All eyes are on the Fed and the Bank of Japan this week and amidst the uncertainty of how the banks will act, volatility could be the big winner. After months of “will they, won’t they” we finally find out this week what the Federal Reserve’s decision on monetary policy is for the final realistic chance of a move in rates prior to the Presidential election.

1. Weekly Outlook
Monday 19th September by Richard Perry, Market Analyst
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WHEN: Wednesday 21st September at 1900BST
LAST: +0.25% / +0.50%
FORECAST: +0.25% / +0.50%
Impact: Markets are building up to the September
FOMC with great anticipation once more. The way
markets are positioned (Fed Funds futures and 2 year
Treasury yields) would suggest there is very little
expectation of a Fed rate hike on Wednesday. However
the market will be in significant anticipation of how the
FOMC guides for a potential December hike and also
the prospect of how aggressive the future hikes will be.
This is likely to drive how strong the dollar will be in the
coming months but also how steep the Treasury curve
becomes. Equities will also be on alert.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 20th Sept 13:30 US Building Permits & Housing Starts 1.17m & 1.19m 1.15m & 1.21m
Wed 21st Sept 01:30 Australia Mid-year Economic and Fiscal Outlook
Wed 21st Sept n/a Japan BoJ monetary policy (deposit rate) -0.1% -0.1%
Wed 21st Sept 15:30 US EIA crude oil inventories -0.6m
Wed 21st Sept 19:00 US FOMC monetary policy & press conference +0.5% +0.5%
Wed 21st Sept 22:00 New Zealand RBNZ monetary policy +2.0% +2.0%
Thu 22nd Sept 15:00 US Existing Home Sales 5.45m 5.39m
Fri 23rd Sept 09:00 Eurozone Flash Composite PMI 52.8 53.3
Fri 23rd Sept 13:30 Canada CPI +1.4% +1.3%
Fri 23rd Sept 14:45 US Flash Manufacturing PMI 51.9 52.1
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1N.B. Please note all times are BST (GMT+1), data source Reuters
Macro Commentary
After months of “will they, won’t they” we finally find out this week what the Fed’s decision on monetary policy is for
the final realistic chance of a move in rates prior to the Presidential election. Some in the market have been arguing
that there has been a shift to a more hawkish rhetoric from several members of the FOMC (Fischer, Rosengren and
even Fed chair Yellen) which could mean a hike on Wednesday. As much as I disagreed with them at the time
(there was still too much ambiguity in their language), the stream of economic data disappointments in recent
weeks means this will not happen and the market has priced out a rate hike. As much as anything, the Fed does
not want to spring a surprise on the market on Wednesday. However, the FOMC press conference could be used to
set up for a December hike. In my opinion the Fed runs a serious risk of losing credibility (if it has not already) if it
fails to hike in 2016 (a year in which there could have been four hikes). This could further steepen the yield curve
and pull near term dollar strength. There is another crucial central bank announcing on Wednesday (aside from the
RBNZ) but the next move of the Bank of Japan comes with considerable uncertainty – which will therefore drive
volatility. Although it may opt for caution in front of the FOMC (the Fed announces just hours later), the BoJ could
be set to adjust QE to buy shorter dated JGBs, steepen the yield curve and leave it room to cut the deposit rate.
Must Watch for: Federal Open Markets Committee (FOMC) monetary policy
US Treasury yield curve
The yield curve has steepend at the long end recently

2. Weekly Outlook
Monday 19th September by Richard Perry, Market Analyst
Foreign Exchange
If it has not been already, this week is certainly gong to be all about the Fed and the Bank of Japan. The US
dollar has been given some near term direction from the higher than expected US CPI data on Friday but the
market will begin to consolidate as Wednesday approaches. Quite how hawkish the Fed comes across on
Wednesday could determine just how strong the dollar will become in the coming weeks. I am still expecting a
dovish hike in December (a 25 basis points hike but caveated with a shallow tightening path) and I believe that
the FOMC staff forecasts and press conference will be used to lay the groundwork for this on Wednesday. This
means there is likely to still be some dollar strength even though the Fed will not hike straight away. The Fed
really needs to be decisive in preparing the market for December and now is the prime opportunity. Failure to
do so will result in another correction on the dollar. The Bank of Japan decision is also on a knife edge. There
have been suggestions of further fiscal stimulus taking some of the heavy lifting off the BoJ, whilst the
committee is apparently split over how to ease further. Further cuts to the deposit rate needs to have a
steepening of the yield curve to prevent serious damage to net interest margins of Japanese banks. However,
the BoJ seems to have recent form in disappointing with measures but it should still proceed with some further
action even in front of the Fed as it surely knows the FOMC will not now tighten.
WATCH FOR: Central bank decisions by the FOMC and BoJ but also the RBNZ impacting across forex
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FX Outlook
USD/JPY
Watch for: The downtrend could finally be
broken by a hawkish Fed/dovish BoJ
Outlook: With both central banks announcing
this week the volatility in the wake could be
significant. In front of this the long term
downtrend is already being tested which means
that it will not take much to change the long term
outlook. This would come with either a dovish
BoJ or a hawkish Fed (or a combination of the
two). The market has been consolidating but a
breach of the resistance at 104.30 would be the
real bullish confirmation. Momentum indicators
are neutrally configured, with support at 101.18
likely to be tested on any “disappointment”
leading to yen strength / dollar weakness.
EUR/USD
Watch for: The converging trendlines could be
tested on either outcome for the Fed.
Outlook: The breakdown below $1.1200 was
near term negative but the big support in front of
the Fed is at $1.1120. Once more the longer
term pivot range $1.1050/$1.1100 limited the
losses on the euro in early September and this
promises to be a key level again this week with
the Fed. Converging trendlines this week show
the support is within the long term pivot range
this week and this means that the Fed decision
could have a significant impact o the long term
outlook for the market. Technical indicators are
neutrally configured so this will be a fundamental
driven move (no surprise in that. The downtrend
shows the upside barrier (for a dovish Fed) is
around $1.1300. It could be a momentous
meeting.

