This week could be pivotal for US monetary policy. Financial markets are looking towards the FOMC meeting on Wednesday as an indicator for several key factors, however the Fed is likely to be the first central bank to start reducing the size of its balance sheet. Aside from the theoreticals, no one really knows how financial markets will react to the Fed's balance sheet reduction. We look at the outlook for forex, equities and commodities.

1. Weekly Outlook
Monday 18th 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: Wednesday 20th September at 1900BST
LAST: No change 1.00%/1.25%
FORECAST: No change 1.00%/1.25%
Impact: After raising rates at both 2017 meetings that
had press conferences (March and June) the Fed is not
expected to move for a third time. That does not mean
it will not be an interesting meeting though, with
updates to economic forecasts and most interestingly
the dot plots, whilst quantitative tightening could also
feature. The dots will go a long way towards whether a
December hike is still viable, but also whether the Fed
intends to slow down its tightening cycle. The
announcement of balance sheet reduction will also be
key. Treasuries, the dollar and gold will be volatile.
Key Economic Events
Date Time Country Indicator Consensus Last
Tue 19th Sep 1330BST US Building Permits / Housing Starts 1.22m / 1.18m 1.22m / 1.16m
Wed 20th Sep 0930BST UK Retail Sales (ex-fuel YoY) +1.5% +1.5%
Wed 20th Sep 1500BST US Existing Home Sales 5.45m 5.44m
Wed 20th Sep 1900BST US FOMC monetary policy (& press conference) 1.00% / 1.25% 1.00% / 1.25%
Thu 21st Sep 0450BST Japan Bank of Japan monetary policy -0.10% -0.10%
Thu 21st Sep 1330BST US Philly Fed Business Index +17.2 +18.9
Fri 22nd Sep ALL New Zealand Parliamentary elections
Fri 22nd Sep 0900BST Eurozone Flash PMI – Manufacturing / Services 57.2 / 54.8 57.4 / 54.9
Fri 22nd Sep 1330BST Canada CPI +1.5% +1.2%
Fri 22nd Sep 1500BST US Flash PMI – Manufacturing / Services 53.0 / 56.0 52.5 / 56.9
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1N.B. Please note all times are British Summer Time BST (GMT+1), data source Reuters
Macro Commentary
Monetary policy is firmly on the agenda as we look ahead to the Fed meeting. However an unexpectedly hawkish
shift in the rhetoric from the Bank of England has been the big mover of forex markets in the past few days. The
MPC statement suggested that policy may need tightening faster than current expectations, whilst the withdrawal of
stimulus would be needed in coming months to bring inflation back under control. Then, the most dovish member of
the MPC, Gertjan Vlieghe, turned hawkish in suggesting “the moment was approaching”. Previously February 2018
was possible but now even November 2017 could be seen. Carney has a reputation of faking it, but this time the
rhetoric does seem far more co-ordinated and traders are suddenly having to price for a rate hike much sooner than
previously thought. As for the FOMC, it will be a very interesting meeting despite no rate hike being expected.
Updates to economic forecasts will focus on inflation once more, but any adjustments to the dot plots could hint at a
pause in tightening after the next hike (which could still be December). Furthermore, the likelihood is that the Fed
will formally announce the start of “Quantitative Tightening” or balance sheet run down (even arch dove Lael
Brainard expects it to be this week). However, given the weakness of the dollar to QE, the impact on Treasury
yields and the dollar in the coming months could be more pronounced than many are expecting, or pricing.
Must Watch for: FOMC monetary policy and Yellen’s press conference
2s/10s Treasury yield spread
Treasury yields will move on the FOMC meeting, and a hawksih
Fed will pull the 2s/10s spread higher again.

