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Dollar remains broadly firm today, unmoved by the cautious comments from Fed Chair Janet Yellen. Traders are eagerly awaiting the long-awaited tax reform from US President Donald Trump. Meanwhile, Euro and Kiwi continue to suffer post election weakness. It's reported that German Chancellor Angela Merkel have begun the coalition talk between CDU, CSU, GDP and Greens. But the common currency could stay pressured until the picture becomes clearer. And, it's consistent with the technical development that EUR/USD is in a medium term correction that would take some more time to complete.

Trump to deliver long awaited tax plan

Trump is expected to speak in Indiana on tax reform today. Yet, the details remained unclear with reports suggesting that Treasury secretary Mnuchin, Trump's chief economic adviser Gary Cohn, House Speaker Paul Ryan, Senate majority leader Mitch McConnell, House Ways and Means committee Chairman Kevin Brady and Senator Orrin Hatch still can't compromise of a number of issues. The biggest debate is on whether there should be any net tax cut on the wealthiest Americans, even if the top rate of income tax is lowered to 35% from 39.5% as proposed.

Fed Yellen still expects gradual tightening

Fed Chair Janet Yellen spoke at the National Association for Business Economics in Cleveland yesterday. Regarding the slowdown in inflation, Yellen noted that policy makers "may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation." That highlights Fed's difficulty in forecasting inflation and thus its own rate path. Currently, there is a 30% chance that inflation could range anywhere from 1% to 3%. Any outcome could change the rate path drastically.

For now, Fed "continues to anticipate that, with gradual adjustments in the stance of monetary policy, inflation will rise and stabilize at around 2 percent over the medium term." And, "without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession." Hence, "we should be wary of moving too gradually."

EC Tusk: No sufficient progress on Brexit negotiation yet

After meeting with UK Prime Minister Theresa May, European Council President Donald Tusk said he's "cautiously optimistic about the constructive and more realistic tone in the prime minister's speech in Florence and of our discussion today." But he reiterated EU's stance that discussion on future relations will start once there is "so called sufficient progress". And for now, "there is no sufficient progress yet".

May's office said in a statement that her Florence speech last week "had been intended to create momentum in the ongoing talks." And she urged "EU negotiators to now respond in the same spirit." And, May also said earlier that "by being creative in the ways we approach these issues, we can find solutions that work both for the remaining (EU) 27 but also for the UK and maintain that cooperation and partnership between the UK and the EU." 

French Macron laid out plans for EU transformation

French President Emmanuel Macron set out his plans for a "profound transformation" of the US in his speech yesterday. He warned time time was running out for the EU to reinvent itself to counter the rise of far-right nationalism and "give Europe back to its citizens". He acknowledged that the Europe is "too slow, too weak too ineffective" and that's why isolationist attitude had resurfaced, with a far right party entering Bundestag for the first time in 70 years. In short, Macron called for a common finance minister for the Eurozone, budget and parliament. And he also proposed a common European defence force, a European intelligence agency to fight terrorism, a European-wide asylum office and stronger EU border force.

On the data front

Swiss will release UBS consumption indicator in European session. Eurozone will release M3 while UK will release CBI realized sales. But main focus will be on durable goods orders from US. Pending home sales will also be featured.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7848; (P) 0.7898; (R1) 0.7937; More...

AUD/USD drops to as low as 0.7856 so far and correction from 0.8124 extends. Overall, with 0.7807 support intact, larger rally is still expected to resume later. Above 0.7985 minor resistance will turn bias to the upside for retesting 0.8124 high first. Break will target 00% projection of 0.6826 to 0.7833 from 0.7328 at 0.8335 next. However, considering bearish divergence condition in daily MACD, firm break of 0.7807 will indicate near term reversal and turn bias back to the downside for 55 week EMA (now at 0.7670).

In the bigger picture, rise from 0.6826 medium term bottom is still in progress. At this point, there is no confirmation of trend reversal yet and we'll continue to treat such rebound as a corrective pattern. But in any case, break of 55 month EMA (now at 0.8090) will target 38.2% retracement of 1.1079 to 0.6826 at 0.8451. Break of 0.7807 support is needed to to be the first sign of completion of the rebound. Otherwise, further rise is now in favor.

Economic Indicators Update

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 1-3 pips beyond confirming structures.

