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DXY Dollar Index Short Term Elliott Wave view suggests that the decline from 8/16 peak is unfolding as an Ending Diagonal Elliott Wave structure. Down from 8/16 high, Minor wave 1 ended at 91.62 and Minor wave 2 ended at 93.347. Minor wave 3 is unfolding as a double three Elliottwave structure. Minute wave ((w)) of 3 ended at 91.01 and Minute wave ((x)) of 3 is proposed complete at 92.08. While bounces stay below 92.08, but more importantly below 8/31 high at 93.36, Index should resume lower or at least pullback in 3 waves. If the Index breaks above 92.08, then cycle from 8/16 high has likely ended. In that case, Index should correct larger degree cycle from 8/16 high in 7 swing before the decline resumes provided pivot at 92.08 stays intact. We don’t like buying the Dollar Index.

DXY 1 Hour Elliott Wave Chart

Ending Diagonal is an Elliott wave structure that typically happens inside wave 5 of an impulse or inside wave C of a zigzag. Ending Diagonal has 5 waves subdivision and each wave is further subdivided into 3 waves. Thus Ending Diagonal has the structure of 3-3-3-3-3. When Ending Diagonal happens within wave 5, the internal wave 1 of 5 and wave 4 of 5 can overlap. The Ending diagonal also often forms a wedge shape.

Risk appetite remains strong in the markets. And the provocative response from North Korea on fresh sanctions is largely ignored. S&P 500 closed up 8.37 pts, or 0.34%, at 2496.48 overnight, making another record high. DOW also rose 61.49 pts, or 0.28%, to close at 2118.86, a record, even though it's short of intraday record at 22179.11. NASDAQ also scored a record close at 6454.28, up 0.34%. Sentiments are also positive in Asia with Nikkei trading up 0.5% at the time of writing. Gold continues to suffer as it struggles to regain 1340 handle. In the currency markets, British Pound remains the strongest one for the week as boosted by the CPI release yesterday. Commodity currencies are also firm together with Dollar. Meanwhile, Yen, Swiss Franc and Euro are trading as the weakest ones for the week.

North Korea pledged to "redouble effort"

North Korea has just issued an official response to the fresh sanctions approved by United Nations Security Council earlier this week. The foreign ministry condemned the sanctions as "another illegal and evil" one as "piloted by the US. It said in a statement that it aimed at  "completely suffocating its state and people through full-scale economic blockade". And it "served as an occasion for the DPRK to verify that the road it chose to go down was absolutely right." North Korea pledged to "redouble the efforts to increase its strength to safeguard the country's sovereignty and right to existence." The country's ambassador to the UN, Han Tae Song, also said yesterday that the country is "ready to use a form of ultimate means". And, "the forthcoming measures ... will make the U.S. suffer the greatest pain it ever experienced in its history." 

Trump criticized US proposed sanctions as "not a big deal"

On the other hand, US President Donald Trump criticized the sanctions that his own country has tabled to UNSC. He said "it's just another very small step, not a big deal." And Trump added that "I don't know if it has any impact, but certainly it was nice to get a 15-to-nothing vote, but those sanctions are nothing compared to what ultimately will have to happen." Treasury Secretary Steven Mnuchin warned that if China doesn't follow through on the sanctions on Korea, the US would "put additional sanctions on them and prevent them from accessing the U.S. and international dollar system."

Brexit negotiations delayed for a week to Sep 25

The next round of Brexit negotiation between EU and UK is originally scheduled for next week, starting September 18. But it's now be postponed by a week to September 25 to "allow more time for consultation". In a statement, UK said that "both sides settled on the date after discussions between senior officials in recognition that more time for consultation would give negotiators the flexibility to make progress in the September round." The decision came just a week after  European Parliament's chief Brexit negotiator Guy Verhofstadt said UK Prime Minister Theresa May was preparing to make an "important intervention... in the coming days".

Sterling holding on to post CPI gains

Sterling is holding on to the post CPI gains and remains the strongest currency for the week. Recapping yesterday's release, headline CPI accelerated to 2.9% yoy in August, up from 2.6% yoy, and beat expectation of 2.8% yoy. That's also the highest level in a year. With re-acceleration in headline CPI, there is very little chance that hawks Michael Saunders and Ian McCafferty would change their mind. Both are very likely to continue to vote for a 25bps hike. And there is chance that chief economist Andy Haldane would finally put his hawkish words into vote. But after all, the hawks are still short of two votes to push through a hike. Still, its likely that BoE will step up its warning on rate hike, in particular the pace of the path in coming years.