2. Weekly Outlook
Monday 18th September by Richard Perry, Market Analyst
Foreign Exchange
Yield differentials still drive forex markets. This has been shown in the UK Gilt yields that have risen by over 25
basis points on both 2s and 10s, versus that of Treasury yields that have risen by 12 bps on the 2s and 19 bps
on the 10s, and Japanese 2s and 10s that have added 3 bps each. This goes a long way towards explaining
why sterling has broken to 12 month highs against both the dollar and the yen, whilst Dollar/Yen is also
breaking through the key near to medium term resistance at 111.00. A continuation of these yield differentials is
likely to drive a continuation of these forex moves. The market has monetary policy for both the FOMC and the
Bank of Japan this week. Whilst the Fed is expected to hold fire on rates, the reaction to the beginning of
balance sheet run down will be key for markets. In July it was said to be “relatively soon” and even the more
dovish members such as Brainard have called for it. This could help to underpin the dollar. Furthermore the
positioning of the dot plots will show where the FOMC believes rate to be in the coming meetings and a dovish
shift could hint at a shallower path of rate hikes which could hit the dollar. The BoJ announces just a few hours
after the Fed but no change in policy is expected and is unlikely to rock the boat with the weakening yen once
more moving in its favour again. UK retail sales will be important for sterling, whilst Theresa May’s speech in
Florence on Friday 22nd on Brexit negotiations could also support sterling if it is deemed conciliatory.
WATCH FOR: FOMC meeting across the majors, BoJ impacting the yen and May’s Brexit speech
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FX Outlook
USD/JPY
Watch for: A confirmed breakout above 111.00
opens the upper resistance within the range
Outlook: The pivot at 111.00 has previously
been key resistance throughout August, however
this barrier seems to be on the brink of having a
confirmed breach. A closing push above 111.00
would confirm a change of the medium outlook.
The momentum indicators are already pointing to
a far more positive configuration. Resistance
levels for a recovery come in at 112.20/113.55
and then the key highs that start at 114.50. A
closing breakout above 111.00 means that
corrections become a chance to buy this week.
However the big caveats are the two central
bank policy meetings this week. It could be a
choppy time for Dollar/Yen. Key support 109.55.
EUR/USD
Watch for: The market remains a buy into
weakness whilst the uptrend channel is intact
Outlook: Whilst the market continues to trade
within the five month uptrend channel and whilst
this remains the case, corrective moves will be
seen as a chance to buy. There have been signs
recently that the dollar could be close to a
recovery and it is interesting to see the medium
term momentum indicators back towards key
levels. Normally as the channel has moved
higher, the low 50s on RSI, 40 on Stochastics
and an unwind on MACD lines have been an
opportunity to buy. This will be a key factor for
this week as the market reacts to the September
FOMC meeting. Support at $1.1820 will be
watched. The market confirms a corrective shift
below $1.1660.

3. Weekly Outlook
Monday 18th September by Richard Perry, Market Analyst
Equity Markets
There are some significant variations in the performance of the major global equity markets right now. In the
wake of a dramatic re-pricing of expectations around a Bank of England rate hike, sterling has soared. However
the flip-side of this has been that the negative correlation play with FTSE 100 has been decisively renewed.
Whilst Wall Street has been creeping into new high ground, FTSE 100 has been sliding sharply to a new four
month low. Even the Eurozone indices have barely lost ground. However, this could produce an opportunity as
the relative performance is likely to close. Watch for the moves on Sterling now to drive FTSE 100. If there is a
correction in the sterling rally, the negative correlation would likely drive a sharp retracement rally on FTSE 100.
However, the concern is that sterling has broken out against both the dollar and the yen and could go higher.
This would spell trouble for FTSE 100. Technically 7200 is initially supportive, but a retreat to 7094 which has
been a massive support throughout 2017 could be seen. In stark contrast, the S&P 500 has ben consolidating a
break into all time highs and the bulls will now look to use any unwinding move into the 2480/2490 support band
as a chance to buy, whilst 2455 is a key pivot support now medium term. The reaction to a Fed Quantitative
Tightening could be interesting too, considering QE was risk positive. The German Federal Election is less than
a week away now but traders remain positive. The DAX has also been consolidating, with a near term “buy
zone” of support 12,335/12,490 ready to build for another higher low. The CAC 40 is less strongly positioned
and needs to breakout above 5260 resistance to turn bullish again, whilst 5150 is supportive for a correction.
WATCH FOR: The FOMC will drive volatility across markets this week, especially the reaction to QT
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DAX Xetra
Watch for: Look to buy into weakness that is
supported above 12,336.
Outlook: The outlook took a significant turn for
improvement after the breakout above 12,336
two weeks ago. The market has since been
consolidating the breakout but with momentum
indicators now in strong configuration the bulls
will be tempted to buy once more if they see a
correction supported between 12,336/12,490.
The breakout completed a 7 week base pattern
and suggests further recovery towards 12,735 in
the coming weeks but an initial correction would
be a healthy move for the bulls now. Resistance
is at the 12,676 July high.
FTSE 100
Watch for: The support at 7200 could remain
under pressure.
Outlook: The big bear candles have confirmed a
close below the support at 7300. This has
already implied at least a 150 tick downside
target to 7150. On Friday the support at 7200
held intact and despite a rally on Monday could
come under further scrutiny this week (especially
if sterling strengthens again). The 7300 old
support now becomes a source of overhead
supply and rallies are now a chance to sell.
Momentum indicators are negatively configured
but also show downside potential. A closing
breach of 7200 opens the hugely important
support of 7094. Whilst other markets hold up a
dramatic sell-off is not expected but
underperformance is a concern still.
Index Outlook