EUR/USD

In recent trading, the single currency cruised south for a second consecutive session on Tuesday. Bids at August’s opening level (1.1830) and the 1.18 handle were wiped out, leaving H4 price free to challenge an AB=CD 127.2% ext. point at 1.1770 (taken from the high 1.2092)/161.8% ext. point at 1.1756 extended from the high 1.2034.

Further bolstering the aforementioned Harmonics is a H4 mid-level support at 1.1750, a minor weekly demand planted at 1.1662-1.1814, a daily demand at 1.1739-1.1823 and a trendline support taken from the low.

Suggestions: On account of this, the EUR boasts strong support at the moment which could lead to a rally north this week. H4 bulls have already made an appearance but seem troubled by the nearby 1.18 handle.

Although we are looking to buy this market, we’re wary of pulling the trigger given 1.18 resistance. To combat this, we would like to see price pullback from 1.18, fake below both yesterday’s low at 1.1757 and the 1.1750 line, and close higher (much like our bullish pin-bar drawing). A setup such as this would give us at least one times our risk to the 1.18 hurdle, thus allowing us to reduce risk to breakeven should the bulls fail to breach 1.18.

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Watching for H4 price to whipsaw through 1.1750 before a long is considered (stop loss: beneath the candle’s tail).
• Sells: Flat (stop loss: N/A).

GBP/USD

Offers at 1.35 held firm on Tuesday, consequently pushing the H4 candles down to a 127.2% ext. point at 1.3413 (extended from the high 1.3595) that is positioned just ahead of a demand pegged at 1.3381-1.3405/1.34 handle. Although the bulls have registered some interest from 1.3413, there’s still a strong possibility that this move may be a short-lived one, as weekly price looks poised to shake hands with a broken weekly Quasimodo line at 1.3371/channel resistance-turned support extended from the high 1.2706 (seen directly below the H4 demand). As such, if you are currently long from 1.3413, it may be a good idea to begin reducing risk to breakeven since the unit may be heading lower.

Suggestions: Wait for H4 price to fake through the current H4 demand and connect with the aforementioned weekly supports. This, in our opinion, is a high-probability buy since there are highly likely a truckload of stops planted beneath the current H4 demand which is exactly where we’ll be looking to buy!

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Watching for H4 price to whipsaw through 1.3381-1.3405 to tap 1.3371 weekly support before a long is considered (stop loss: beneath the candle’s tail).
• Sells: Flat (stop loss: N/A).

AUD/USD

Kicking this morning’s report off with a look at the weekly timeframe, we can clearly see that price is now within shouting distance of connecting with a support area marked at 0.7849-0.7752. Meanwhile, daily action shows the recently engulfed support at 0.7955 is holding ground as resistance. Provided that the bears continue to defend this line, daily demand at 0.7786-0.7838 is likely going to be the next port of call on this scale (seen plotted within the walls of the noted weekly support area).The story on the H4 timeframe, nevertheless, shows price responded beautifully to H4 demand pegged at 0.7866-0.7850 on Tuesday, but has failed to sustain this momentum beyond the nearby 0.79 handle.

Suggestions: Considering that both weekly and daily price show room to decline further, our team has absolutely no interest in buying from current price or the H4 demand base. The H4 Quasimodo support seen plotted below the current demand at 0.7839, however, is of interest (not seen on the screen). Not only does 0.7839 align nicely with the top edge of daily demand at 0.7838 and nearby the top edge of the weekly support area at 0.7849, we also have the benefit of all the juicy stop-loss orders planted below the current H4 demand. Remember, when a buyer’s stop is triggered it becomes a sell order, which is ideal liquidity to buy!

Given the above, we have set a pending buy order at 0.7839, with a stop placed below the apex of the Quasimodo formation (0.7807) at 0.7805. This equates to a 34-pip stop. As the first take-profit target does not come into view until 0.79, this allows the trader to nearly double his/her initial risk!

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: 0.7839 (stop loss: 0.7805).
• Sells: Flat (stop loss: N/A).

USD/JPY

Higher-timeframe direction currently shows weekly price heading for a supply zone coming in at 115.50-113.85. In conjunction with weekly flow, daily action is also seen holding ground at support drawn from 111.91. Should price continue to push higher from here, the next upside target is seen at a channel resistance extended from the high 115.50, which happens to intersect with the noted weekly supply.

Across on the H4 timeframe, price recently climbed above the 112 handle/nearby July’s opening level at 112.09, and now looks poised to challenge supply at 112.86-112.55. According to H4 structure, entering long is a tricky beast right now. Not only is there the current H4 supply to contend with, there’s also the 113 handle plotted just above this area and another nearby supply seen at 113.57-113.38.

