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Dollar trades broadly higher today as markets are awaiting Fed Chair Janet Yellen's speech on inflation, uncertainty and monetary policy at the National Association for Business and Economics in Cleveland. Yellen is likely to maintain the tone that Fed is on course for gradual stimulus removal. Her comments regarding slowdown in inflation will also be closely watched. With the job market maintaining solid growth momentum, inflation is the main obstacle to another hike by Fed this year. Comments from other Fed officials are mixed so far. For example, New York Fed President Dudley just reiterated his expectation for inflation to climb back to 2% target after "idiosyncractic" factors fade. But Chicago Fed President Charles Evans is a little bit concerned that the slowdown in inflation is structural.

The anticipation of the details of US President Donald Trump's tax plan is also giving the greenback a lift. Republicans are set to unveil the plan tomorrow. It's reported that Trump told dinner guests on Monday that House will approve the tax bill in October, followed by the Senate by year end. But that's is an extremely aggressive scheduled considering that no details are being released yet. And comparing to the last time a tax overhaul was done back in 1986, it took roughly 10 months for the bill to move from introduction to then President Ronald Reagan's desk.

Meanwhile, market concerns over tensions between US and North Korea have eased mildly. There have been busy verbal exchanges between Trump, North Korea leader Kim Jong-Un and his Foreign Minister Ri Yong Ho. After Trump tweeted in his private account that the latter two "won't be around much longer", Ri criticized that was a declaration of war. And North Korea claimed every right on counter measures including shooting down US bombers "even when they are not inside the airspace border of our country". The White house's official message was that "we've not declared war on North Korea. And frankly, the suggestion of that is absurd."

Released from US, S&P Case-Shiller 20 cities house price rose 5.8% yoy in July, meeting expectations.

Euro selloff accelerates, pointing lower

On the other hand Euro's selloff started to accelerate today after EUR/GBP breaks 0.8773 support. EUR/USD's break of 1.1822 support argues that it's now in a medium term correction. Deeper fall could be seen through 1.1661 support in near term. Based on the hesitation in the decline, results of Germany election shouldn't be a direct reason for the selloff. Instead, markets are looking through the temporary uncertainty over Chancellor's difficulty in forming a coalition. The main problem is that a so called Jamaica coalition of CDU, pro-business FDP and Greens is intrinsically unstable. That raises some worries over the predictability of Germany's economic policies. And as the main driver of Eurozone economy, the whole bloc will also be affected. In addition, with the presence of right wing Afd in the parliament, it would be tougher for Merkel to work with French President Emmanuel Macron on deeper integration of EU.

Released from Eurozone, German import price index rose 0.0% mom in August.

BoJ July minutes optimistic on inflation trend

Minutes of BoJ July meeting showed that policy makers generally agreed to stick with current policy framework. Meanwhile, the minutes noted that "most members shared the view that, although the recent developments in CPI had been relatively weak, the year-on-year rate of change was likely to continue on an uptrend and increase toward 2 percent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations."

Also from Japan, corporate service price index rose 0.8% yoy in August.

New Zealand business confidence tumbled

New Zealand NBNZ business confidence sank to 0 in September, down sharply from 18.3. That's the third straight month of decline and the lowest reading since September 2015. Nonetheless, ANZ chief economist Cameron Bagrie noted today that news economic drivers are emerging and growth would remain "respectable". The drivers are appearing in form of "higher commodity prices, rising household incomes and expansionary fiscal policy". Nonetheless, Bagrie also pointed out, after the election over the weekend, "policy uncertainty will rise over the coming months as political horse trading takes place" and that can be "unsettling".

Also from New Zealand, trade deficit came in much higher than expected at NZD -1235m in August.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1808; (P) 1.1872 (R1) 1.1913; More...

Intraday bias in EUR/USD remains on the downside for 1.1661 support. Fall from 1.2091 is corrective whole rise from 1.0569. Break of 1.1661 will target 38.2% retracement of 1.0569 to 1.2091 at 1.1510, where we're expecting support to bring rebound. On the upside, break of 1.2029 resistance is needed to confirm completion of the pull back. Otherwise, deeper fall will remain in favor as the correction develops.

