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The NAHB/Wells Fargo Housing Market Index (HMI) fell 3 points to 64 in September, reversing August's gain. Both present and future sales fell by 4 points. The Midwest and South accounted for the bulk of the drop.

Homebuilder Confidence Declines Slightly

• Homebuilder confidence fell slightly in September, as Hurricanes Harvey and Irma impacted the two largest states for new single-family homebuilding. Damages from the hurricanes introduce an element of uncertainty into the housing outlook and will likely bolster labor and material costs.
• The drop in the HMI may signal some moderation in new home sales and homebuilding during the latter part of 2017.

Hurricane Damages May Have Dampened Confidence

• Harvey and Irma caused widespread damage in Texas and Florida, which may interrupt activity in states that combined to account for 25 percent of the nation's single-family permits.
• Prospective buyers' traffic fell just 1 point to 47, which is the lowest since November 2016. Buyer traffic continues to be limited by low levels of completed homes but remains close to its recent range and is consistent with continued sales growth.

3 positions were entered last week with total loss of 60 points and the positions are listed below.

11 Sep : EUR/JPY - Short at 130.20, exited at 130.80  (- 60 points)
14 Sep : EUR/JPY - Long at 131.35, exited at 131.35  ( 0 point)
14 Sep : USD/CAD - Short at 1.2240,

|                 AUD          EUR/JPY           EUR/GBP         CAD          GBP         GBPJPY
Jan             - 15             -275                - 35              -120
Feb           + 140            -17                  - 40              +11
Mar            - 20            +115                +132            - 19
Apr             + 30                                  - 40             +120                              + 45
May                             - 55                  +100             - 6               -65             -60         
Jun            + 81           +150                - 10             +185           -120           +205
Jul                                                       - 40                                                   - 60
Aug           +155          +200                 + 100           + 195           -45            - 50
Sep                               -50                                                                         +10   
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 371           + 68               +167            +658             -230            +90

7 positions were entered among all 4 currency pairs with total profit of 295 points and the positions are listed below:

8 Sep : USD/CHF - Long at 0.9450, exited at 0.9550 (+ 100 points)
11 Sep: EUR/USD - Long at 1.1985, exited at 1.1950 (- 35 points)
12 Sep: USD/JPY - Short at 109.35, exited at 109.70 (- 35 points)
14 Sep: EUR/USD - Long at 1.1855, exited at 1.1955 (+ 100 points)
14 Sep: GBP/USD - Short at 1.3285, exited at 1.3320 (- 35 points)
14 Sep: USD/CHF - Short at 0.9680, exited at 0.9580 (+ 100 points)
15 Sep: USD/JPY - Long at 109.65, exited at 110.65  (+ 100 points)

|                 JPY             EUR             CHF            GBP

Jan          + 167             - 85              - 10            + 50
Feb          + 200            +150             +93            - 59
Mar              -23              -70               -23            - 35
Apr             + 65            + 93             + 50            - 40
May            - 65             - 35             + 100          -175
Jun            -100               -10                - 10          +175
Jul             + 85             - 35                   - 8
Aug           + 35            +210                + 35          +65        
Sep           +109            +130              +200           - 35         
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 472            +343               +427           - 44     

The yen remained under pressure during today's trading as market participants were more optimistic on the global outlook. The pound retreated after climbing to its post-Brexit high versus the dollar due to some profit-taking.

Safe haven plays such as the yen and gold remained under substantial pressure today as equity markets around the world marched on to fresh highs and concerns about a possible escalation of the North Korean situation were calmed by recent developments. A speech by US President Donald Trump before the UN General Assembly is eagerly awaited for further clues on what the US policy toward North Korea is going to be, but for now it seems preference will be given to diplomatic means.

Dollar/yen was trading near the day's highs near the end of the European session at 111.54. This also represented an 8-week high for the dollar against the Japanese currency. The euro and the pound also took advantage of the yen's weakness to clock significant gains as they traded at 133.20 and 151 yen per euro and pound respectively.