Suggestions: In light of nearby H4 resistances, our team has no interest in buying this market today, despite what the higher-timeframe charts suggest.

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

USD/CAD

During the course of Tuesday’s sessions, H4 price drove higher into supply at 1.2415-1.2379 and filled offers at 1.24. As can be seen on the chart, the pair was unable to sustain gains beyond 1.24 and ended the day pushing down to the mid-level support 1.2350. As we mentioned in yesterday’s report, both of these H4 barriers are sited within a daily resistance area pegged at 1.2303-1.2423. What we also mentioned, however, is that weekly price shows room to extend above the daily area to a long-term weekly trendline resistance extended from the low 0.9633.

Suggestions: Given the threat of further upside on the weekly scale, the team remains reluctant to sell at current prices. An area we would be interested in selling, nonetheless, is the H4 supply seen at 1.2491-1.2461. Not only is it surrounded by both September/August’s opening levels at 1.2497/1.2481 and the 1.25 handle, it also intersects nicely with the noted weekly trendline resistance.

As H4 price could potentially fake above 1.2491-1.2461 to attack offers at 1.25, we would advise waiting for a reasonably sized H4 bear candle to take shape from here (preferably a full, or near-full-bodied candle), before pulling the trigger.

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.2491-1.2461 area ([waiting for a reasonably sized H4 bearish candle to form – preferably a full, or near-full-bodied candle – is advised] stop loss: ideally beyond the candle’s wick).

USD/CHF

The bounce from the H4 support area at 0.9647-0.9633 forced H4 price above both August’s opening level at 0.9672 and the 0.97 handle. This has, as far as we can see, potentially opened up the path north to a H4 Quasimodo resistance level pegged at 0.9759.

Scanning the weekly timeframe, however, shows that the unit is seen closing in on the trendline resistance extended from the low 0.9257. Alongside this, we can also see that daily price is currently trading from a resistance area pegged at 0.9770/0.9726 and shows room to decline down to at least demand located at 0.9565-0.9611.

Suggestions: Instead of trying to long the market above 0.97 when the unit is trading nearby weekly/daily structures, you could simply wait and see if price challenges the noted H4 Quasimodo resistance and look to sell. Positioned within the upper limits of the noted daily resistance area and intersecting with a weekly trendline resistance, this H4 level is, in our opinion, enough to warrant a sell without the need for additional confirmation.

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 0.9759 area (stop loss: 0.9776).

DOW 30

US equities printed a fourth consecutive bearish close on Tuesday, down from a record high of 22431. According to daily structure, the unit could continue pushing lower until we reach potential support marked at 22178. Up on the weekly timeframe, nevertheless, we can see that price could possibly pullback as far as the demand area at 21462-21645.

As can be seen on the H4 chart this morning, intraday movement came within a few points of tapping the minor Quasimodo resistance level at 22366, before collapsing lower. Assuming that the bears remain in the driving seat for a fifth consecutive session, this could lead to the H4 candles retesting demand seen at 22187-22221, or even the broken Quasimodo line seen just below it at 22138.

Suggestions: The key thing to remember here is this market remains entrenched within a strong uptrend, and is trading from record highs as we write. Therefore, a decisive H4 push above the aforesaid H4 Quasimodo resistance would, in our opinion, be a strong indication that the bulls are ready to press to fresh record highs. And this is something we want to be a part of! Therefore, what we’re looking for is a H4 close beyond 22366, followed by a retest and a reasonably strong H4 bull candle in the shape of a full, or near-full-bodied candle.

Data points to consider: US Core durable goods orders at 1.30pm; US New pending home sales at 3pm; FOMC member Brainard speaks at 7pm GMT+1.

Levels to watch/live orders:

• Buys: Watch for H4 price to close beyond 22366 and then look to trade any retest seen thereafter ([waiting for a H4 bullish rotation candle to form following the retest is advised] stop loss: ideally beyond the candle’s tail).
• Sells: Flat (stop loss: N/A).

GOLD

Across the board, the US dollar rallied higher on Tuesday, thereby forcing the price of gold lower from H4 supply coming in at 1316.1-1311.3. Yesterday’s aggressive selloff, as you can see, brought the yellow metal down to a H4 support at 1291.6, which also denotes the top edge of a daily demand area penciled in at 1275.3-1291.2. Also noteworthy is weekly price remains trading around support drawn from 1295.4.