In the bigger picture, rise from medium term bottom at 1.0339 is still in progress for 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside. But after all, break of 1.1661 is needed to indicate medium term topping. Otherwise, outlook will remain bullish in case of pull back.

Economic Indicators Update

EURUSD selling has accelerated during the European trading session, with pair moving below the 1.1800 level, hitting 1.1785, as the U.S dollar index pushes higher, adding further pressure on the single currency.

The next risk event for the EURUSD will be later today, where Federal Reserve Chair Janet Yellen delivers a key-note speech at the 59th Annual Meeting, of the National Association for Business Economics.

From a technical perspective, the U.S dollar index is now testing a key metric of overall currency strength, its 200-month moving average. Any break-out above the 92.83 level on the U.S dollar index should accelerate U.S dollar buying.

Key technical support below 1.1800 on the euro is found at 1.1773, 1.1740 and the pairs key 200-week moving average, at 1.1716.

To the upside, key intraday resistance is found at 1.1815 and the recent swing high at 1.1829.

Above the former swing-high, price may further test the 1.1838 and 1.1861 levels.

After a period of consolidation, the British pound has finally moved lower against the U.S dollar, with GBPUSD pair breaking below key channel-support, with price moving to a seven-day low, hitting 1.3418.

In early Tuesday trading, the GBPUSD pair managed a timid rally towards 1.3515, before sellers moved in to push prices sharply lower.

Sterling is now approaching strong support from the 50 percent Fibonacci retracement of the September 14th BOE price-low, to the 2017 price high, located at 1.3405.

Going forward, the British pound may trade in lock-step with euro, as both come under intense pressure from intraday U.S index strength.

To the upside, key intraday technical resistance is now found at 1.3445, 1.3368 and the uptrend channel-top at 1.3389.

Key intraday technical GBPUSD support is located at 1.3405, 1.3380,1.3363 and 1.3320.

The DAX index has posted small gains in the Tuesday session. Currently, the DAX is trading at 12,617.00, up 0.13% on the day. On the release front, Angela Merkel won the German election and will serve a fourth term as president. On the release front, German Ifo Business Climate slowed to 115.2, short of the estimate of 116.0 points. Later in the day, ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee. On Tuesday, Germany releases Import Prices.

ECB President Mario Draghi testified on Monday before the European Parliament Economic and Monetary Affairs Committee. Draghi was careful not to make any headlines, as he said that the ECB would remain "patient and persistent". Draghi acknowledged that there was uncertainty regarding the inflation outlook, adding that recent volatility in the exchange rate would require monitoring. Draghi remains committed to the ECB's loose monetary policy, saying that "ample" accommodation is still needed in order to raise inflation levels. Some policymakers have come out in favor of tightening monetary policy, with the eurozone economy continuing to grow and unemployment falling. However, inflation remains well below the ECB target of just below 2 percent. Draghi told lawmakers that he is confident that the inflation target will be met, but that would require avoiding any hasty changes to current monetary policy.

Angela Merkel may have won a remarkable fourth term as German President, but her victory appears to be somewhat hollow. Merkel's CDU won 33 percent of the vote and will be the largest party in parliament, but Merkel will now have to barter with other parties in order to form a coalition government. The center-left SFD, which won 20 percent of the vote, announced that it will not join the CDU, so Merkel will have to negotiate with smaller parties. The far-right AFD ran on a far-right, anti-immigrant platform, and the party's surge in support has sent shock waves in Germany and across Europe. The AFD can be ruled out as a coalition partner, which leaves the Greens and the pro-business FDP party as the most likely configuration. However, the FDP has insisted on the powerful finance portfolio and will likely try to reduce German transfer payments to the European Union. As well, the FDP has little interest in closer European integration, a cherished goal for Merkel. During the election campaign, Christian Lindner, the leader of the FDP, called for Greece to return to the drachma, underscoring the party's opposition to Germany continuing to prop up weaker members of the eurozone.

