 Hello and welcome to CMC Markets on Tuesday the 10th of March and the weekly market update. Now last week you may recall I talked about the potential for the S&P 500 to maybe start to turn lower. Was there a potential top in? Well we've certainly seen some evidence of that. The year the S&P 500 has started to track lower and it's largely been as a result of the very positive payrolls number that we saw last Friday. A total number of 295,000 new jobs added, much better than expected and the unemployment rate tracking lower. I think the reason it was such a surprise was I think that weekly jobless claims are now starting to show signs of pushing higher above the 300,000 level but that not withstanding wage growth also I think continues to remain a little bit weak. Yes it is edging higher but it's certainly not edging higher in a particularly aggressive way. So that being said the market didn't really worry too much about that it's pushed the dollar up and the flip side of that is it's pushed the S&P 500 through our support that we outlined last week at 2100 but it's also knocking the FTSE 100 lower as well. So what does this mean, this jobs number mean in the context of the potential for a US rate rise? More importantly, given the fact that ECB quantitative easing is starting this week, what does it mean for euro dollar? So I'll be looking I'll be looking at the S&P, I'll be looking at the FTSE 100, the UK 100 and I'll be looking at euro dollar and I'll also be looking at US 10 year treasuries because it does appear that yields are now starting to age higher in completely the opposite direction to German Bund yields where on the two year and the five year they're turning negative and on the 10 year German yields are currently around 0.26%. So let's start with our S&P chart. It's a four hour chart, it's the same chart as I showed you last week albeit with the addition of a couple of extra horizontal support and resistance lines. So we've broken through 2084 and we've also broken through 2067 as can be seen from that long horizontal line that I've drawn through the highs the end of January and through the middle of February and the beginning of March and now we're currently trending below that. Certainly there is potential now for us to track lower towards the lows at the beginning of February around about 2045. Now we could get a pullback, we could get a pullback all the way back to 2084 but that being said I think what we've seen here at the moment while the US dollar remains strong I think it's going to weigh particularly heavily on the S&P 500 until such times as we get some clarity from next week's FOMC rate meeting where all eyes will be on the language of the Fed statement. Will that keyword patience still be in the statement? If the keyword patience is still in the statement then be prepared for a quick pullback in the strength of the dollar. If it's taken out then we could well see further US dollar gains and that could well continue to weigh on equity markets. So we've looked at the S&P, let's move on to the FTSE 100 because it's a similar sort of story here. So if we look at a similar four-hour chart on the UK 100 it's a similar sort of story. We've broken below a very key support level that I've outlined here and have we completed a potential double top here? It certainly looks to be the case. We've got a couple of peaks at 6975 and we've got a base around about 6860. We've broken below that so we project downwards by the same amount of points which brings us to 6750. So while we're below the resistance which was support but is now resistance at 6860 then the potential for us to move lower over the course of the next few sessions is likely to remain the most likely scenario. Now I think what's important here is what's driving this and really it's all about rate expectations. It's about rate expectations but it's also about divergent monetary policy between the ECB, European Central Bank, the Federal Reserve and to a lesser extent the Bank of England. When you look at the UK 100, the FTSE 100, all the companies in that index report their profits and their earnings in dollars and sterling. Both the dollar and the pound are pushing to multi-year highs against the euro so essentially what's happening there is it's making it much that much more expensive in terms of profits and earnings for UK and US companies to remain competitive to a key export market which to all intents and purposes is Europe. And this is no better illustrated with this long-term euro-dollar chart that I'm showing you right now. It's a monthly chart and it shows you the all-time low on euro-dollar at 80 to 230 that we saw at the beginning of 2000 and the all-time highs at 160 to 230 which we saw in the middle of 2008. Now we've retraced more than 61.8 percent of that. We've traded below 112.50 and the next Fibonacci level depending on how you interpret them is either 76.4 or 78.6. Whichever way you slice and dice that particular number it's round about parity. So the next Fibonacci level for euro-dollar is round about parity but before we even start thinking about parity we also have to start looking at where the next support and resistance level is and it was 107.95 that is already given way and now it looks as if we could well be heading towards the March lows of 2003 around about 105. So that's really the next key support level. Now why is this happening? Well essentially it's because the gap in yields between 10-year US treasuries and 10-year bonds is at a record high and the last they've never been this far apart 188 basis points even when euro-dollar was at 82.30 yields weren't this far apart. So that suggests to me that potentially euro-dollar can go an awful lot lower particularly if monetary policy between the Fed and the ECB continue to diverge at their current rate. So we're not just talking parity we're talking 0.95, 0.9 you know how low can you go? Now these yield differences can be basically illustrated very very well on this Bloomberg chart that I've drawn up here and it's got a nice little green mountain range here and these green peaks essentially represent where the lowest levels in euro-dollar were at the end of the 90s in the beginning of the 90s and through the mid 2000s. Now you can see we're way beyond both those low points in euro-dollar we're way beyond that and I think that again that reinforces my point about the potential for further euro-dollar losses in the short to medium term. I think to really mitigate any further downside risk we need to get back above 112 and at the moment that doesn't seem very likely. So to sum up further dollar strength is likely to put further pressure on euro-dollar on the S&P and potentially the FTSE as well particularly if the pound also continues to gain against the euro. So that's it for this week once again thanks very much for listening this is Michael Houston talking to you from CMC Markets.