With the USDX H4 candles now trading from resistance at 11907, and daily price closing in on supply at 11969-11938, we believe that there’s a firm chance gold could rotate from the current H4 support/daily demand area today.

Suggestions: One could, given the above notes, look for long opportunities at the current H4 support. In the event that price remains bid from here, we would be looking to trail the position back up to the daily resistance at 1308.4, followed closely by the aforementioned H4 supply and September’s opening level at 1320.4.

Levels to watch/live orders:

• Buys: Possible long opportunities from H4 support at 1291.6 (stop loss: ideally below 21/09 low 1287.8).
• Sells: Flat (stop loss: N/A).

STOCKS

Dow (22284.32, -0.05%) looks bearish towards 22200-22100 levels and could soon test these levels. While below 22400, near term looks bearish.

Dax (12605.20, +0.08%) is stuck below the 12675 level and could trade sideways for a few more sessions. A test of 12500 or lower is possible going forward.

Nikkei (20270.97, -0.29%) could come off towards 20100 in the near term. The stability in Dollar Yen is holding the index from falling sharply just now but in the medium term, the index looks bearish.

Shanghai (3344.67, +0.03%) is almost stable near previous levels and could trade sideways for a few sessions before deciding on further direction. Equal possibilities of either a rise towards 3360 or a fall towards 3300 exists.

Nifty (9871.50, -0.01%) could have possibly formed a double top and if the pattern turns out to be valid, there is more room on the downside for Nifty in the coming sessions. A break below 9800 would confirm its extension towards 9700-9600 in the coming sessions.

COMMODITIES

Precious metals may show some weakness in the near term. Crude prices are mixed, little room on the upside but could come off thereafter. Copper looks weak too for the coming sessions.

Brent (58.63) has some more room on the upside and looks bullish while WTI (52.12) is testing weekly resistance just above current levels. Brent could possibly move up towards 60-62 levels while WTI may come off in the coming sessions.

Brent-WTI spread (6.55) is down from previous levels of 7.15 but the spread could be headed towards 8 in the near term.

Gold (1295.22) came off sharply from 1313 yesterday and closed at levels below 1300. This was contrary to our expectation of testing 1320.Note that 1285-1290 region is an immediate support and could push the index to levels above 1300 again. But while the US Dollar Index (93.05) gains towards 94, Weakness in Gold could persist.

Silver (16.85) has some chances of testing 16.50 in the coming sessions. Overall near term trade could be seen below 17.00-17.20 levels.

Copper (2.9230) could trade below 2.95/98 in the coming sessions and the 3-day and the weekly charts indicate some potential fall towards 2.85-2.80 in the medium term. Our view is bearish for the near to medium term.

FOREX

As it turns out, the Dollar Index (93.05) is trading above 93, a level we thought would not break easily. A high of 93.29 was seen yesterday and a further rise to 93.50-94.00 is now possible. The Euro (1.1790) too has broken below 1.1800 and can see further decline towards 1.1750-10, as warned yesterday. The time frame could extend to next week.

Dollar-Yen (112.38) saw a good bounce yesterday on overall Dollar strength, suggesting that the sideways range of 110.50-113.00 mentioned yesterday may have some merits. The Euro-Yen (132.50) has moved up alongwith Dollar-Yen but has important Resistance in the 133.00-50 region.

The mentioned Support at 1.3430-00 on the Pound (1.3436) has held on first testing yesterday, but could be vulnerable to a break. If that happens, a fall to 1.3315-3265 will come into the picture.

The Aussie (0.7872) has disappointed a bit by being unable to hold above the support at 0.7900 mentioned yesterday. This brings up chances of further decline to 0.7750 now.

Dollar-Yuan (USDCNY = 6.6346) continues to rise. targeting 6.65. Dollar-Rupee (65.45) may face Resistance in the 65.50-60-75 region today.

INTEREST RATES

Contributing to the Euro (1.1790) weakness, the German-US 2Yr Spread (-2.18%) has broken below -2.13% and may dip some more towards -2.23%.

The UK-US 10Yr Spread (-0.91%) looks consolidative near current levels and seems to suggest chances of further rise towards -0.85%. This does not go well with expectations of Pound weakness (see Forex section above). So we need to watch this for a while.

