Senior Market Strategist

Total Content 76

Articles 59

Weekly look-ahead

By David Morrison  |  24/03/2018 16:59

Going into last week it was apparent that at least two significant markets, the US dollar and 10-year Treasury yield, remained rangebound. Meanwhile the tech-heavy NASDAQ hit a fresh all-time high while other major US stock indices traded at their best levels since the savage sell-off at the beginning of February.

Facebook rumbled

Then we saw evidence of investor nervousness as equity markets pulled back sharply on Monday and this set the tone for a bearish week. Facebook’s share price tumbled following reports that the social network had allowed a political consultancy to access the data of 50 million users. Why investors were surprised by the news is anyone’s guess. After all, Facebook doesn’t have value just because it pulls in advertising revenue, but also due to the personal data that it collects from its willing users, and ultimately what it does with this data. But the trouble for Facebook shareholders was this becoming public and (Shock! Horror!) that the data may have been used to help Trump clinch the US presidency. While Facebook CEO Mark Zuckerberg has been unloading stock recently, many fund managers will be regretting recent purchases as they have continued to add to their exposure since the sell-off in early February.

FAANGs slapped as well

Unsurprisingly, there has been a knock-on effect across all the tech darlings. The FAANG stocks (Facebook, Amazon, Apple, Netflix and Google (Alphabet)) have led the US stock market rally for years now. This is despite growing disquiet about the power and reach of these companies, their tax arrangements, monopolistic behaviour, lack of regulation and, in some cases, alleged exploitation of staff. The danger is that the selling now accelerates (particularly as much of the buying has been leveraged, which is evident given the large levels of margin debt in the equity market) as we approach the end of the quarter and a holiday-shortened trading week. On Wednesday Zuckerberg tried to deflect criticism of his company by calling for regulation to cover “ad transparency”. This would add costs to the company, and tech sector in general. But on the flip side, it’s generally the case that regulations benefit large organisations by making it harder for smaller companies and new entrants to challenge them effectively. As of Friday afternoon, Facebook was holding above support around $162.

Volatility remains elevated

Going into the weekend the sell-off across global equity markets showed little sign of abating. Facebook’s cavalier attitude to users’ data was just one symptom of a growing fear amongst investors that February’s correction may prove to be a harbinger of more pain to come. Bear in mind, volatility has picked up sharply. That’s to say it’s now getting back towards levels which better indicate the real risks inherent in the US equity market. At the same time, bond yields remain elevated as investors price in monetary tightening from the Fed and (eventually) other major developed-world central banks.

Other worries

Investors have also been unnerved by Trump’s trade tariffs and the prospect of a full-blown trade war. At the end of last week Trump hit China with $60 billion in tariffs. China is weighing its response and so far, it looks as if it could be muted. This is relatively good news as it suggests China is preparing a modest retaliation rather than a full-blown tit-for-tat trade war. But it’s early days. At the same time, there’s great concern at the staff turnover at the White House. Once again, this could be little to worry about, but it’s another factor playing into current investor nervousness. 

What about inflation?

The initial sell-off in bonds (and jump in yields) at the beginning of February came on the back of inflation fears. Last week the FOMC left its forecast for Core PCE unchanged in 2018 at 1.9%, but raised its outlook for both 2019 and 2020 by 0.1% to 2.1% for both. Core PCE has been steady at 1.5% annualised for the past three months and we get the next update this Thursday. But some analysts are now warning that fears of a sudden pick-up in inflation have been overblown. This was supported to some extent when Fed Chair Powell stated that there was “no sense in the data” that inflation is about to run away. If inflation shows signs of slowing again, then it may be that the 35-year bull market in bonds is set to resume and we can stop worrying about the 10-year yield hitting 3.0%.

FOMC steers steady path

Overall, the FOMC steered a steady path last week. Having raised rates by 25 basis points as expected, they stuck with their forecast of three rate hikes in 2018. But they raised their forecasts for 2019 and 2020, sensibly keeping their outlook balanced and options open. They also upgraded their outlook for employment and GDP growth. However, the Fed has a dreadful record when it comes to economic forecasts, although it’s not alone in this. It’s worth considering the Atlanta Fed’s GDPNow forecast. This is a “real-time” tracker which currently predicts first quarter GDP growth of just 1.8%. But this has fallen from 4% just over a month ago, which goes some way to illustrate the difficulty in economic projections, especially going out a year or more.

