Market News & Insights
20 September 2017

Yellen to Set The Tone

Yesterday felt like one of those days before a major release, with markets consolidating as they await key information from today’s FOMC meeting. European stocks were broadly flat through much of the day while in the US we once again saw major indices press higher, albeit only marginally. There is no change expected from today’s FOMC meeting, however markets will be looking for indications on changes to the Feds dot path and how they intend to proceed with policy normalisation.

The USD was weaker on the day yesterday as data was as expected and markets await the Fed. GBP was a mixed bag, the pound initially weaker through the morning session before it rallied in the afternoon as news headlines emerged that Boris Johnson would resign should PM May oppose his Brexit demands. The euro was stronger on the day, although EURUSD still struggled to hold any break above 1.2000 overnight. Donald Trump also addressed the UN, specifically targeting Iran and North Korea for condemnation and threating the latter with “total destruction” should they continue with aggressions to the west. Markets were surprisingly muted around these threats, which is a concern in itself.

All eyes are on the US today and there is plenty going on. In government, discussions continue to try and work around a healthcare bill or at the very least to stabilise Obamacare with regards to insurance. While discussion on Trump’s tax plan also continue behind closed doors. All focus will be on today’s FOMC meeting and the future outlook for the USD will be dependent on the path for rate hike projections. Close attention will also be on the Fed’s plan to unwind its balance sheet. The latter has been discussed in great detail for the last 6 months and will come as no surprise and is almost certainly already priced into the USD.

Janet Yellen and co have highlighted that they expect the unwinding to be almost unnoticeable and gradual so should today’s release not match expectations, markets are unlikely to feel too let down. The USD currently sits at 33 month lows and the only thing that is likely to revive the beleaguered greenback is a slightly more upbeat Fed. Markets are currently about 50/50 on another rate hike this year so still room for surprise either side. This will come down to 2018 and 2019 projections but with inflation continuing to weigh, the growth path for the US may be slightly shallower. Should we continue to see the Fed angle for another rate hike this year then the USD will likely have scope to rally higher, any downward revision to growth plans however will almost certainly see the USD press to fresh lows.

Major levels to watch:

EURGBP in a narrow range thus far this week, support at .8785 and first resistance higher at .8900 area. A break above there, likely targets progression higher towards .8982. Only a break back above .9050 area will negate our bearish here.

EURUSD continues to finds sellers on rallies above 1.2000, and oddly enough any time we see the pair above there we here mutterings from ECB sources talking the single currency back down. That would suggest the ECB don’t want EURUSD above 1.2000 and for now that continues to provide sellers opportunity to get rid of Euro up to 1.2020 area.

GBPUSD finds resistance at 1.3620, while light and near term support at 1.3471 is the target for move lower.