US Yields (5Yr 1.86%, 10Yr 2.24%, 30Yr 2.78%) have seen an uptick in the wake of Yellen's speech last night, but face important Resistances near/ just above current levels. Need to watch whether these will hold or break.

The Indian 10Yr GOI (6.6689%) should have Resistance at 6.70% in the near term.

The Canadian dollar was in a tight trading range on Tuesday after comments from Fed Chair Janet Yellen kept rate hike expectations high and comments form the Trump administration on tax reform put downward pressure on the loonie but the failure from the healthcare program repeal weighed on the USD. Consumer confidence in the US has slowed down in September after Hurricane Harvey and Irma hit, with home sales also registering a slowdown in August. The softness in the data is no cause for concern given the strong confidence and gains in house prices and is not on the Fed’s radar.

Fed Chair Janet Yellen gave a speech earlier that stressed it would be imprudent to leave rates on hold awaiting a rise in inflation. This contrasts with dovish Fed members who would prefer inflation to pick up near the 2 percent target before raising rates further. Yellen reiterated that a gradual approach to tightening monetary policy is appropriate with subdued inflation. The CME’s FedWatch tool continues to assign a higher than 70 percent probability for a rate hike in the December Federal Open Market Committee (FOMC) meeting.

CAD traders will be following the comments from Bank of Canada (BoC) Governor Stephen Poloz who is due to speak on Wednesday, September 27 at 11:45 am EDT. The central bank was quiet ahead of announcing the monetary policy decision in stark contrast with the July meeting when it gave the market a clear heads up on its intentions. The market was expecting the 25 basis points rate hike to come in October, but the BoC thought it best to do it sooner rather than later with no warning. Poloz’s speech will be filled with the bank’s assessment of the economy that prompted the BoC to make that decision.

Oil is lower ahead of the release of US inventories on Wednesday. The situation in Iraq, could threaten the supply in the region but the black stuff is still above $50 per barrel. The Iraqi Kurdish referendum has been criticized by other nations as well as the Iraqi government who has put an air traffic ban on the region.

The USD/CAD lost 0.09 percent in the last 24 hours. The currency pair is trading at 1.2339 after experiencing some volatility with Fed speakers and US government announcements on the schedule. Fed Chair Janet Yellen is urging policymakers to avoid being too careful in raising interest rates despite a low inflationary environment.

The USD is losing its appeal as a safe haven since the US central bank started trimming down its QE program. In a study form Bank of America the USD is doing worse on high risk days, while the JPY has improved since 2014.

Gold lost 0.676 percent on Tuesday. The price of the yellow metal is trading at $1299.80 after Fed Chair Janet Yellen’s speech. The prospect of higher US interest rates as well as a cool down in geopolitical risk has sent investors looking for alternatives away from the safe haven offered by the precious metal.

The situation with North Korea will keep the metal bid at any major change in the conflict. Russia has stepped into a mediator role and is rumoured to be using back channels to get North Korea to limit their military tests.

Market events to watch this week:

Tuesday, September 26
10:00am USD CB Consumer Confidence

Wednesday, September 27
8:30am USD Core Durable Goods Orders m/m
10:30am USD Crude Oil Inventories
4:00pm NZD Official Cash Rate
4:00pm NZD RBNZ Rate Statement

Thursday, September 28
8:30am USD Final GDP q/q
8:30am USD Unemployment Claims

Friday, September 29
4:30am GBP Current Account
8:30am CAD GDP m/m

Gold has posted losses in on Tuesday, erasing most of the gains which marked the Monday session. In North American trade, the spot price for an ounce of gold is $1300.15, down 0.79% on the day. Gold prices faltered despite lukewarm US numbers on Tuesday, as the US dollar moved higher against the euro, yen and the British pound. CB Consumer Confidence dipped to 119.8, shy of the estimate of 119.9 points. On the housing front, New Home Sales slowed to 560 thousand, well short of the forecast of 585 thousand. Later in the day, Fed Chair Janet Yellen will speak at an event in Cleveland. On Wednesday, the US will release Core Durable Goods Orders and Pending Home Sales.

What does the Federal Reserve have planned regarding interest rates? That question could weigh on the markets for weeks, as analysts are having a tough time pinning down whether the Federal Reserve plans to raise rates on final time in 2017. With policymakers sending out mixed messages, the markets really don’t know what to expect, and fed futures have priced in a December hike at 55%. On Monday, New York Fed President William Dudley made a strong case to raise rates. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed’s target of 2 percent in the “medium term”, and predicted that the Fed would continue to gradually remove monetary accommodation. However, Chicago Fed President Charles Evans sent out a very different message, calling on the Fed to avoid another rate hike until wage and inflation levels moved higher. Evans said that inflation, which is running at around 1.4%, is too low, and wants to see “clear signs” that prices are moving higher before the Fed presses the rate trigger.

