Markets are responding to a stream of key political developments in recent days. Theresa May trying to kick start the painfully slow Brexit negotiations, key elections in German and New Zealand and also the ongoing geopolitical tensions of the Korean Peninsula. Financial markets are trying to figure out the impact of all of this and the Federal Reserve monetary policy, whilst traders will also be looking ahead to key US inflation data this week. We look at the outlook for forex, equities and commodities.

1. Weekly Outlook
Monday 25th September by Richard Perry, Market Analyst
Forex and CFDs are high risk leveraged products that can result in losses greater than your initial deposit and you should
therefore only speculate with money you can afford to lose. FX and CFD trading are not suitable for everyone. Please
ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such
transactions. You should first carefully consider your investment objectives, level of experience, and risk appetite and only
invest funds you are prepared to lose entirely. For our full risk warning, please go to the end of this report.
WHEN: Friday 29th September at 1330BST
LAST: +1.4% YoY
FORECAST: +1.4% YoY
Impact: The FOMC meeting suggested that the Fed
was almost willing to look past persistently low inflation
readings in 2017, with Yellen puzzled as to why it had
fallen so much. However, unless there is a reversal in
the trend lower, the markets concerns which have led
to the yield curve flattening (2s/10s spread tightening)
in recent months could be further exacerbated. A
+0.2% month on month forecast would be +1.4% for
the year in August and potentially be the beginning of
an improvement. The 10 year yield would pick up on an
upside surprise. The dollar will be responsive.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 26th Sep 1500BST US CB Consumer Confidence 120.0 122.9
Tue 26th Sep 1500BST US New Home Sales 591,000 571,000
Wed 27th Sep 0930BST UK GDP (Q2 final reading) +0.3% +0.3%
Wed 27th Sep 0930BST UK Current Account (Q2) -£15.8bn -£16.9bn
Wed 27th Sep 1330BST US Durable Goods Orders (ex transport MoM) +0.2% +0.5%
Wed 27th Sep 2100BST New Zealand RBNZ monetary policy +1.75% +1.75%
Thu 28th Sep 1330BST US GDP (Q2 final reading) +3.0% +3.0%
Fri 29th Sep 0030BST Japan CPI (core YoY) +0.7% +0.5%
Fri 29th Sep 0245BST China Caixin Manufacturing PMI 51.5 51.6
Fri 29th Sep 1300BST US Personal Consumption Expenditure (core) +1.4% +1.4%
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
The Federal Reserve is the first major central bank to begin unwinding its balance sheet. In October the Fed will
stop reinvesting $10bn of Treasuries and Mortgage Backed Securities per month. That will then increase by $10bn
every quarter until it will unwind by $50bn per month. No detail has been given on the eventual size of the balance
sheet that the Fed wants to end up with. Quantitative Tightening should help to raise yields and subsequently help
to support the dollar in the long term. The fact that it is such as gradual unwind should help to soften the negative
impact on equities, whilst the normalising of monetary policy in the long term is certainly a preferred prospect. From
the UK point of view, expectations of tighter monetary policy in “the coming months” has been ramped up too in the
past week, helping to pull sterling higher. However Brexit remains a hot topic for traders. Theresa May’s speech in
Florence seemed to be conciliatory, but somewhat short on detail. Nothing on Norther Ireland and no number put
on the potential divorce bill. She only said that the UK would pay its budgetary commitments from “during the period
of our membership”. This appears fair, but the EU is yet to give any concessions and unless this issue over money
is resolved the negotiations will painfully drag and the real issue, trade, will suffer. Sterling traders seemed
unimpressed with May’s speech and even less so with a Moody’s rating downgrade, however the BoE is still key.
Must Watch for: US Personal Consumption Expenditure
US Core PCE
Core PCE has fallen for much of 2017 but is expected to flatten off
in August