The markets are digesting the results of the German election, and although Angela Merkel won a fourth term, the post-election picture is complicated. Merkel's CDU party has little to celebrate, dropping from 41% of the vote in the last election to just 33% on Sunday. The result has tarnished the image of Europe's most powerful politician and the de facto leader of the European Union. Merkel's most likely coalition partners, the Greens and the FDP, will be looking to extract major concessions as the price for joining a coalition as junior partners. For the time being, Europe's iron woman will need to focus her energies on forming a workable coalition and will have to put other issues on the back burner, at a time when the European Union is locked in difficult negotiations with Britain over the terms of its departure from the EU.

Stock markets in Asia were lower after North Korea accuses Trump of declaring war. We have seen Nikkei turning lower, but mostly likely only into wave C of 4) which may send price to the upside soon, into wave 5) towards 20600. At the same time we can expect higher xxx/jpy pairs because of tight positive correlation.

Nikkei 225, 1H

We are looking at GBPJPY which is also in a wave c of 4 but it may retest 149.70 low before turning up. However rise above 151.85 would suggest that wave 5 is already underway.

GBPJPY, 1H

Notes/Observations

European Indices trade slightly higher, reversing earlier losses in lackluster session despite tensions growing in the far east

Merkel looks to build coalition after German election

Nestle affirms 2020 growth targets at investor day

Overnight

Asia:

Geopolitical tensions continue to grow as North Korean Foreign Min said Pres Trump's comments over the weekend amount to declaration of war, noting North Korea has the right to shoot down US bombers even if they're not in North Korean airspace.

South Korea FSC announced financial reforms for retail customers, including changes to interest rates on overdue loan payments.

The yuan declined to the lowest level against its currency basket in nearly 4-weeks as the PBOC weakens the daily fix

Europe:

Merkel looks to build coalition being open to talks with all of Germany's mainstream parliamentary parties

Americas

(US) Fed's Kashkari (dove, voter): Do not see signs of economy overheating; do not see inflation taking off no need to tap breaks; Fed should not be under any pressure to raise rates

(US) Fed's Dudley (dove, FOMC voter): Reiterates expect further gradual tightening of US monetary policy; economy has grown steadily.

Economic data

(FR) FRANCE SEPT BUSINESS CONFIDENCE: 109 V 110E; MANUFACTURING CONFIDENCE: 110 V 111E

(DE) GERMANY AUG IMPORT PRICE INDEX M/M: 0.0% V 0.1%E; Y/Y: 2.1% V 2.1%E

(UK) AUG BBA LOANS FOR HOUSE PURCHASES: 41.8K V 41.7KE

(SE) Sweden Aug PPI M/M: -0.8% v +0.6% prior; Y/Y: 3.8% v 5.7% prior

Fixed Income Issuance:

(IT) Italy Debt Agency (Tesoror) sells total €1.5B v €1.0-1.5B indicated range in I/L 2022 and 2032 Bonds (BTPei)

(IT)ITALY DEBT AGENCY (TESORO) SELLS €1.5B VS. €1.0-1.5B INDICATED RANGE IN ZERO COUPON MAY 2019 CTZ BONDS; AVG YIELD: -0.22% V -0.139% PRIOR; BID-TO-COVER: 2.0X V 1.68X PRIOR

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx50 +0.1% at 3,543, FTSE +0.2% at 7,290, DAX +0.2% at 12,624, CAC-40 +0.1% at 5,273, IBEX-35 flat at 10,213, FTSE MIB +0.4% at 22,474, SMI +0.1% at 9,150, S&P 500 Futures -1.0%]

Market Focal Points/Key Themes: European stocks opened slightly lower, but drifted higher as the session progressed; geopolitical risks continue to weigh on sentiment, though haven flows were reduced; energy stocks supported by a bump in oil prices over Kurdistan referendum; attention moving to Fed Chair Yellen's speech after market close; upcoming earnings releases in the US session include Carnival and Darden

Equities

Consumer discretionary: Card Factory CARD.UK -0.7% (results), Deutsche Wohnen DWN.DE +3.1% (bond issue), Nestle NESN.CH +1.0% (investor day comments), Salvatore Ferragamo SFER.IT +2.2%(analyst action)

Financials: AA AA.UK -9.5% (results)