As expected, the Fed stayed on the sidelines at last week’s policy meeting and maintained the benchmark rate at 1.25%. There was dramatic news, however, as the Fed announced that it would reduce its $4.2 trillion balance sheet by $50 billion/mth, starting in October. Commenting on the decision to taper the balance sheet, FOMC member John Williams said on Friday that he did not “anticipate any sudden or large effects on rates or spreads”, but acknowledged that the Fed could not predict how the markets would react, and policymakers would have to monitor market reaction to the reduction in the balance sheet.

When the newswires cant decide if a speech is hawkish, or dovish then its probably neither. Differing Yellen interpretations caused a whipsaw in markets Tuesday as the Canadian dollar led the way and the New Zealand dollar lagged. Japanese business confidence and Chinese industrial profits data is due up next. The latest Premium video assesses our the existing trades ahead of this weeks tax reform announcement from the White House and barrage of economic data & central bank speak.

Yellens speech dove deep into monetary but failed to change the maths on a December hike. Her comments were initially reported by Reuters with headlines that tilted dovishly, stressing the uncertainties. A couple minutes later, Bloombergs main take was Yellens warning that the Fed should be wary about moving too gradually.

Initially the US dollar fell but it then jumped on the second set of headlines, sending EUR/USD down to 1.1757. Ultimately, the market decided she hadnt given enough of a hint or commitment to December to move off the 66% chance of a hike and the dollar slipped back to pre-Yellen levels. In the bigger picture, Tuesday was larger a mirror image of Monday. The risk-off trade spurred by worried about North Korea slowly evaporated. Gold fell $16 to erase a $16 gain the day before.

One exception was EUR/USD as it fell for the second day and touched the lowest since Aug 22. The fall broke the neckline of a minor head-and-shoulders top as worries about the German election spread and the US dollar holds a modest bid. In the days ahead, that pair is likely to spot to watch, especially with inflation data from Europe and the US coming up.

Looking ahead to Asia-Pacific trading, the calendar is generally benign. At 0130 GMT, Chinese industrial profits are due. Theyre coming off a whopping 16.5% y/y gain in July. At 0500 GMT, we will get Japanese small business confidence data, which is forecast at 49.5. Neither is likely to move markets.

One spot to keep an eye on is a Republican primary in Alabama for Senate. The anti-establishment candidate looks poised to knock off an incumbent, who has been heavily supported by the party.

The British pound has dropped lower in the Tuesday session, and the currency could be headed for a third straight losing session. In North American trade, GBP/USD is trading at 1.3422, down 0.33% on the day. On the release front, there are no major UK events. British High Street Lending, which measures house mortgage lending, edged upwards to 41.8 thousand, just above the forecast of 41.7 thousand. In the US, key indicators missed their estimates. CB Consumer Confidence dipped to 119.8, shy of the estimate of 119.9 points. On the housing front, New Home Sales slowed to 560 thousand, well off the forecast of 585 thousand. Later in the day, Fed Chair Janet Yellen will speak at an event in Cleveland. On Wednesday, the US will release Core Durable Goods Orders and Pending Home Sales.

The Brexit negotiations have become tangled and fractious, so it was no surprise that European Council President Donald Tusk admitted that the sides had not made enough progress to move to trade discussions. The European Union has conditioned trade talks on "sufficient progress" being made on areas such as the amount of Britain's bill to leave the EU, the legal status of EU citizens living in the UK and the border between the UK and Ireland. The two sides remain far apart on these key issues, so it appears that the May government will have little choice but to move closer to the European position before it can talk about the nature of trade relations between Europe and the UK in the post-Brexit era. Adding to the uncertainty, the British government itself is divided. Hawkish cabinet members, such as foreign secretary Boris Johnston, have consistently put forward a harder line towards the Europeans than Prime Minister May.

