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Storm Irma & the BOE meeting

This is LCG’s look ahead to the week beginning September 11th.

This week it is in written format and the video edition will return next week. We’ll be covering the effect of storm Irma on markets, a lookback at the ECB meeting, the breakouts in gold and the DAX index and a look ahead to the Bank of England meeting. We’ll also run through the top earnings releases and the economic calendar for this week.

Economic calendar highlights:

Monday

Japan core machinery orders

Japan tertiary industry activity

Tuesday

UK CPI

US jolts job openings

Wednesday

German final CPI

UK jobs

EUR industrial production

US PPI

Fed budget

Thursday

AUD jobs

China industrial production

China retail sales 

SNB decision

UK retail sales

BoE decision

US CPI

Friday

BoE Quarterly bulletin

EUR trade balance

US retail sales

US Empire manf index

US industrial production

US business inventories

US  consumer sentiment

 

Top corporate earnings:

Mon Sept 11: N/A

Tues Sept 12: Ashtead Group, JD Sports, *Apple iPhone release

Weds Sept 13: Galiford Try

Thurs Sept 14: Next, Spire Healthcare, Wm Morrison, Oracle

Fri Sept 15: JD Wetherspoon, John Lewis, Sears

We mentioned last week that in September markets shift out of summer trading conditions and we certainly saw that with a new jolt of volatility and some big price levels getting taken out over the past few days. A combination of North Korean nuclear tests, hurricanes, the US debt ceiling and central bank commentary all played a part.

The uncertainty arising from all these events meant a down week for the FTSE 100 and on Wall Street but a 3-month extension to the debt ceiling and ‘dovish’ taper talk from the ECB offset some of the damage, with the DAX index even ending the week higher. But even with the Dow Jones falling over 200 points one day, its third biggest daily decline this year, stock markets are still all trending higher on daily candlestick charts. It’s been a little while coming, but the potential break higher in the DAX we highlighted in a recent ‘Snapshot’ video is starting to take shape.

All the focus was on the euro and the European Central Bank (ECB) but as it turned out, the British pound and the Canadian dollar were the big FX movers last week. As we suspected, the ECB gave no clear message about tapering but did offer a few breadcrumbs for traders to fight over. President Mario Draghi did say possible QE exit scenarios would be presented to policymakers in October but offset it by reaffirming that QE of 60bn euros per month would extend through December and beyond if necessary. Draghi also explicitly mentioned the ‘volatility in FX markets’. This is a message to FX traders that the ECB is getting uncomfortable with the euro strength. We remain bullish on the euro while the uptrend is in place but wouldn’t be surprised to see traders heed the message from the ECB, meaning a short-term top could be around the corner.

Despite all the bickering surrounding the Brexit negotiations, the British pound gained against both the euro and the dollar last week. Long term resistance at 0.93 in EURGBP as well as a broad-based sell off in the US dollar were both contributing factors to the strength. Economic growth in the UK slowed in the 2nd quarter but the key data point will be inflation which is reported Tuesday ahead of the Bank of England meeting on Thursday. We will issue a full preview report of the Bank of England meeting next week.

The Canadian dollar has been heavily bought over the past few weeks in expectation of a rate hike which finally happened last week. Take a look at our Snapshot video from June highlighting a long term uptrend break just as Bank of Canada policymakers started sounding hawkish.Since that video USDCAD has fallen one big handle (1000 pips).

Two weeks ago we talked about the scope for a break of $1300 per oz in gold referencing the strong seasonal tendencies for gold in September. The flight to safety because of the situation in North Korea was the catalyst for the breakout and new developments like last week’s nuclear test has helped clear the way above $1350. The next resistance is the highs of the year near $1370. The longer term price structure of gold having held $1100 at the start of the year and then $1200 this summer suggests gold may have put in the bottom

 

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