Industrials: Aurubis NDA.DE -4.6% (Analyst action), Duro Felguera MDF.ES -6.6% (under investigation), Fincantieri FCT.IT +0.9% (STX deal), Kone KNEBV.FI +0.1% (launches strategy), Norske Skogindustrier NSG.NO +31.7% (recapitalization plan), ThyssenKrupp TKA.DE +0.6(capital raise)

Healthcare: Pharming PHARM.NL +7.1% (partnership)

Technology: Infineon IFX.DE -0.1% (analyst action)

Telecom: Kinepolis KIN.BE +3.8% (analyst action)

Utilities: United Utilities UU.UK -0.7% (trading update)

Speakers

(IT) Italy Fin Min Padoan: It is a critical time for Europe at the moment; Sees much better outlook for Italian Economy- TV interview

Currencies

EUR/USD continues its downtrend on continued concerns over following the German Elections, Support lies at 1.1810 area.

Fixed Income

Bund futures trade at 161.79 down 16 ticks following the as expectations grow for a stronger safe-haven role following the German elections. Continued downside targets 161.03 while upside resistance stands initially at 162.07, followed by 163.27.

Gilt futures trade at 124.03 down 19 ticks as markets price a 78 percent chance of a Bank of England rate rise in November. Continued downside eyeing 123.26. Upside targets 124.90 then 125.24.

Tuesday’s liquidity report showed Monday’s excess liquidity fell to €1.723T from €1.743T and use of the marginal lending facility dropped to €114M from €122M.

Corporate issuance saw $6.1B come to market via 6 issuers headlined by DNB Bank $1.75B 2-part offering and Nissan $2.0B 4-part senior unsecured note offering

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (ZA) South Africa Q2 Non-Farm Payrolls Q/Q: No est v-0.5% prior; Y/Y: No est v -0.6% prior

07:00 (BR) Brazil Sept FGV Construction Costs M/M: 0.3%e v 0.4% prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:05 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (US) July S&P / Case-Shiller 20-City M/M: 0.20%e v 0.11% prior; Y/Y: 5.70%e v 5.65% prior; House Price Index (HPI): No est v 200.54 prior

09:00 (US) July S&P / Case-Shiller Case-Shiller (overall) HPI Y/Y: No est v 5.77% prior, House Price Index (HPI): No est v 192.6 prior

09:00 (EU) Weekly ECB Forex Reserves: € v € prior

09:00 (MX) Mexico Aug Unemployment Rate (seasonally adj): 3.2%e v 3.2% prior

09:30 (BR) Brazil Aug Current Account: No est v -$3.4B prior; Foreign Direct Investment (FDI): No est v $4.1B prior

10:00 (US) Consumer Confidence: 120.0e v 122.9 prior

10:00 (US) Aug New Home Sales: 588Ke v 571K prior

10:00 (US) Sept Richmond Fed Manufacturing Index: 13e v 14 prior

The NZD/USD, popular 'Kiwi' is in a zig-zag downtrend aiming for D L5/ W L5 camarilla levels. The POC zone 0.7285-0,7305 (D H4, 61.8, bearish order block, channel top) could reject the price should it retrace within the zone. Targets are 0.7187 and 0.7147. Also, watch for 38.2 X cross - 0.7255 that could also reject the price towards D L5 and W L5.

W L3 - Weekly Camarilla Pivot (Weekly Interim Support)

W H3 - Weekly Camarilla Pivot (Weekly Interim Resistance)

W H4 - Weekly Camarilla Pivot (Strong Weekly Resistance)

D H4 - Daily Camarilla Pivot (Very Strong Daily Resistance)

D L3 – Daily Camarilla Pivot (Daily Support)

D L4 – Daily H4 Camarilla (Very Strong Daily Support)

POC - Point Of Confluence (The zone where we expect price to react aka entry zone)

EURUSD - With the pair weakening on Monday and following through lower during Tuesday trading session, further bearishness is expected in the days ahead. Resistance comes in at 1.1850 level with a cut through here opening the door for more upside towards the 1.1900 level. Further up, resistance lies at the 1.1950 level where a break will expose the 1.2000 level. Conversely, support lies at the 1.1750 level where a violation will aim at the 1.1700 level. A break of here will aim at the 1.1650 level. Below here will open the door for more weakness towards the 1.1600. All in all, EURUSD faces further corrective weakness threats

Tuesday September 26: Five things the markets are talking about

Ahead of the U.S open, markets are stabilizing as investors digest a host of catalysts from N. Korean war threats and central-bank policy to tailwinds for oil and the aftermath of the German election.