Dollar Index still rangebound

At first glance, perhaps the most remarkable thing about last week’s sell-off in risk assets was that the dollar continued to trade in a relatively narrow range – at least where the euro is concerned. While it sold off sharply following the Fed’s rate hike, statement and Summary of Economic Projections, the Dollar Index (which has a euro-weighting of 57.6%) continues to find support at 89.00 while being capped at 90.00. Looking at the EURUSD we find resistance comes in around 1.2400 with support still holding at 1.2200. The dollar’s price action is consistent with the moves in US Treasury bonds where (despite a brief breach last week) support is holding at 2.80% on the 10-year yield with resistance coming in around 2.95%. Higher yields are dollar-positive and so far, there’s little indication that the critical 3.00% level is in danger of being taken out anytime soon, particularly if equities continue to come under selling pressure and investors turn towards US Treasuries as a safe asset.

Yen rallies

But away from the euro, last week did see some significant currency movement against the greenback. The yen strengthened appreciably in a move which saw the USDJPY extend its losses below prior support at 108.00. It also appears that there’s little in the way of significant support now and a break below 104.00 would open up the risk of a move towards 100.00. But the USDJPY is very much a risk-on/off trade. Investors borrow (sell) the low-yielding yen when risk appetite is strong and use the proceeds to buy higher-yielding assets (such as US equities). But this trade can reverse quickly. Last week this was in evidence as investors dumped equities and bought back borrowed yen. Consequently, the yen should continue to strengthen if the equity sell-off continues. But any bounce in equities will see this move unwind fast.

Sterling in favour

Meanwhile, GBPUSD continues to push against the upper end of a trendline that’s been building over the last 15 months or so. Last week it broke above 1.4200 for the first time since the beginning of February and appears to have upside momentum. It also continues to make gains versus the euro with the EURGBP closing in on long-term support around 0.8700 – the 61.8% Fibonacci Retracement of the April-August 2017 rally. The Bank of England’s Monetary Policy Committee kept the base rate unchanged as expected, but is now forecast to raise rates by 25 basis points in May.
Key events this week

Monday -             GBP High Street Lending

Tuesday -             EUR M3 Money Supply, Spanish Flash CPI; USD S&P/Case Shiller House Price Index, CB Consumer Confidence, Richmond Manufacturing Index

Wednesday -     EUR French Consumer Spending, Spanish Flash CPI, German GfK Consumer Climate survey; GBP CBI Realised Sales; USD Final GDP and Price Index, Wholesale Inventories, Pending Home Sales, Crude Oil inventories

Thursday -           EUR German Preliminary CPI, French Preliminary CPI, German Unemployment Change; GBP Current Account, Final GDP, Net Lending, Mortgage Approvals; USD Core PCE Price Index, Personal Spending, Personal Income, Unemployment Claims; JPY Household Spending, Tokyo Core CPI, Unemployment Rate, Industrial Production

Friday -                 GBP/EUR/CHF/CAD Good Friday closures; USD Chicago PMI, Consumer Sentiment, Inflation Expectations
Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.


Author's Other Opinion & Analysis

  • Dollar spikes higher
    By David Morrison  |  12/01/2019 14:31

    EURUSD falls back below 1.1500

  • Another look at the EURUSD
    By David Morrison  |  19/04/2018 15:06

    Trump accuses China and Russia of “playing the currency devaluation game”.

  • S&P 500 update
    By David Morrison  |  18/04/2018 15:53

    The US stock market steadied last week

  • Weekly market wrap
    By David Morrison  |  14/04/2018 15:19

    The first quarter earnings season got underway last week

  • EURUSD update
    By David Morrison  |  12/04/2018 08:14

    Still range-bound near highs

  • Weekly market wrap
    By David Morrison  |  07/04/2018 15:29

    US payrolls disappoint

  • Non-Farm Payroll look-ahead
    By David Morrison  |  06/04/2018 13:48

    Tomorrow sees the latest update for arguably the most important, and potentially market-moving, global data release – US Non-Farm Payrolls.

