought that if the market was positioned or looking to position itself for a rise in US rates they would have pushed it that much lower given concerns about a grease exit a default and what have you and that's not happening at the moment and given what the pound is doing against the dollar I actually think the pound can go probably to 158 and even 160 over the course of the next few weeks and months but that's just to me a week a dollar well a week a dollar doesn't tie in with a narrative of a hawkish Fed so at the moment we're at a I think we're at a very very key I think tipping point in terms of where the dollar goes to next which brings me into my dollar index chart which I used in my weekly video on Tuesday this chart here from the May highs suggests that we're in a very nice little down with downward channel or downward trend it currently comes in around about 95 60 95 70 that more or less coincides I think with euro dollar around about one ten and a half you've got to bear in mind that the dollar index 57% of the dollar index is the euro dollar so there is quite a good correlation it can get skewed a little bit by dolly and when when you get significant moves in that but by and large generally the downward track in the dollar index usually does feed into a narrative of a slightly firmer euro and until such times as we break this downtrend line and and this this resistance level here I think you have to be a little bit cautious about being overly longer dollars the highs are getting lower the lows are getting lower until such times as we take out this series of highs here I think you need to be cautious about being overtly dollar bullish there's also one other factor up play here and a spread differentials between US 10 year treasuries and buns and the spread differentials have been coming down in favor of the bund and the euro since those euro dollar lows of 104 50 that we saw in March and the trend for this does appear to be suggesting that the spread differential between US 10 years and German buns is to come in in the buns favor that again is likely to be euro supportive now you know what happens in the event of a Greek exit I hear you ask for a Greek default you certainly will probably get a little bit of a sell-off in euro dollar which would shake out an awful lot of long positions but unless we break below one ten and a half I still think that there's potential for more upside in euro dollar than downside it's a brave trade but if you actually look at what euro dollars been doing over the course of the last few months what we've actually been seeing here let's just get that out of the way it's not really been doing anything particularly noteworthy for the past two or three months if we zoom this out we can see that again that's almost like the dollar index chart only it's upside down we've got a nice uptrend coming in here we are trading ever so slightly higher here we've got higher low higher low higher low every single dip lower the basically the buyers are waiting less and less to actually come in and rebuy it so at the moment the price is compressing the key resistance level thing for euro dollar at the moment is obviously the highs that we've seen this month but also the highs that we saw in May so between 114 and 115 big big level for euro dollar if we break through there then we're certainly looking at a significant move to 118 but I think what is actually fairly compelling with respect to euro dollar as opposed to cable is the way cable is taken off and I think your dollar for a second Michael we can absolutely yeah yep sure sorry I didn't mean to talk you train of thought I just want to know if we go just taking a look at this in a little bit bigger perspective as well you've got a pretty substantial double bottom back there in March and April and on top I mean look so yeah in terms of Grexit right when we see how far the euro dollar has come down over the over the course of the winter and into the spring then you had to double bottom back in March and April and now you're sitting here informing this really nice ascending triangle I mean this is a very very nice base forming and you could even almost make it it's not a great case but if you look at that January low the double bottom and then the low at the end of May that's a the weak head and shoulders on top of all of that so you've got very very powerful technical bullish patterns forming some of which are stronger than others but but when you put it all together suggests that you've got a pretty solid base here forming and and people have been you know have had quite some time to consider the the potential for for Grexit and other facts where there is grease coming down the US starting to raise interest rates and what have you I mean these things aren't surprises anymore people have had a lot of time to to dwell on them and the euros actually starting to come back the other way which I find really really intriguing especially this pattern here which I outlined I think in May a bullish engulfing month and a double bottom a tweezer bottom now I am you know pure classic candlestick formation if you get a strong pattern like that then I think there's potential for a significant move higher everyone is still talking for euro dollar below parity get when I see a pattern like that I just don't buy it I just cannot see how that can happen that is a strong bullish reversal on the Japanese candlestick charts on a monthly chart now that doesn't mean that we're going to go racing to 120 or 130 over the next two to three weeks it could well happen over the next six to nine months what could cause that to happen Lord only knows I'm I'm only going to go on the price action there is a tendency I think to trade on headline risk which is all negative news about Greece oh we've got to sell the euro got sell the euro it's all bad the wheels are going to fall off trade the price action don't trade the headlines price action here tells me that the euro dollar it could be on the cusp of build or carving out a significant base and until such times as we break below the 110 50 but also here we've got the 50 and 100 day moving averages forming a potential golden cross we've also got the 200 day moving average coming in at 117 so all the long-term indicators are starting to point to a form of basing pattern and while the interim price action may be very very messy and very very choppy the fact of the matter is unless we break below 110 50 which is also where the 50 and the 100 day moving averages converge then the prospect of a short squeeze in euro dollar remains very much on the table okay was there anything else you wanted to add mate before we go