The Bank of England remains worried about the British economy. On Monday, the Bank's FPC statement on Monday took aim at the British consumer, specifically credit levels. The BoE warned that unsecured consumer lending was growing at close to 10 percent each year, far outstripping income, and called on British banks to carry an extra GBP 10 billion to protect against consumer loan defaults. Although defaults were not currently a problem, the FPC statement expressed concern that in an economic downturn, defaults could spiral and hurt the banking sector. In August, the BoE forecast that the economy would slow down in 2018, with Brexit one of the contributing factors. At the BoE policy meeting earlier this month, the Bank hinted that it would raise interest rates, sending the pound sharply higher. The markets are taking the bank at its word – the odds for a November rate hike have jumped to 42%, up from just 18% just prior to the September rate statement, while the likelihood of a December increase is at 54%.

The markets are having a tough time pinning down whether the Federal Reserve plans to raise rates on final time in 2017. With policymakers sending out mixed messages, the markets really don't know what to expect, and fed futures have priced in a December hike at 55%. On Monday, New York Fed President William Dudley made a strong case to raise rates. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed's target of 2 percent in the "medium term", and predicted that the Fed would continue to gradually remove monetary accommodation. In last week's rate statement, the Fed announced that it would reduce its $4.2 trillion balance sheet by $50 billion/mth, starting in October. Commenting on the decision to taper the balance sheet, FOMC member John Williams said on Friday that he did not "anticipate any sudden or large effects on rates or spreads", but acknowledged that the Fed could not predict how the markets would react, and policymakers would have to monitor market reaction to the reduction in the balance sheet.

USD/CHF - 0.9705

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9704

Kijun-Sen level                    : 0.9684

Ichimoku cloud top                 : 0.9718

Ichimoku cloud bottom              : 0.9708

Original strategy :

Buy at 0.9690, Target: 0.9790, Stop: 0.9655

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 0.9685, Target: 0.9785, Stop: 0.9650

Position : -

Target :  -

Stop : -

Although the greenback dropped to as low as 0.9642 yesterday, lack of follow through selling on break of previous resistance at 0.9649 and the subsequent rebound suggest consolidation with mild upside bias would be seen, hence gain towards last week’s high at 0.9748 cannot be ruled out, however, break there is needed to retain bullishness and extend recent rise from 0.9421 low to 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance), then test of another previous resistance at 0.9773.

In view of this, we are looking to buy dollar on dips. Below said support at 0.9642 would abort and signal the fall from 0.9748 is still in progress, then further weakness to 0.9620-25 would follow but oversold condition should limit downside to indicated support at 0.9589, bring rebound later.

GBP/USD - 1.3422

Most recent candlesticks pattern   : N/A

Trend                                 : Up

Tenkan-Sen level                 : 1.3462

Kijun-Sen level                    : 1.3465

Ichimoku cloud top              : 1.3523

Ichimoku cloud bottom        : 1.3520

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As cable has fallen again after intra-day initial brief bounce to 1.3514, near term downside risk remains for the erratic fall from 1.3658 top to bring retracement of recent rise, hence weakness to 1.3400-05 (50% Fibonacci retracement of 1.3153-1.3658) and possibly 1.3370–75 would be seen, however, near term oversold condition should limit downside to 1.3345-50 (61.8% Fibonacci retracement), bring rebound later.

In view of this, would not chase this fall here and would be prudent to stand aside in the meantime. Above 1.3475-80 would bring another bounce to 1.3514 but break there is needed to signal an intra-day low is formed, bring further gain to 1.3535-40 and later towards resistance at 1.3571 which is likely to hold from here.

EUR/USD - 1.1772

Most recent candlesticks pattern   : N/A

Trend                      : Down

Tenkan-Sen level              : 1.1806

Kijun-Sen level                  : 1.1827

Ichimoku cloud top             : 1.1934

Ichimoku cloud bottom      : 1.1911

Original strategy  :

Sell at 1.1850, Target: 1.1750, Stop: 1.1885

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 1.1850, Target: 1.1750, Stop: 1.1885

Position : -

Target :  -

Stop : -

The single currency has dropped again after yesterday’s anticipated decline, adding credence to our bearish view that another leg of corrective decline from 1.2093 top is underway and mild downside bias remains for further weakness towards previous support at 1.1740, however, near term oversold condition should prevent sharp fall below 1.1720-25 and reckon 1.1700 would hold from here, bring rebound later. 

In view of this, would not chase this fall here and would be prudent to sell euro on recovery as 1.1850 should limit upside. Above previous support at 1.1861 would defer and risk a stronger rebound to 1.1880-85 but price should falter well below yesterday’s high at 1.1937.