2. Weekly Outlook
Monday 25th September by Richard Perry, Market Analyst
Foreign Exchange
The Fed has announced the beginning of Quantitative Tightening (QT). This is a reversal of QE and is designed
to reduce the size of the Fed’s balance sheet in the coming years. The theory goes that this should help to
increase Treasury yields (Fed officials suggest the 10 year yield is around 1% lower than it should have been
due to QE) but also help to stabilize the dollar selling pressure. However along side the apparently hawkish
FOMC decision (which included holding up the dot plots at 3 hikes in 2018) concern over subdued inflation
could continue to flatten the yield curve. QT is a process that will take years, but subdued inflation expectations
is an issue now. That is why the market will be focusing on the Fed’s preferred inflation measure, the core PCE
this week. The move from the Fed has failed to strengthen the dollar appreciably yet, but inflation and fiscal
reform/expansion from government will. Aside from this, the disappointing outcome for Merkel in the German
election is hitting the euro, however a bullish technical outlook remains. The yen is under pressure as the Bank
of Japan policy meeting last week showed continuation of dovish policy and a dovish dissenter amongst the
votes. Add in a snap election for Abe and the dovish policies are likely to remain in place. Despite Brexit issues
and a ratings downgrade, Sterling has held up from the hawkish shift from the Bank of England rhetoric.
WATCH FOR: The core PCE will be key for the dollar, whilst UK current account deficit will impact on
sterling and the RBNZ will be key for the Kiwi.
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FX Outlook
USD/JPY
Watch for: A confirmed breakout above 111.00
holds an improving outlook
Outlook: The market has held on to the key
breakout above 111.00 and there is little real
resistance until the key range highs around
114.50. The market has already retreated to test
111.00 as a pivot breakout and trading above all
the moving averages in addition to far more
positively configured momentum indicators
suggests that the bulls are happily in control
now. If the market can continue to build higher
lows then the pressure will continue to build on
the upside. Last week’s high at 112.70 will be
under threat with the way then open towards
114.50 again.
EUR/USD
Watch for: The bulls are in control but their grip
has become far less assured.
Outlook: Whilst the German election result has
okayed out in the early losses on Monday for
EUR/USD, for now the outlook remains positive.
The five month uptrend remains firm above
$1.1860 support from last week and unless the
support at $1.1820 were to be breached the
bulls will remain in the driving seat. Momentum is
positive still but there needs to be a move from
the bulls soon to get the impetus back in the
trend which is now threatening to become
corrective. The market is still struggling at
$1.2000 and it seems that uncertainties are
creeping in now.

3. Weekly Outlook
Monday 25th September by Richard Perry, Market Analyst
Equity Markets
The concern with the Fed the unwinding the balance sheet is that it could mean a correction on equities. Stocks
undoubtedly benefited from the Fed’s massive QE expansion which pushed yields lower as investors went in
search of yield. Could this happen in reverse with quantitative tightening? It is unlikely to make much of an
impact in the near to medium term. For now the ECB and Bank of Japan continue to pump over $100bn per
month of liquidity through their own QE, whilst global growth conditions are far more positive for economies
now. The US and Eurozone are growing and global monetary policy is still far from normalised. Equity markets
continue to have varied performances. Wall Street remains strong, Eurozone markets are breaking higher
again, whilst the FTSE 100 is still a market under pressure. Wall Street breaking out to all-time highs is unlikely
to be a straight line move. However means that corrections will provide another chance to buy. The S&P 500
has decent breakout support between 2480/2490 this week, whilst the Dow has breakout support at 22,179.
The German election seems to be making little impact so far on the DAX, whilst the market will remain bullish
as long as it holds on to a band of support at 12,340/12,490 and corrections will be a chance to buy. The key
underperforming market remains the FTSE 100. UK equities continue to struggle when sterling rallies. The
upside move on sterling in the wake of increasingly hawkish rhetoric from the Bank of England has hit
FTSE100. However Theresa May’s speech on Brexit has hit sterling and therefore helped to pull the FTSE 100
higher. The negative correlation between sterling and FTSE remains key.
WATCH FOR: The DAX to respond to the German election, FTSE 100 to be driven by sterling moves
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3
DAX Xetra
Watch for: Looking for a test of the July high
Outlook: The initial response of DAX traders to
the German election has been for one of
indifference. The corrections continue to be seen
as a chance to buy as the market continues to
drift higher within a near term rising wedge. A
test of the 12,676 key July high is well within
range should the bulls remain in the driving seat.
With momentum indicators so strongly
configured, and moving averages beginning to
all turn higher in bullish sequence, the outlook
remains positive. Key support now at the old
12,490 pivot.
FTSE 100
Watch for: The old key floor at 7300 is a gauge
for the market now
Outlook: The big key breakdown below 7300
found support at 7200 last week and an
unwinding rally has pulled the market higher.
This is interesting as there is still a negative
correlation with the movement on sterling, but
with other major equity markets looking to push
higher, FTSE 100 has been dragged higher.
There is a significant risk that this may not
continue to be the case if there is a stalling of the
global rise in equities. Technically FTSE 100
remains weak and the rally looks to be a chance
to sell. The old support around 7300 is a basis of
overhead supply and another lower high below
7450 will begin to see the bulls getting very
nervous again.
Index Outlook