into cable now and then maybe after that we might want to look at euro pound as well yeah we'll have a quick look at your sterling also pound against the dollar fairly similar what it's important to understand also is that in terms of rate hike expectations the Federal Reserve and the Bank of England are likely to be on fairly similar glide path particularly after the average earnings data that we saw out of the UK this morning where we saw you three months average earnings coming at 2.7 percent well above expectations now you know a large part of that could well be as a result of pay rises coming in online in April certainly the April months is the new tax year that's usually when firms allocate pay rises and bonuses as well so you could actually see an artificial balance as a result of that but I certainly think if you can if average earnings increases can average about 2.3 2.4 percent over the course of the next three or four months then the case for a rate hike starts to increase and it will certainly put pressure on the Bank of England you may recall last year that Martin wheel and Ian McCafferty with the two defenders who were arguing for a rate hike through most of 2014 they only pulled their necks in at the beginning of this year because of the inflation the weak inflation data inflation is still likely I think to remain fairly benign we've recovered from a deflationary phase in April but we've only come in around about 0.1 percent but overall I think markets will start to bring in their rate expectations particularly if wages data or an inflation data starts to show any signs of starting to gain a little bit of traction now the key level for me on cable here is the previous size at 158 but I'm particularly interested in this little piece of price action here that we've got here look at these progressively higher highs and higher lows all the dips are very well bought into if you look at the long shadows on these on these candles here it suggests that you know the markets are very very reluctant about being short of cable and certainly we can come all the way back to these series of lows back here around about 154 80 154 50 but overall the uptrend I think is fairly well established and I think it's going to take something quite substantive to really undermine it certainly if we look at this line here that I've just drawn in it's I think it's probably a fairly short-term one but we can certainly come all the way back here without undermining the overall uptrend but certainly in the context of the overall trend on cable and if we go out slightly longer term as well to the monthly chart we had a very similar bullish candle on the monthly chart not to the same extent as Euro dollar but what we've also got here is if we look at the daily chart we've also broken above the 200 day moving average the 50 and the 100 have already crossed so they started to turn very very positive and now the 200 day moving average is also likely to act as a significant support level over the course of the next few trading sessions is there anything you wanted to pipe in me yeah I just wanted to end so right now Courtney's been talking last the inflation report about starting rate hikes in the middle of 2016 I guess there's a couple of things in there first of all I think we're still both under the going under the assumption that the the Bank of England would be likely to raise after the Fed starts to raise but my my next question is so if we get rising inflation in the UK and the Fed looks like they go later this year so that leaves a window for them to perhaps move it up into say I'll March of March of next year I guess the question is does the the possible Brexit referendum play a role with monetary policy or does it not matter as much as say the like the election did a back back in the first half of this year I think there's an argument to be said for the Brexit referendum but I don't see what the Bank of England can conceivably do with respect to monetary policy to offset that I think in terms of if the government embarks on a significant fiscal tightening program that could well prompt the Bank of England to stay easier for longer if there's any evidence that the tightening is causing a little bit of a slowdown in UK in the UK's growth I think there is certainly an argument for that but yeah I mean it really it really depends on when they have the referendum yeah and that that's still not decided yet so once like that gets decided maybe then we'll have a better better idea but certainly if it takes out that hot that may hide there it would I would find that to that quite intriguing and would suggest to me that people might be starting to think of an earlier an earlier rate hike I still think 2015 is probably out for the for the Bank of England but you know there's certainly there's certainly a lot of room in the in the first half of next year for them to do something I guess if if inflation pressure start to build like they've been saying there's also a big chart point around about 158 80 the 50% of the entire down move from the July highs to the April lows so I think it's going to be natural resistance you could get a say we had a stop at 158 20 there we could slightly overshoot that rip out a few stops stall and come back but overall I think 158 80 is going to be a bit of a barrier anyway you know you wanted to talk about euro sterling didn't you so let's bring it up just briefly just to see which way these are kind of going because it's to me it's been range bound lately if we if we if we draw this out a little longer Michael and a little bit we are getting a downturn here and we are starting to see you come back on going down is in sterling's favor so we are starting to see that that going down again I'm trying to figure out myself if this is it this is kind of a pretty big W pattern here but I think if we start to get down towards the lows of this again that that we could see that that in trouble particularly if they if we start to get to the sense that that the UK could start to raise interest rates while the ECB is going flat out on QE but tough yeah we're getting any kind of Haven flows there this is all about policy divergence as well yeah this this trade is a policy divergence trade the ECB aren't going to be cutting rates anytime soon if anything they're probably going to remain easier for longer likelihood of a messy default from Greece is certainly going to keep them very much I think right in amongst it and that's going to push certainly the euro down against the pound simply because the you know because of the the the the rate divergence story probably less so against the dollar because I think the