Mario Draghi’s revered status has come under strain after the ECB disappointed the market so spectacularly, so surely the FOMC will not make the same mistake. Where the market was so disappointed with the lack of additional easing measures from the ECB, after Friday’s solid Non-farm Payrolls report, the FOMC cannot now step back from hiking rates in December, otherwise the whole concept of trusting forward guidance will be completely consigned to the scrap heap.

1. Weekly Outlook
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ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such
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7th December by Richard Perry, Market Analyst
Macro Commentary
Mario Draghi’s revered status has come under strain after the ECB disappointed the market so spectacularly, so surely
the FOMC will not make the same mistake. Where the market was so disappointed with the lack of additional easing
measures from the ECB, after Friday’s solid Non-farm Payrolls report, the FOMC cannot now step back from hiking rates
in December, otherwise the whole concept of trusting forward guidance will be completely consigned to the scrap heap.
FOMC members have recently been increasingly hawkish in rhetoric, with centrists such as John Williams seemingly
ready to vote for a hike, and Fed Chair Yellen also leaning the same way. The big question is whether the voting numbers
stack up, with 6 members needing to change tack. However, with no curveballs from the Non-farm Payrolls report, Fed
Funds futures suggest a c. 80% probability that December is the month to move. The stability of the 2 year Treasury yield
is supportive, whilst it is also interesting to see the US 10 year yield spike higher. This should all play into the hands of the
dollar bulls who after a brief wobble on the ECB meeting, look to be back on track. Equity markets may not react
positively near term, but surely the Fed looking to normalise monetary policy sends out positive longer term signals.
WHEN: Fri 11th December, 1330GMT
LAST: +0.2% (core)
FORECAST: +0.3% (core)
Impact: This is the penultimate piece of tier one
US economic data that the Federal Reserve will be
looking at as it considers its decision whether to
hike interest rates on the 16th December (CPI is the
final, to be announced next week). However, the
hawks on the Fed may want to try and avoid this
one as although the forecast is for +0.3% month on
month growth, the year on year data shows a
continued slide in the core data. In 2015, core
retail sales has missed expectations every month
apart from June and if this rings true again the
dollar will come under corrective pressure.
Must watch for: US Retail Sales
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 8th Dec 02:00 China Trade Balance $63.3bn $61.6bn
Tue 8th Dec 09:30 UK Industrial Production (YoY) +1.3% +1.1%
Tue 8th Dec 15:00 US JOLTS job openings 5.55m 5.53m
Wed 9th Dec 01:30 China CPI +1.4% +1.3%
Wed 9th Dec 15:30 US Crude Oil Inventories +1.2m
Wed 9th Dec 20:00 New Zealand RBNZ monetary policy +2.50% +2.75%
Thu 10th Dec 08:30 Switzerland SNB monetary policy -0.75% -0.75%
Thu 10th Dec 12:00 UK BoE monetary policy + meeting minutes +0.5% (1-8) +0.5% (1-8)
Fri 11th Dec 13:30 US Retail Sales (core) +0.3% +0.2%
Fri 11th Dec 15:00 US University of Michigan Sentiment (prelim) 91.5 91.3
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1N.B. Please note all times are GMT, data source Reuters
US Retail Sales (core month-on-month)

2. Weekly Outlook
7th December 2015
by Richard Perry, Market Analyst
Foreign Exchange
With forex markets so volatile last week, it will be interesting to see what sort of legacy the key economic events of the
past few days leaves for major markets. Undoubtedly, the ECB monetary policy has driven a significantly stronger euro.
Mario Draghi can hardly envisaged a worse outcome with the euro trading around 400 pips higher against the dollar in
the wake of the ECB rates decision and press conference. Whilst the US dollar originally came under significant strain, a
solid Employment Situation report on Friday should now ensure that the Federal Reserve starts to raise the Fed Funds
rate at the December meeting next week. This should help to underpin dollar strength at least until the FOMC meeting
and with the exception of Euro/Dollar, this would mean that the rebound moves against the dollar on pairs such as
Sterling/Dollar and Dollar/Yen prove to be short lived. I am subsequently looking towards using the rally on Cable as a
selling opportunity and the correction on Dollar/Yen as a buying opportunity. There are three central banks reporting
monetary policy this week and you could almost hear the sighs of relief at the SNB with the underwhelming ECB action.
WATCH FOR: The China data will drive risk appetite amongst forex majors, whilst with 3 major central
banks (RBNZ, SNB and BoE) set to announce monetary policy there will be further volatility. The US data to
watch mostly comes on Friday with Retail Sales and Michigan Sentiment.
EUR/USD
Watch for: The support of the old range low
at $1.0810 is a key barometer this week
Outlook: The huge jump on the euro on
Thursday is still looking to settle down and it
may still take a couple of days before we
know the market’s new level for the euro.
The sharp break back above the old key floor
at $1.0810 means that this is again the level
of support and will be used as a gauge for
sentiment this week. If the dollar bulls are
back in control then this support could
quickly come under pressure again. The
resistance is now in place at $1.0980.
USD/JPY
Watch for: An upside break above 123.67 on
renewed dollar strength
Outlook: The solid payrolls report has
helped the dollar bulls back to the table. The
trading range between 122.20/123.67 may
still be intact but the renewed confidence of
the dollar bulls should help to drive an
upside breakout. Momentum indicators still
retain a bullish bias and a successful closing
breakout above 123.67 would imply a range
breakout and target around 150 pips to the
upside. This would take the pair towards a
test of the key 125.28 August high.
Corrections within the range this week will
be seen as a chance to buy.
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FX Outlook
2