Euro/dollar stayed well within recent ranges at 1.1952, with traders possibly awaiting the outcome of the 2-day Fed meeting that ends on Wednesday before pushing the pair outside recent ranges. The Fed is almost certainly expected to begin paring down its balance sheet by no longer reinvesting all of the proceeds from the QE portfolio, but a December rate hike remains a 50-50 affair more or less.

The pound was still in focus after the previous week's reassessment of probabilities about Bank of England rate hikes. The pound gave back some of its gains to trade at 1.3556 against the dollar and at 0.8818 against the euro. Earlier in the session the euro fell below the 0.88 mark but managed to recover. Forex market participants were eagerly awaiting a speech by Mark Carney in Washington for perhaps some clarification of what the Bank of England was intending to do in its next few meetings.

The economic calendar was rather light today. Eurozone inflation for August was confirmed at 0.3% month-on-month and 1.5% year-on-year, which left the euro without particular guidance. In the US, the National Association of Home Builders (NAHB) index dropped to 64 in September from 67 in August, but the market did not pay much attention to the numbers. Looking ahead to Tuesday the market will focus on the minutes from the latest RBA meeting, the German ZEW confidence survey and housing starts and building permits out of the US.

Gold was down as said previously, to a 2 ½ week low of $1310 an ounce. Crude oil (US WTI futures) failed to hang on to the important $50 mark as it dropped to $49.69.

Dow Jones future contract for December delivery retested new record high posted earlier today on acceleration after Wall St opening.

Reduced tensions over North Korea and rally of financials and industrial stocks lifted Wall St on opening, with focus turning towards this week's two-day FOMC meeting which starts on Tuesday.

Markets are expecting signs of beginning of reduction of massive US balance sheet, but also focus on comments from Fed chief Janet Yellen regarding inflation, which was the biggest obstacle for the Fed to further raise interest rate.

The Dow index posted new all-time high at 22303 on Monday, in extension of steep ascend in past five days which resulted in eventual break above previous record high at 22131.

Strong bullish sentiment could drive the price further in the uncharted territory, with initial target laying at 22341(Fibo 138.2% projection) with stretch towards Fibo 161.8% projection at 22472, being in play.

The rally could be interrupted by corrective actions signaled by overbought conditions on daily chart, but so far lacking firmer correction signals.

Dips are expected to be limited, with former high at 22131, offering solid support, followed by rising Tenkan-sen at 22000, which is expected to contain extend dips.

Res: 22341; 22472; 22552; 22682
Sup: 22223; 22131; 22066; 22035

USD/CHF - 0.9600

Most recent candlesticks pattern : N/A

Trend                                    : Near term up

Tenkan-Sen level                  : 0.9600

Kijun-Sen level                    : 0.9600

Ichimoku cloud top                 : 0.9635

Ichimoku cloud bottom              : 0.9614

Original strategy :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

New strategy  :

Sell at 0.9645, Target: 0.9545, Stop: 0.9680

Position : -

Target :  -

Stop : -

Although the greenback recovered after finding support at 0.9565 on Friday and consolidation above this level would be seen, if our view that top has been made at 0.9705 last week is correct, reckon upside would be limited to minor resistance at 0.9648 and bring another decline later, below 0.9563-65 (50% Fibonacci retracement of 0.9421-0.9705 and said support) would extend weakness to 0.9525-30 (61.8% Fibonacci retracement), however, downside should be limited to 0.9500 and 0.9480-85 should hold.

In view of this, would not chase this fall here and would be prudent to sell dollar again on further recovery as 0.9648 should limit upside. Above 0.9680 would risk retest of said last week’s high at 0.9705, break there would extend recent rise from 0.9421 to 0.9740-50 later.