Fed has much more to lose by raising rates prematurely than say the Bank of England for example because of all that all those dollar loans all those all that dollar liquidity that's out there that's leaking out of emerging markets so ultimately I don't think either central bank will raise rates this year and I'm still targeting Q one of next year for for both of them so I think we're probably going to remain in a bit of a range I think in euro sterling with the base of the range I think we've already seen that and the top of the range around about 74 right you wanted to talk about dollar CAD didn't you young man yes let's do dollar CAD as well so with the with the US dollar likely to be active today on the Fed decision we'll we'll also take a peek at dollar CAD here which is is a function of two things one is the US dollar and one is the oil price and and so we've seen the oil price has that has leveled off kind of around $60 for WTI and in around 65 for brand let me just bring that up for you oh great cool and go ahead okay so we're seeing here that that we're in a going into sideways pattern for WTI we've had a good rally here up off the bottom but but now we're at the point where the the question is can can WTI continue to go higher and if so how far because we've still got the the Saudis and the Iraqis and other countries in OPEC have have taken advantage of the the price decline to actually ramp up their own production and and steal market share back from the Americans and so the question becomes at which point do the Americans get fed up with this and and start pumping again and and so the upside for crude could be could be limited here in the near term maybe maybe you get 65 maybe 70 but I think you're going to have a rough go seeing 80 in fact that 200 day moving average there the blue line looks like a pretty good potential resistance there that would be could be quite could be difficult to break if it does then then perhaps we are starting to head on a more positive course but we've had a right now we are still so going sideways in a range between about 55 50 and 61 50 so if we start to do actually do break that 200 day average there which looks to me a little closer to 62 that would be fairly significant signal a pretty big another upturn that maybe carry this up into the high sit mid to high 60s on on WTI if we get a break out of I think I think if you get a break out of WTI Colin and that looks like a rectangle to me yes then you the measured move objective for that would probably be 67 68 dollars a barrel so yes probably you know on a break of the 200 day moving average you could certainly get a significant move there yes absolutely so that dollar cat so dollar cat if we get a break out for WTI we could see dollar cat roll down again it has that it's top toe to the lower high already near 125 and then resistance has come down again towards 124 so and 126 we had a double top here so just like when we've seen that we've seen the the oil price had had come down and and the Canadian dollar had come down it's been on the rebound as as well and and cat has also been out performing the Norwegian corona lately they're both oil sensitive currencies but but basically the the cats more sensitive to the US Norway's more sensitive to Europe with the European the risk out there Norway's been dragging I've been dragging a little bit there they are having a meeting tomorrow at Norgas Bank where they are expected to cut interest rates as well so we'll see what comes of that that we could also see some activity in the oil currencies around that as well yeah I certainly saw a report today had a North Dakota apparently US out there suggested that the North Dakota has suggested that US output was peaked in that region which would probably have helped underpin WTI prices and Angola's analysis cutting crude exports in August to an eight month low so those two factors alone could actually you know potentially put a flaw under crude prices but you know we have been in a bit of a range on crude for quite some time so certainly worth keeping an eye on the supply factors because I don't think the demand factor is going to change that much absolutely yeah and and of course and on that the and it continues to be the how far can we get well we could still get one more uplake out of this could we see your hundred I think it'd be more difficult because of the because of the the supply war but I think most people would be happy if you got something up into the into the high 60s is certainly a lot better than the low 40s okay so let's look at the S&P because I think obviously I think in the wake of tonight's decision the S&P could be quite interesting certainly finding a significant area of support around about 2075 2070 level certainly I think if you look at some of the candles on this particular chart you can see that the long shadows here it does suggest that you know people really do want to buy the S&P you know every time we've tried to go lower we haven't closed anywhere near the lows and yet when markets wanted to buy the shadows on on the highs then they're not that great which suggests to me that you know essentially that you know people are more comfortable buying the S&P than they are selling it because the long shadows on on on the down candles suggest that you know people want to basically square up before they go home which doesn't appear to be the case when you look at the shadows on the upside people generally tend to be fairly happy in that regard given the fact that there are very few shadows on only the upper candles on the top side so certainly have a look around about 2075 on the downside but also on the upside around about 2110 2115 I think it's unlikely that any decision tonight will see us break out of the range that we've been in pretty much since the beginning of the year but we have a slightly upward bias seeing as we start to round about 2050 on the year so we're only round about 50 points up from where we started the year yeah and really work for all the US indices we're in a big sideways trend here and this is not uncommon it's what I call the mid-cycle consolidation and we saw it in 94 95 and we saw it in 0405 and now we're seeing it again and what it is is that you get a massive run-up off the bottom with the the liquidity that comes from the central bank then when that starts to get stripped away it puts a bit of a cap on stocks they have they struggle to make much headway but at the same time you have a an underlying strengthening of the economy which is why they're raising interest rates is because the economy is getting back up on its feet so that puts a floor under stocks and you end up