3. Weekly Outlook
Monday 19th September by Richard Perry, Market Analyst
Equity Markets
Equity markets are under increasing pressure. There is still a fear of the Federal Reserve tightening monetary
policy but also the prospect that central banks are less willing (or able) to effectively loosen monetary policy.
Risk appetite has been waning ever since Mario Draghi of the ECB stood firm in the face of expectations of
further easing. Bond yield curves have steepened around the world which is usually seen as a positive sign
(selling out of bonds and into risk) but this is not normal market conditions. There is a degree of concern in the
wake of the Fed tightening (probably in December) as the ECB fails to loosen further. The DAX has dropped
away to a five week low and the bulls will be keenly watching the support of the August low at 10,092 this week.
Technical indicators continue to deteriorate with momentum the most corrective since Brexit and downside
pressure mounting. The outlook that the DAX is a play on global growth is also driving underperformance
against the FTSE 100. DAX tends to outperform the FTSE 100 during the bull phases, but struggles during the
corrective moves. FTSE 100 is subsequently holding up relatively better than the DAX (although Friday’s sell-off
on Deutsche Bank certainly did not help the cause). Volatility is also relatively much higher, with the VIX Index
up around 17 (rather than the more serene 12 to 14 levels of the late summer months). This is showing with the
increasingly choppy moves on the S&P 500 which topped out below 2147 and could yet be open for an implied
move back towards 2100. A dovish Fed that fails to prepare for December would help support these markets.
WATCH FOR: Speculation over decisions by the Fed and BoJ, whilst the actual decisions could drive
market sentiment for the coming weeks
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DAX Xetra
Watch for: The DAX must hold on to support at
10,092 this week
Outlook: Technical indicators are now the most
corrective (or even negative) since Brexit. A big
top pattern completed below 10,442 which
implies 360 ticks of downside (and therefore
around 10,080) over the next month also points
to a test of the key August reaction low at
10,092. Rallies are increasingly being seen as a
chance to sell now and a retreat to the old long
term pivot level around 10,120. The neckline of
the top around 10,442 means that a resistance
band 10,442/10,507 is now in place. The DAX is
likely to be the underperformer in the event of a
Fed hike.
FTSE 100
Watch for: The key support at 6612 could come
under threat on a hawkish Fed
Outlook: The market is increasingly corrective
and the medium term technical indicators are
suggesting that there is a downside threat still
potentially to play out. The bears will be looking
for a move on the RSI below 40 to signal the
next wave of selling, with the key August
reaction low at 6612 being the significant support
that the bulls need to hold on to in order to retain
a medium term bullish outlook. If the Fed moves
hawkish this week then this support could easily
come under threat, with a break opening the old
key breakout at 6427.
Index Outlook

4. Weekly Outlook
Monday 19th September by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
Commodities have been hit by dollar strength and a steeper yield curve in front of the FOMC. The long term
uptrends on precious metals are subsequently coming under pressure and the bulls could now be at a fork in
the road. A hawkish Fed preparing for a December hike would strengthen the dollar would then heap further
pressure on the bulls of gold and silver. Oil has also seen selling pressure in the past week or so that has
broken some key supports and opens downside as the stronger dollar and fears over increased supplies have
hit again. Libya had ended “force majeure” and could now ramp up oil production by perhaps 300,000 barrels
near term along with the prospect of Nigeria also increasing production means that the surplus could increase
by up to 800,000 barrels in the coming weeks. The International Energy Authority estimates that this could
treble the global production surplus which is currently around 370,000 barrels per day. The impact of increased
production in Libya and Nigeria will further complicate the OPEC/Non-OPEC meeting in Algeria next week.
Bond yield curves steepening are usually a positive for sentiment but could also be a sign that the markets are
pricing in that central banks are losing the ability to affect markets. The Fed will not tighten on Wednesday
leading to a preference to buy shorter dated bonds at the expense of the longer end with the BoJ also set to
focus on the shorter end in its QE program
WATCH FOR: The BoJ and the Fed will drive sentiment on commodities and bonds
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4
Gold
Watch for: Will the crucial $1300 floor be
breached this week?
Outlook: Gold has been dropping as the dollar
has strengthened and the US CPI data pick up
on Friday helped to drive the price even lower.
The key $1300/$1310 support band is now
under significant threat. This is coming ahead of
the Fed, but I would be surprised if the market
broke such a key long term support. A hawkish
Fed would certainly drive a breach of $1300 and
then open $1250/$1260 but more importantly
change the longer term outlook to a far more
neutral position. Momentum indicators are
neutrally configured on a medium to longer term
basis meaning the market is now sitting at a key
crossroads.
Markets Outlook
Brent Crude oil
Watch for: A two day close below $45.30 puts
the bears in control again
Outlook: If Brent and WTI Crude follow each
other, then Friday’s breach of the key early
September low on WTI means that the support
at $45.30 will come under significant pressure.
The deteriorating technical outlook means that
the bears are knocking at the door, but it would
take a two day close below $45.30 to confirm the
breakdown in the outlook which would be turning
more negative again. The break would open
initial support at $43.45 but the early August
critical low at $41.50 would also be back in
range again. There is a resistance band
$47/$48.50 which is now preventing a recovery.

5. Weekly Outlook
Monday 19th September by Richard Perry, Market Analyst
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