3. Weekly Outlook
7th December 2015
by Richard Perry, Market Analyst
Indices
The lack of extra monetary stimulus from the ECB has really impacted across European equity markets. The DAX and the
CAC have come under significant strain as traders had baked in a much greater extension of easing than the ECB could
deliver. The issue is that the negative correlation trade of the DAX versus the euro means that any further rebound on
the euro will be a drag on the DAX which is likely to underperform other major markets such as FTSE 100 and S&P 500 as
a result. The FTSE 100 remains hamstrung by the exposure to the oil price and falling metals prices to which 21% of the
index’s constituents are impacted by. December is historically a very strong month for equities with markets often
referring to a “Santa Claus rally”, however the question is whether Mario Draghi has ruined Christmas for investors. The
strong runs on equity markets in October and November were on the premise that the ECB would satisfy risk appetite
with additional stimulus. In the absence of a QE extension, indices are at the mercy of the profit takers now. With the
Federal Reserve seemingly set to hike interest rates now the reaction on Wall Street will be very interesting in the coming
days, as tighter monetary policy is usually a negative but the move to normalise policy could also be supportive.
WATCH FOR: Indices are still trading off the legacy of Friday’s payrolls report but risk appetite will then be
driven by China trade balance and CPI which could determine the need to inject further stimulus to
support the Chinese economy. US Retail Sales and Michigan Sentiment will also drive on Friday.
DAX Xetra
Watch for: Support at 10,610 is crucial for
the medium term outlook
Outlook: How quickly things can change, it is
always so incredible how sharp the bear
retracements can be on markets once the
profit takers move in. Mario Draghi may
have induced the sell-off on the DAX but the
bulls will now have to work hard to protect
some key support levels that they worked
hard to build. The close below 10,870 has
now opened the key reaction low of the
November support around 10,610. With the
uptrend broken and a Stochastics sell signal,
the bulls are struggling now.
FTSE 100
Watch for: A closing breach of support at
6221 would open the key low at 6080.
Outlook: Once again the rally has failed
around a key level. The resistance band
6450/6487 has strengthened further and the
concern is that markets take the escalator
higher but the lift back down. After the slow
and painful creeping gains of the past few
weeks, the bears are hitting the FTSE 100
hard again. The near term support at 6221 is
creaking and a closing breach would re-open
the key reaction low of the November
support at 6080. The bulls will be hoping for
renewed optimism and a Santa Claus rally.
At this stage is it not likely.
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INDEX Outlook
3

4. Weekly Outlook
7th December 2015
by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The ascent of gold on Friday came as something of a shock as the Non-farm Payrolls report continued to pave the way for
rate tightening by the Federal Reserve next week. The move simply seems to be down to a bout of short covering which
first started on Thursday amidst the dollar weakness. For this reason I would see this as a short term move and gold is
likely to resume its downward trajectory as the dollar should strengthen the closer we get to the Fed meeting
announcement on 16th December. The OPEC meeting on Friday decided the output would be maintained at existing
levels (currently around 31.5m barrels per day) with the apparent conclusion that they would decide on production levels
at the next meeting. The oil price spiked lower on the news and should continue to weigh on prices.
The 2 year Treasury yield held its position in the wake of the solid Non-farm Payrolls report which all but assures a Fed
rate hike at the December meeting. The big mover has been the German 2 year Shatz (which is seen as an indicator of the
market’s expectation of the ECB deposit rate. The sharp rebound from -0.45% to -0.27% should be the limit of the rally
with significant overhead resistance there.
WATCH FOR: China data are expected to drive risk appetite and commodity prices and longer dated yields.
Gold
Watch for: A resistance band at $1077/
$1098 will be seen as a chance to sell.
Outlook: A significant short-covering rally
took hold on Friday which pulled the gold
price through several key near term
resistance levels. This sort of rally
happens occasionally and once the old
short positions have been covered, the
bear pressure gradually starts to return
again. There is a strong resistance now in
the range $1077/$1098 and this will be
seen as a key area of overhead supply for
renewed selling pressure this week. It
would be prudent to wait for the rally to
run out of steam first though.
Brent Crude
Watch for: A test of the key August low and
support at $42.25
Outlook: The OPEC meeting created a lot of
volatility on oil prices amidst a swathe of
rumours, however the support of
Wednesday’s low at $42.45 remains intact.
Despite this though, the technical outlook
remains very weak with bearish pressure
continuing as the momentum indicators are
bearishly configured and the 21 day moving
average has become a basis of resistance.
Clearly the big overhead resistance is at $46
and rallies continue to be seen as a chance
to sell for a likely test of the August low at
$42.25.
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COMMODITIES & BONDS Outlook
4

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Weekly Outlook
7th December 2015
by Richard Perry, Market Analyst