  • S&P 500 update
    By David Morrison  |  05/04/2018 14:31

    S&P 500 breaks below 200-day moving average

  • Weekly market wrap
    By David Morrison  |  30/03/2018 13:38

    This Easter holiday couldn’t really come at a worse time

  • S&P 500 - update
    By David Morrison  |  28/03/2018 13:47

    The S&P since February's sell-off

  • NASDAQ leads sell-off
    By David Morrison  |  23/03/2018 15:53

    Markets lead lower by tech sell-off

  • Fed meeting in focus
    By David Morrison  |  22/03/2018 10:50

    Investors on edge ahead of Fed decision

  • Weekly Outlook
    By David Morrison  |  17/03/2018 15:41

    Fed meeting in focus

  • S&P 500 - the technical picture
    By David Morrison  |  15/03/2018 16:34

    This week has seen the US majors pull back from their best levels

  • Weekly look-ahead
    By David Morrison  |  10/03/2018 16:16

    The headline payroll number smashed above the high end of expectations

  • Non-Farm Payroll look-ahead
    By David Morrison  |  09/03/2018 14:30

    All eyes on wage growth

  • ECB and BOJ meetings in focus
    By David Morrison  |  08/03/2018 17:24

    Investors experienced a shock last month

  • Weekly Outlook
    By David Morrison  |  06/03/2018 10:15

    This is a big week for financial markets

  • Euro bounces, but political uncertainty remains
    By David Morrison  |  03/03/2018 11:01

    The euro rallied sharply overnight

  • Weekly look-ahead
    By David Morrison  |  24/02/2018 16:58

    US stock index futures were pushing higher ahead of Friday’s US open.

  • FOMC minutes and the German DAX
    By David Morrison  |  23/02/2018 14:33

    Investors were initially wrong-footed by minutes from a Federal Reserve meeting.

  • FOMC minutes in focus
    By David Morrison  |  22/02/2018 11:47

    All eyes are on the release of minutes from the Fed’s January FOMC meeting

  • Situation remains unresolved
    By David Morrison  |  21/02/2018 13:09

    The stock market correction may have further to go

  • Weekly Outlook
    By David Morrison  |  17/02/2018 16:02

    Global stock indices fought back last week

  • Out of the woods? Perhaps not
    By David Morrison  |  16/02/2018 13:37

    Yesterday brought the latest update on US inflation

  • Inflation and the S&P 500
    By David Morrison  |  13/02/2018 16:30

    This article will focus on the S&P 500

  • Weekly Outlook
    By David Morrison  |  10/02/2018 16:35

    Friday was a roller-coaster session to round off a tumultuous week.

  • What now?
    By David Morrison  |  09/02/2018 15:54

    The current sell-off in global equities has been a long time coming.

  • Traders focus on volatility
    By David Morrison  |  07/02/2018 16:55

    Yesterday the Dow posted its biggest ever one-day loss in points terms

  • Rising yields lift troubled dollar
    By David Morrison  |  06/02/2018 16:17

    The US dollar stages a modest recovery.

  • Weekly look-ahead
    By David Morrison  |  03/02/2018 16:12

    Equity sell-off resumes while dollar rallies

  • Time for a correction?
    By David Morrison  |  01/02/2018 16:22

    Equities retreat as yields push higher

  • Crude prices dip
    By David Morrison  |  30/01/2018 15:57

    Oil slides as dollar rallies

  • Weekly look-ahead
    By David Morrison  |  27/01/2018 15:16

    What's in store for key markets

  • Dollar hits fresh 3-year lows
    By David Morrison  |  25/01/2018 16:38

    US dollar plunges ahead of Trump's Davos speech

  • Wall Street hits fresh highs
    By David Morrison  |  24/01/2018 15:46

    The three-day US government shutdown ended on Monday

  • Market Round-up
    By David Morrison  |  23/01/2018 16:53

    Monday marked day three of the US government shutdown.

