Market Review – Fundamental Perspective 27 September 2017

Overnight, US and European equity futures climbed whilst most Asian equities declined. In FX, the USD extended gains after Federal Reserve Chair Janet Yellen boosted expectations for an interest-rate rise in December and ahead of the US President Trump laying out his tax-reform plan
Federal Reserve Chair Janet Yellen acknowledged that the central bank may have misjudged long-run inflation expectations as well as uncertainties around the true strength of the labour market, however, she also warned of moving too gradually on interest rates.
With markets dominated by a stronger USD on Yellen’s rhetoric, EURUSD traded through support at 1.1825/30 and GBPUSD broke through 1.3400 support this morning. Our traders now see EURUSD support at 1.1700 and resistance at 1.1955. In terms of GBPUSD, support is at 1.3370 with resistance at 1.3515 in the short term.
President Trump and Republican leaders will announce their tax plan today, where they are widely expected to cut corporation tax, currently 35%, and propose a top individual income tax rate of 35%.
In data yesterday, US new home sales for August were weaker than expected at 560k, below consensus expectations of 585k. With a light data calendar this week, market attention has drifted to the plethora of FOMC and ECB speakers which, thus far, have had relatively little market impact as most speakers (other than Yellen) have avoided commenting on monetary policy.
Today we will hear FOMC members Bullard, Brainard, and Rosengren who will be speaking in separate forums around the US. We expect Bullard to argue that the current stance of monetary policy is appropriate, while Rosengren will likely argue that further hikes are warranted despite soft inflation.
Elsewhere, several central banks are meeting today, including the Bank of Thailand this morning, the Czech national bank and the RBNZ after the European close. We expect all three to keep policy settings unchanged.

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