GBP/USD - 1.3545

Most recent candlesticks pattern   : N/A

Trend                                 : Near term up

Tenkan-Sen level                 : 1.3576

Kijun-Sen level                    : 1.3576

Ichimoku cloud top              : 1.3484

Ichimoku cloud bottom        : 1.3385

Original strategy :

Buy at 1.3420, Target: 1.3600, Stop: 1.3385

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.3420, Target: 1.3600, Stop: 1.3385

Position : -

Target :  -

Stop : -

Although cable edged higher in London morning to 1.3619, lack of follow through buying on break of Friday’s high at 1.3617 and current retreat suggest consolidation with initial mild downside bias would be seen and pullback to 1.3515-20 and then 1.3480 cannot be ruled out, however, reckon downside would be limited to 1.3420-30 and bring another rise later, above said resistance at 1.3619 would extend recent upmove to 1.3650 and possibly towards 1.3675 but upside should be limited to 1.3700-10, bring retreat later.

In view of this, would not chase this rise here and would be prudent to buy cable on subsequent pullback as 1.3420-30 should limit downside. Only below 1.3380-85 would defer and signal a temporary top is formed, bring retracement of recent rise to 1.3350, then 1.3320-25 but 1.3300 should remain intact. 

EUR/USD - 1.1950

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1943

Kijun-Sen level                  : 1.1947

Ichimoku cloud top             : 1.1930

Ichimoku cloud bottom      : 1.1914

Original strategy  :

Buy at 1.1905, Target: 1.2005, Stop: 1.1870

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1905, Target: 1.2005, Stop: 1.1870

Position : -

Target :  -

Stop : -

Although the single currency retreated after meeting resistance at 1.1988 on Friday, last week’s anticipated rebound from 1.1838 suggests low has possibly been formed there and downside should be limited to 1.1900-05, bring another rebound later to 1.1995-00 (previous resistance and 61.8% Fibonacci retracement of 1.2093-1.1838), however, break there is needed to signal the fall from 1.2093 has ended, bring subsequent rise to 1.2030-35 and then 1.2050-55.

In view of this, we are looking to buy euro again on dips as 1.1900-05 should limit downside and bring another rebound. Below 1.1865-70 would abort and suggest the rebound from 1.1838 (last week’s low) has ended, bring retest of this level first. 

USD/JPY - 111.45

Most recent candlesticks pattern   : N/A

Trend                      : Up

Tenkan-Sen level              : 111.33

Kijun-Sen level                  : 111.10

Ichimoku cloud top             : 110.64

Ichimoku cloud bottom      : 110.45

New strategy  :

Stand aside

Position :  -

Target :  -

Stop : -

Although the greenback has edged higher again after last week’s rally and bullishness remains or recent reversal from 107.32 low to extend gain to 111.55-60, however, reckon upside would be limited to 111.85-90 (61.8% projection of 107.32-111.04 measuring from 109.55) and price should falter below 112.00-10, risk from there has increased for a correction later.

In view of this, would not chase this move here and would be prudent to stand aside for now. Below 111.00 would bring correction to 110.60-65 but downside should be limited to 110.30-35 and price should stay above 110.00, bring rebound later.

• European stock markets eke out modest gains in a quiet session, as risk sentiment brightened. Us equities open slightly higher.
• The ECB should start discussing a broader range of measures as it seeks policy normalisation rather than just focus on how and when it will dial back stimulus, Governing Council member Hansson said in a Reuters interview.
• Catalonia's economy could shrink as much as 30% and unemployment double if it gains independence, according to the Spanish economy minister Luis de Guindos.
• The annual rate of inflation in the euro area was confirmed at 1.5%. The ECB staff expects to see the headline inflation rate pull back to a low of 0.9% in the first quarter of 2018, as the consequence of negative (energy) base effects. Underlying inflation should not pull back sustainable.
• The US military staged bombing drills with South Korea over the Korean peninsula and Russia and China began naval exercises ahead of a UN General Assembly meeting where North Korea's nuclear threat is likely to loom large.