  • Weekly look-ahead
    By David Morrison  |  20/01/2018 16:30

    The last couple of weeks have seen a number of significant technical breakouts

  • S&P 500 – Weekly Chart
    By David Morrison  |  19/01/2018 15:24

    Putting price action into context

  • Crude pulls back from three-year highs
    By David Morrison  |  18/01/2018 16:32

    On Monday WTI and Brent hit their highest levels since early December 2014

  • Gold, the dollar, bond yields and inflation
    By David Morrison  |  17/01/2018 15:00

    But in line with conventional wisdom the dollar’s sell-off triggered a sharp rally in gold.

  • Weekly look-ahead
    By David Morrison  |  13/01/2018 16:50

    Earlier in the week the US majors had a slight wobble

  • Gold traders eyeing the dollar
    By David Morrison  |  12/01/2018 15:48

    This article considers the recent price action on gold

  • Chinese news rattles markets
    By David Morrison  |  11/01/2018 15:33

    Chinese officials recommend “slowing or halting”

  • Could stocks rally further?
    By David Morrison  |  09/01/2018 17:00

    Most European stock indices ended Monday’s session in positive territory, playing catch-up after Wall Street’s sharp rally last week.

  • Weekly look-ahead
    By David Morrison  |  06/01/2018 15:55

    We rounded off this week with the final Non-Farm Payroll report of 2017. Headline payrolls rose 148,000 which was well below the 190,000 increase expected.

  • Dow smashes through 25,000
    By David Morrison  |  05/01/2018 16:07

    Yesterday the US majors ended at fresh all-time highs and this helped to lift Asian Pacific indices overnight.

  • US indices hit fresh record highs
    By David Morrison  |  04/01/2018 16:08

    US stock indices made another strong upside move yesterday which took both the S&P 500 and NASDAQ Composite up to fresh record highs. The buying has continued throughout today’s session

  • Mixed start to New Year
    By David Morrison  |  03/01/2018 16:56

    The first trading day of 2018 brought a mixed session as far as global stock indices were concerned.

  • New Year round-up
    By David Morrison  |  30/12/2017 15:22

    As 2017 draws to a close, here’s a quick round-up of how a few key markets look going into next year.

  • What's Next for Crude Oil?
    By David Morrison  |  20/12/2017 14:42

    This article will focus on price action in the front month WTI contract rather than Brent. WTI tends to provide better technical signals than Brent – not always, but often enough to give a cleaner overall picture.

  • Equities soar on US tax reform hopes
    By David Morrison  |  19/12/2017 16:10

    US and European stock indices soared on Monday as investors priced in an increasing probability that President Trump will deliver on his promise of tax reform before year-end.

  • Weekly Outlook
    By David Morrison  |  16/12/2017 14:26

    Here’s a brief heads-up for the week beginning 18th December

  • Central Bank monetary policy meetings
    By David Morrison  |  15/12/2017 15:48

    Here’s a quick rundown of the highlights from this week’s monetary policy meetings from the European Central Bank, Bank of England and US Federal Reserve

  • Look-ahead to the Federal Reserve meeting
    By David Morrison  |  14/12/2017 08:49

    Crucially, this week’s Fed meeting also brings an update to the FOMC’s Summary of Economic Projections.

  • Cboe launches Bitcoin futures
    By David Morrison  |  12/12/2017 16:26

    Listing Bitcoin futures on mainstream exchanges should ultimately help to boost the digital currency’s legitimacy and lead to more widespread acceptance.

  • Non-Farm Payroll look-ahead: 6 things you should know
    By David Morrison  |  09/12/2017 09:55

    So, here’s what to look for: the consensus expectation is for the headline Non-Farm Payrolls to rise 200,000 in November.

  • EURUSD – key events to consider
    By David Morrison  |  07/12/2017 17:07

    The dollar got a boost this week on the increased likelihood of an agreement on US tax reform being reached before the year-end.

Show More Articles

Login to TheFXApp Account

Your TheFXApp account gives you access to the tools that we offer our customers including our
Technical Studies & Sentiment for your accounts.

Forgot Password?

Don't you have a TheFXApp account? With a few easy steps you can easily register to TheFXApp

Create a TheFXApp's Account

Your TheFXApp account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.


Thank you!

Welcome to TheFXApp family!

You have succesfully completed the registration.
We will send you an e-mail to give you some
instructions and our Terms and Conditions!
Our account representatives will be contacting you as
soon as possible. If you have any further questions
please do not hesitate to mail us via