For Tuesday, investors are waiting for fresh signals about U.S monetary policy outlook. Yesterday saw two opposing views from Fed members on inflation.

New York's Dudley expressed confidence that fading one-off effects and a weaker dollar would help inflation trend back to +2%, and deserves the gradual withdrawal of monetary stimulus.

In the opposing camp was Chicago Fed President Evans expressing concerns that the shortfall in price pressures may be more “structural rather than temporary.'

The debate continues on today, with Fed Governor Brainard (10:30 am EDT) and Chair Janet Yellen (12:45 EDT) set to give speeches while Cleveland Fed President Loretta Mester moderates a panel.

1. Global stocks trade with little direction

In Japan overnight, the Nikkei average edged lower as tech shares declined, tracking their U.S counterparts yesterday, while worries over N. Korea weakened risk appetite. The Nikkei ended -0.3% lower, while the broader Topix traded unchanged.

Down-under, Australia's S&P/ASX 200 Index lost -0.2%, while South Korea's Kospi index fell -0.3%.

In Hong Kong, the Hang Seng Index added +0.1% after slumping -1.4% Monday as Chinese property developers tumbled on fresh mainland home curbs.

In China, stocks inch up after three days of losses. The blue-chip CSI300 index rose +0.1%, while the Shanghai Composite Index added +0.1%.

Note: Do not expect Chinese authorities to tolerate any violent moves ahead of the key Communist Party Congress next month. Maintaining market stability is of “extreme importance,' and is a political task.

In Europe, regional indices trade slightly higher, reversing earlier losses in a lackluster session despite tensions growing in the Far East. Energy stocks are being supported by a bump in oil prices over Kurdistan referendum (see below). Attention now moves to Fed Chair Yellen's speech.

U.S stocks are set to open in the ‘red' (-1%).

Indices: Stoxx50 +0.1% at 3,543, FTSE +0.2% at 7,290, DAX +0.2% at 12,624, CAC-40 +0.1% at 5,273, IBEX-35 flat at 10,213, FTSE MIB +0.4% at 22,474, SMI +0.1% at 9,150, S&P 500 Futures -1.0%

2. Oil at two-year high on Turkey threat, gold stable

Brent oil prices hover near their two-year high, supported by Turkey's threat to cut crude exports from Iraq's Kurdistan region as well as signs that market rebalancing is accelerating.

President Erdogan has threatened to cut off the pipeline that carries +600k barrels of crude per day from northern Iraq to the Turkish port of Ceyhan, intensifying pressure on the Kurdish autonomous region over its independence referendum.

The loss of this supply, combined with the -1.8m bpd of supply cuts by OPEC is raising concerns of tighter supply.

Brent crude futures have slipped -17c to +$58.85 a barrel (+34% higher from this years lows), while U.S crude WTI futures have eased -10c to +$52.12 a barrel, after hitting a five-month high of +$52.43 a barrel.

Note: The crude ‘bears' remain sceptical about further price gains due to higher oil output from the U.S. The EIA said that production from wells in shale formations would rise for a 10th month in a row in October.

Gold is trading steady after hitting its one-week highs Monday, supported by safe-haven demand amidst lingering tensions over the Korean peninsula. Spot gold is unchanged at +$1,310.01 per ounce. It gained +1.3% in yesterdays session.

3. Euro yields steady after biggest drop in seven-weeks

Europe's benchmark bond yield are trading steady ahead of the U.S open as the market waits for Fed speeches that may provide some clues to tighten U.S monetary conditions.

The yield on Germany's 10-year Bund fell -6 bps to +0.41% yesterday after an unexpectedly weak election result for Chancellor Merkel's CDU party and N. Korea accused the U.S of having declared war.