4. Weekly Outlook
Monday 25th September by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The FOMC was a double blow to the stomach of the gold bugs. Maintaining its intention to hike interest rates
even though inflation remains subdued is a bad combination for gold. Hence the fall on gold below the long
term pivot support at $1300/$1310 (which is now a basis of resistance). The one saving grace could be that
Donald Trump appears intent on inflaming the geopolitical tensions with North Korea. Despotic dictators tend
not to respond well to threats. Whilst the tensions continue to mount there will be an underlying case for buying
gold, even if the Fed is now set to pull yields higher through its quantitative tightening. However it will be a
constant push and pull on the gold price in the meantime. Oil remains supported as the supply/demand
equation seems to be improving, even though OPEC has been unable to agree on further production curbs.
The Treasury yield curve should be steepened by the announcement of quantitative tightening and the apparent
push towards a December hike. However growth is middle of the road at beat, whilst inflation remains subdued.
The market reaction to the Fed announcement was a drop in the 2s/10s yield spread. This is a bear flattening,
with yields higher but the longer you go out the curve, the more it flattens. This suggests that the market is
concerned by inflation more than the Fed and an expectation that the Fed is away from the market. The market
tends to be right, but we will not know whether the Fed can do three hikes in 2018 for several months.
WATCH FOR: Core PCE will drive Treasury yields, and also commodities.
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4
Gold
Watch for: The $1300/$1310 long term pivot
band has turned into resistance.
Outlook: The break back below the key pivot at
$1300/$1310 is a significant move that confirms
a corrective move is now on for gold. A series of
lower highs in recent weeks has been pulling
gold lower, but the decisive break comes with
increasingly negative configuration on
momentum indicators. The $1300/$1310 pivot
band now becomes a basis of resistance this
week as downside levels of support between
$1267/$1278 are now open. It would need a
push through the lower high at $1316 to improve
the outlook now.
Markets Outlook
Brent Crude oil
Watch for: A test of the key resistance but can
momentum be sustained?
Outlook: Oil bulls continue to push higher with
the three month rally now closing in on the key
resistance at $57.45. Aside from a spike high to
$58.35 this was the ceiling throughout the early
months of 2017 on the original reaction to the
OPEC production curbs. This is also the highest
level on Brent Crude since June 2015.
Momentum indicators are strongly configured but
is is interesting to see the RSI up at 70 again. In
the past year Brent has only been above 70
once on the RSI and then back in April the
market instantly sold off with a key lower high.
Can the bulls sustain this move? The key
support is now the breakout at $54.70..

5. Weekly Outlook
Monday 25th September by Richard Perry, Market Analyst
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5
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