Macro Data

Weekly Update – July (2^nd– 6^th)

Macroeconomic Outlook

The overall context for this week is not all bad, but also not at all good. However, the possible absence of bad news in the upcoming weeks will allow markets to rebound from the recent sell-off. As it as has been seen last Friday, markets do not need too much news to rebound and improve. This means that in the end, the fundamentals of the market are still solid and short-term obstacles are what’s blocking them to move forward.

Last Friday, as soon as there was a principle of agreement about immigration within the Eurozone, this has allowed us to see a more constructive future and release pressure over Germany and its immigration policy.
- Indeed, one of the three short-term obstacles of the markets is the German policy over immigration which in reality, if the policy of the European Union, as with many other countries like Spain, Italy or Austria are also facing similar problems.
- Second factor is oil prices, which increase the concerns of inflation.
- Third factor is protectionism.

1.- Hence, there should not be any bad news this week. Indeed, the government coalition in Germany, after the semi-agreement about immigration in the Eurozone and the stronger sense of state by political forces, can take more shape.

At the end, the sense of state will be imposed in Germany and this variable will be disappearing, reducing the threat of instability of the markets.

2.- Regarding oil, there is always new news that will lead to an increase in prices. This increase in price is affecting inflation and is providing a strong support to bonds, making them overvalued.

At first, this is bad for the markets since the cash flow of money always goes to safe havens, feeling more secure in bonds ahead of these types of events.
It gives the impression that concerns over oil prices will not be possible to solve during the upcoming weeks, however, it will not also get worse.

3.- Then, we have protectionism. It is in a similar situation to oil, it does not have a better outlook towards the future. However, we already know it is something mostly bilateral between the United States and China rather than global.

Over time, more controversial news will be released because the import will rise to 50bn to 200bn for example but will not happen immediately.

This week, with this improvement in the fundamental background of the markets due to the apparent absence of bad news, it is necessary to bear in mind that:

This Wednesday is a holiday in the United States, which lowers the activity in the markets.
On Thursday and Friday, there will be a convention meeting of Central Banks in Austria where the most hawkish bankers will probably have the word.
- This will probably lead to bonds not being that comfortable and retrace slightly, and in the absence of bad news, the markets should perform better.
The third reference of the week is the American wages and unemployment rate.
- The Unemployment Rate should not weight as much as everyone know it is going really well.
  - The rate is forecasted to remain at 3.8% and creation of employment probably would be under 200k.
  - Regarding wages, the indicator can reach 2.8% coming from a previous 2.7%. Any figure close to 3% can increase the concerns on inflation.
  - Nevertheless, at the same time, concerns of inflation can affect bonds, and whatever influences bond gives some breath to the markets.

Therefore, considering the current context with all these factors and references, it appears to be good for the markets in absences of bad news and strong fundamentals.

Short-term will remain hard and nothing will be solved quickly, nonetheless, looking to the medium-term, investors should remain calm and follow the triple P rule:
- Positioning
- Perseverance
- Patience

Weekly Update

Regarding fundamentals, we are expecting opposing forces drive the markets in the upcoming week. Volatility has sparked bearing in mind the recent intervention of the USA in Syria. However, stock futures are up, and oil is down on hopes Syria attack a one-off.

Thus, we’ll focus on the most foreseeable variables. There are three variables that are mainly moving the markets

Protectionism
- A less negative pressure in the short term as fears erase
- Recent formal declarations by Chinese president rise expectations of a friendlier trade
- There are still two months until Trump takes in action any tariff measure
Technology
- Recent testimony by Mark Zuckerberg leaves good feelings and calms the markets
- Relieves pressure on technology companies
Quarterly results
- 2018 benefits are revised downwards
- However, 1^st quarter is expected to be robust with strong corporate volumes and margins which will be positive in the short term

This week there is no major macroeconomic event that will affect considerably the markets.

On Monday we have American Retail Sales which are expected to increase to 0.4% from the last- 0.1%. This can benefit the US Dollar. On Tuesday, the German ZEW Economic Sentiment can have some impact on the Euro and DAX. It is expected to decrease to -0.8 from 5.1. Finally, on Thursday, the American Manufacturing Index is released, and it is expected to decrease around one point.

In general, the macro outlook is more pessimist than positive. However, the previous three variables provide a more positive outlook and provide a better understanding than the macroeconomics events on how the markets will act this week. So that, we could expect a stabilization phase in the markets after the recent volatility. In general, slightly more positive than negative.

USD Index

Weekly Chart

In the weekly chart, it is possible to appreciate how the USD Index is not only below the 200 EMA but also broke below the weekly support that has been retesting in the recent weeks and which has not been successful so far. In the short term is facing a bearish trend line caused by its recent devaluation.

During the first half of this week, there are not big news. However, on Wednesday, American Inflation numbers come out. It is forecasted that the core CPI will increase to 2.1% from previous 1.8%. Furthermore, on Friday, Moody’s published its USA rating, which right now has the highest rating possible with stable perspective. Hence, recent controversial policies from the American government making protectionism and a trade war a reality can alter the expectations for the mention economic events. In case the forecast does not vary the USD should not be hurt. However, an unexpected increase in the Core CPI and a rating downgrade from Moody’s can really hurt the Dollar.

Daily Chart

The daily chart is similar to the weekly chart. The retest cannot break above the recently broken support and is facing more bearish pressure ahead. Nevertheless, it just formed double bottom pattern followed by a short-term bullish trendline. This week will be critical to know whether the bearish support is strong enough or it holds on to the current bullish trend.

EURUSD

Daily Chart

Regarding the EURUSD, it has been flat since February. Last month it broke its monthly bullish trend, and the consequently retest it. From there, it has remained flat with no major fluctuations. However, with the recent uncertainties facing both the Eurozone and the USA it will not be surprising to see the EURUSD leaning towards a side. For now, it is holding at a strong resistance that dates back to September of 2017. It is facing a couple of support and resistance which will help to know towards what side it will lean and leave the rectangle it is in now.

USDJPY

Daily Chart

Moving into the USDJPY, it has just bounced from a monthly bullish trend after doing a fake breakout and consequently bouncing back. A bullish trend could be considered since there are not big resistances ahead part from the 200 EMA and the recent bearish monthly trend. In the short term, there are two resistances not very strong, but that may cause a small retracement. However, the monthly support is stronger than the resistance it is locked up between.

GBPUSD

Daily Chart

GBPUSD seems to have no limits. At the beginning of the year, the Pound broke an important bearish trendline holding to its current bullish trendline. Moreover, last week just broke another key resistance. With no more important resistance ahead it has a clear path to keep up with the current upward trend. Maybe it is possible to do small retest as we saw with the previous one.

Crude Oil

Daily Chart

Recent political events, like the recent issue of the missile attack against Syria, have created volatility in the markets and consequently, the price of oil has been on the rise. After holding to the trendline and breaking above $65 it is possible to see a retest of the recent resistances it just broke above. Without more resistances ahead, analyst set that next target is $70 per barrel.

DAX

Daily Chart

Regarding technical, it is within a bearish trend that can be prolonged as there is still uncertainty in terms of politics and the recent macroeconomics event have not been reaching the forecasted ones. However, an improvement in the economic sentiment and political stability can help the DAX to break the ahead resistance and enter a bullish trend, leaving the current flat to bearish trend it is involved in now.

As commented at the beginning, on Tuesday the German ZEW Economic Sentiment is released. Hence, it can major point to decide whether it breaks the recent resistance and follows the daily bearish trend.