Note: Many believe that the U.S fixed income market is behind the Treasury curve and are underpricing ‘hawkish' signals from Fed officials. The curve should be flatter if the Fed was in a tightening cycle.

According to CME's FedWatch tool, money markets point to a +70% chance of a hike in December, but only a +20% chance of a further hike in March 2018. The yields on 10-year Treasuries have advanced less than +1 bps to +2.22%.

In the U.K, the 10-year Gilt yield has climbed +1 bps to +1.346%.

4. EUR under geopolitical pressure

Ahead of the U.S open, the EUR has fallen to a fresh one-month low of €1.1797 outright and to a 10-week low of €0.8758 against the pound, continuing yesterday's losses after German elections reignited concerns about European political uncertainty.

A percentage of the market is concerned that Angela Merkel's CDU party will have to form a potentially tricky three-way coalition with the liberal FDP and the Greens, as well as the degree of support for the far-right AfD.

Note: With the populist AFD party winning the third largest number of votes, fears that nationalism has returned to Europe are forcing some investors to stop seeing the EUR as a “political haven'.

EUR ‘bears' are targeting €1.1625 as strong support, as they see little reason in terms of economic fundamentals for it to move much lower.

5. Bank of Japan (BoJ) monetary policy minutes

The July minutes showed that BoJ policymakers should stick with their current policy framework and had reason to be optimistic about consumer prices because measures of inflation expectations have stopped falling.

Note: The BoJ held rates steady, but pushed back the timing of its inflation target for the sixth-time since QE began.

A few members argued Japan's jobless rate and output gap needed to improve to reach the BoJ's +2% inflation target. The central bank expects to reach the target inflation sometime in the fiscal year ending in March 2020.

Note: As expected late yesterday, Japan's PM Abe called for a snap election. According to Moody's credit rating agency, the Japanese elections are unlikely to have implications for sovereign rating. “A refreshed mandate for reform would be considered a credit positive.'

• EUR remains under pressure after German election;
• Safe havens pare gains as US labels declaration of war “absurd”;
• Fed officials provide distraction from political and geopolitical headlines.

It's been a steady start to trading on Tuesday, with political uncertainty and geopolitical risk once again weighing on risk appetite.

Coalition talks in Germany and New Zealand following elections over the weekend will likely lead to some uncertainty in the near-term which is weighing on the kiwi but having less of a negative impact on German-related assets. Bund yields fell slightly in the immediate aftermath of the election while the euro has fallen back towards 1.18 against the dollar but it's important to note that both had made significant gains prior to this and the latter in particular was looking a little overstretched.

Rather than being a source of negativity for the euro, I think traders are seeing the election as an opportunity to lock in some profits which is triggering a small but arguably necessary correction. With 1.18 now coming under pressure, I think further downside could be on the cards in the near-term, with 1.1660 being the next test to the downside potentially more to come. A correction would provide the EBC the opportunity to announce tapering next month with the currency trading at more comfortable levels.

We saw some safe haven flows on Monday after it was claimed that US President Donald Trump had declared war on North Korea with his comments over the weekend. Foreign Minister Ri Yong-ho made this statement in New York which immediately triggered moves towards traditional safe havens such as Gold, although these moves have already been partially reversed today. The US immediately rejected these claims and branded them absurd which has possibly helped alleviate any concerns although it's clear that the rhetoric between the two countries is intensifying.

This underlying risk will remain in the markets, leaving them vulnerable to these bouts of sudden safe haven flows, until we start to see signs of a diplomatic solution being found. Something that doesn't look like it's coming any time soon with the leaders of both countries clearly more intent on appearing dominant than finding a solution.

Politics and geopolitics aside, we will get some economic data from the US today and also hear from a number of Federal Reserve officials. Chair Janet Yellen is clearly the most notable of the Fed speakers today but we'll also hear from Charles Evans, Loretta Mester, Lael Brainard and Raphael Bostic which should make it an interesting day for the dollar and US yields, particularly as the central bank stood by expectations of one more rate hike at its meeting this month. CB consumer confidence and new home sales data will also accompany these appearances.