4. Weekly Outlook
Monday 18th September by Richard Perry, Market Analyst
Other Assets: Commodities & Bonds
The safe haven demand for gold seems to be drying up after the yellow metal actually fell on Friday despite the
latest missile test from North Korea. With the dollar strengthening in the wake of higher Treasury yields and
improved expectations of a Fed hike in December, the appetite for gold has been hit recently. This has dragged
gold back towards the medium to longer term key levels of support ahead of the Fed. Just how hawkish the Fed
appears in its dot plots and likely quantitative tightening will drive gold for the near to medium term now. Both
gold and silver are testing their 10 week recovery trends. Oil has broken out to multi-month highs on Brent
Crude and is testing the breakout on WTI. This comes as the market viewed the EIA crude inventory build as
transitory last week. Furthermore, the EIA also increased its global oil demand forecast as it sees the global
surplus starting to shrink. Holding above $50.43 would be key for WTI.
Treasury yields have rallied across the curve and a steepening has helped the 2s/10s spread to increase in
September. The FOMC decision is likely to be the next driver of this and this will impact decisively on the US
dollar too. A more hawkish rhetoric from the Bank of England has driven Gilt yields sharply higher, with the 2
year yield increasing from 0.14% to 0.41% in the course of a week. The 10 year Gilt yield has also increased
from 1.00% to 1.28% as both position for tighter monetary policy. Sterling is a key beneficiary.
WATCH FOR: The FOMC decision will be key across commodities and bond markets
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Gold
Watch for: The $1300/$1310 long term pivot
band remains key support this week.
Outlook: The confluence of technical indicators
of the 10 week uptrend, 21 day moving average
and key long term breakout means that there is
support between $1300/$1320 this week. The
uptrend remains intact but the pressure is
mounting. This will now be a key test of the
bullish medium term credentials. The concern is
that the balance of the momentum indicators are
now corrective with the MACD lines having
crossed lower, the Stochastics falling and if the
RSI moves below 50 it would confirm the
corrective move. The resistance is $1334/$1340
this week.
Markets Outlook
Brent Crude oil
Watch for: Another higher low between
$53.00/$54.70 would be bullish
Outlook: Oil has been pushing strongly higher in
the past week and the price of Brent Crude has
made the decisive breakout above the May high
at $54.70 in a move which confirms the end of a
sequence of major lower highs. This brings the
April high of $56.65 back into range but also the
strong of highs between $57.45/$58.35 from Q1
this year. The momentum indicators are strongly
configured now for buying into weakness and the
key reaction low at $53.00 in the past week
reflects this changed outlook. $54.70 now
becomes a basis of support but any higher low
between $53.00/$54.70 will be considered
another bullish development this week.

5. Weekly Outlook
Monday 18th September by Richard Perry, Market Analyst
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