with markets going in a sideways channel that some of them can be fairly big like you can talk like a thousand point on the Dow kind of channel or say a hundred points in the S&P like big wide channels that sit in place for the better part of say nine months to a year if we start counting this one say back in December in a year or or February in a nine month basis this kind of sideways trading range which is great for trading and but confuses that confuses investors people with a longer-term perspective you can see this go on for probably through the summer and likely into the kind of October November time frame which interestingly enough if we if we don't get a much color on interest rates here is when the Fed could be actually starting to raise rates depending on that on how things go today okay so that's the US markets let's have a look at European markets because they've behaved completely differently in the six months of the year to date and we can see that borne out in my my tax chart which I'm going to basically open up twice because this is the most recent price action I think from from a daily chart here and actually what I'm going to do so this is my original move from the 2011 lows to the 2015 highs and we're going to take it down to a daily chart now we've just broken out of an uptrend from the October lows when we've been trading sideways since the peaks in April and we're now trading down towards the 200 day moving average and I think it's quite notable notable that I think that what we've seen here on the DAX is pretty much the same sort of pattern that we've seen on the euro stocks 50 as well and for me I think what you've got to look at when you're looking at European markets is the overall trend and we're certainly seeing a significant read certainly seeing a significant correction but thus far from the levels that we saw in 2011 we're still well well above the levels that we were even in 2014 in the peak in the peaks in 2014 we are still well above the peaks that we saw in 2014 so what everyone's talk been talking about how poorly European markets been behaving over the course of the last few weeks let's not forget how far they've come since the beginning of this year the DAX was below 10,000 at the beginning of this year we saw a bearish key day reversal on the weekly chart in the middle of March April rather in the middle of April there and in April we also saw a fairly negative candle as well so we've declined three months in a row so overall I'm sticking with the trend this is the trend on the 4-hour chart we can see it quite nicely look at the series of peaks around 11,400 but overall we are probably going to continue to trade lower over the course of the next few weeks and months maybe into September before we even think about potentially going back higher again and that ties in a little bit with my firmer euro belief if the euro goes up it's going to reduce the attractiveness of European stocks as an investment so that's also something you have to bear in mind as well we do the euro 50 you can see a similar sort of chart again daily chart here again the 200 day moving average which suggests that maybe we could see a little bit of rebound back to the top of this channel if we get down there we certainly certainly been a lot more difficult to respect this particular channel in the same way that the DAX has but overall it still ties in with the narrative we're approaching a long-term moving average we're likely to find a degree of support there simply because of the channel support that we've got there but while we're above sorry while we're below 3,500 on the euro stocks 50 then we're probably going to see further down more pressure brought to bear in the overall downtrend that we've been in since the highs in May also if we look at the bond it's a similar story and this ties in with the yield story and this is a bit of a this is a bit of a tasty-looking chart certainly in the context of the moves that we've seen thus far so if you're looking at the bond I'm looking at this 153 area to suggest that this particular downtrend that we've been in since April is still intact and I think if you look at the peaks here and you look at the peaks in the DAX and you look at the peaks in the euro stocks 50 if you want to see a turnaround in European markets then you want to see a turnaround here first you want to see boom prices go up and yields go back down that doesn't happen then you could potentially see further downside tracking boom prices lower and that's essentially why I not only look at euro I don't not only look at the US dollar and look at the spread differentials they also look at the correlations that have been working thus far and I work all the time they will break eventually the correlations between the bond market and the equity market and we can we can pretty much date the decline in equity markets to the day the boom prices start to roll the boom price started to roll over okay does anyone have any questions for me and Colin before we wrap this up please use the chat facility I will just type a question I'll just type something out there and you can reply to that message that I've just sent to all of you so is there anything thus far that any of you ladies and gents would like to ask either myself or Colin before we basically call time on this and put it up on YouTube for you to listen back if you so wish have you got anything you want to add Colin no I think we've covered everything for for today this has been a really good call I think and I really appreciate everyone joining us today okay well thanks guys and say Colin I usually do this once we do do this once a month and you can find out basically where all the events excuse me you can usually find out where we were all our events are scheduled.uk helps if I can actually type but we do Colin and I do two webinars a month we do one for non-farm payrolls which is the first Friday and we also do one every month like this where we talk about some of the key events that are scheduled to be coming up over the course of the next few months so non-farm payrolls is on the second of July not the third because the third is the US holiday and the next webinar that Colin and I do of this type is on the 23rd of July okay so second of July 23rd of July all the events calendars are there if you want to basically keep up to speed with the research that Colin and myself do you could find it in the news and education section of the CMC markets.co.uk website or the CMC markets.ca website otherwise Colin and I would both like to thank you for your thank you for your attention today and we look forward to speaking to you again very soon