Rates

Core bonds resume correction lower

Core bonds hovered sideways during much of the session, no eco data nor other items figured on the calendar. During the afternoon session, core bonds slid suddenly lower, the Bund underperforming the US Treasuries. Trade volumes were very low. Today's price action was uneventful, but signalled that the downward correction in core bonds is not over. We are a bit surprised by the market reaction in the afternoon, as the shadow of the FOMC looms and as neither the FX nor the equity markets showed moves of similar amplitude. We suspect the correction was technical inspired.

At the time of writing, changes on the US yield curve range between +1.1 bps (2-yr) and +1.6 bps (30-yr). The German yield curve trades 0.7 bps (2-yr) to 3.6 bps (10-yr) higher. On intra-EMU bond markets, 10-yr yield spread changes versus Germany narrowed across the board (4 bps for Italy and Spain). Portuguese bonds profited much more than other credits with a 29 bps narrowing versus Germany after S&P unexpectedly raised the country's rating to investment grade (BBB-). The impact of the Irish rating upgrade by Moody's (to A2) was less spectacular. The Irish 10-yr spread fell 1 bp versus flat for the semi-core bond yields.

The Belgian debt agency successfully started this week's scheduled EMU bond supply. They tapped three OLO's for a combined €3.5B, the maximum amount on offer: OLO 82 (€1.2B 0.5% Oct2024), OLO 81 (€1.28B 0.8% Jun2027) and OLO 73 (€1.02B 3% Jun2034). The auction bid cover was 1.71. Thank to these taps, the Belgian debt agency already completed over 90% (€32B) of its stated €35B target.

Currencies

USD lingers on in technical trading

USD trading was driven by technical considerations. There was little hard news to guide trading. The dollar continues to trade soft against the euro, but holds strong against the yen. EUR/USD trades in the 1.1960 area. USD/JPY is changing hands at around 111.45. EUR/JPY extends its break beyond the 132 previous resistance.

Overnight, Asian equities gained between 0.5% and 1.0%, supported by record closing levels on WS on Friday. Chinese house price increases slowed further in August, reducing the need for additional measures to cool house prices. This added to the Chinese risk-on sentiment. The yen held near recent lows with USD/JPY trading in the 111.15 area. EUR/USD traded in the 1.1940 area.

There was little high profile news to guide trading in core EMU FI and FX. EMU August CPI (1.5% Y/Y) was confirmed as expected. European markets joined the risk-on trade from WS on Friday and from Asia this morning. The combination of a positive risk sentiment and a marginally rise in core yields kept the yen under pressure. USD/JPY and EUR/JPY tried to extend gains. EUR/JPY tested last week's top in the 133.10 area. The test initially failed. The subsequent decline of EUR/JPY also sent EUR/USD temporary back south. However, EUR/USD returned soon to the mid 1.19 area. USD/JPY drifted sideways in the lower half of the 111 big figure. Spreads on intra-EMU bond markets narrowed on positive credit news in some countries (e.g. Portugal). However, the impact on the euro, if any, was limited.

The dollar still showed no clear directional trend as US traders joined the fray. There were again several headlines indicating that relations between the US and North Korea remain tense. However, for now, the theme is more or less worked out as a driver for markets. At EUR/USD 1.1955 and USD/JPY 111.45, the dollar trades a bit soft against the euro, but remains strong against the yen.

Sterling: modest profit taking after last week's rally

After a week of very strong gains on hawkish BoE talk, sterling finally fell prey to modest profit taking. We didn't see a specific trigger. Overnight, Rightmove UK house prices were materially weaker than expected, but we doubt that these data were the real trigger. Investors holding sterling longs probably preferred to take some chips of the table ahead of an upcoming speech from BoE Carney and a key Brexit speech from UK PM May on Friday. EUR/GBP rebounded from the 0.8780 area to the 0.8835/40 area. This is a nice countermove, but it remains limited given last week's impressive sterling gains. Cable also dropped off the 1.36+ correction top and trades currently in the mid 1.35 area