German Merkel maintain wide lead in election

In Germany, Chancellor Angle Merkel's Christian Democratic Union (CDU) is maintaining solid lead over rival Social Democrats (SPD). According to the latest weekly poll by Insa, CDU is having 36.5% support while SPD is having 23.5%. Most critics consider the race for the next Chancellor over with the solid lead. The question is whether CDU and its natural coalition partner Free Democrats (FDP) are able to secure a majority. Meanwhile, it's reported that Merkel will very likely keep "Wolfgang Schaeuble" as Finance Minister after winning the election.

Japan PMI Abe offer no hint on who's the next BoJ head

In Japan, Prime Minister Shinzo Abe declined to comment on who would succeed BoJ Governor Haruhiko Kuroda after his five year terms ends in April next year. And, Abe didn't comment on whether Kuroda's term would be renewed. But he hailed that Kuroda's massive monetary stimulus has boosted employment and  "created a situation where Japan was no longer in deflation." Abe emphasized that it's important to hit the 2% target and "stabilizes at that level". And, "the government expects the BOJ to continue efforts to meet the target." Meanwhile, Abe said he's still on track to raise sales tax from 8% to 10% in October 2019.

On the data front

Japan BSI large manufacturing rose to 9.4 in Q3, domestic CGPI rose 0.0% in August. Australia Westpac consumer sentiment rose 2.5% in September. German CPI final, Swiss PPI, Eurozone industrial production and employment will be released in European session. But UK data will be the focus again with employment data featured. US will release PPI later in the day.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.2114; (P) 1.2152; (R1) 1.2222; More....

Intraday bias in USD/CAD remains neutral as consolidation from 1.2061 temporary low continues. We'll stay cautious on strong support from 1.2048 long term fibonacci level to bring sustainable rebound. But still, break of 1.2412 support turned resistance is needed to be the first sign of trend reversal. Otherwise, outlook will remain bearish. Firm break of 1.2048 will pave the way to next fibonacci level at 1.1424.

In the bigger picture, current downside acceleration is raising the chance that whole long term rise from 0.9406 (2011 low), and that from 0.9056 (2007 low) is completed at 1.4689. Focus is now on 50% retracement of 0.9406 to 1.4869 at 1.2048. As long as this level holds, we'd still favor that case that fall from 1.4689 is a correction. However, firm break of 1.2048 will indicate that fall fro 1.4689 is at least a medium term down trend and should target 61.8% retracement at 1.1424 and below.

Economic Indicators Update

NZD/USD is trading in the green right now, but seems undecided after the failure to reach and retest the third warning line (WL3) of the descending pitchfork. Technically is still expected to approach and reach the WL3, but only a valid breakout will confirm a further increase in the upcoming period towards the 0.7375 level.

Price is trading in the green and is almost to reach the upside line of the up channel. Technically a breakout is favored, but we have to wait for a valid one before we take action. The Cable could receive support from the UK’s data once again, the Average Earnings Index, Claimant Count Change and the Unemployment Rate will be released later.

GBP/USD is trading right above the 1.3300 psychological level and above the 1.3268 broken horizontal resistance, a minor consolidation will attract more buyers.

The currency pair edges higher and looks poised to approach and reach fresh new highs in the upcoming period. Right now is pressuring a dynamic resistance, could find temporary resistance at this level and could retreat a little to recapture more directional energy. Is trapped within an ascending channel, so the perspective remains bullish on the short term.

Is trading in the green and should approach the 1.1536 previous high, could be attracted also by a major dynamic resistance.

The Euro-zone and the Switzerland data could bring more action on this pair. The German Final CPI could increase by 0.1% in August, while the German WPI is expected to increase by 0.1% after the 0.1% drop i the former reading period. The Inflation Production may increase by 0.1%, while the Employment Change by 0.3%.

Price rallied aggressively after the retest of the upper median line (uml) of the minor ascending pitchfork and now is pressuring the first warning line (wl1). Is trapped within the upper median line (uml) and the warning line (wl1). Remains to see if we’ll have a breakout or a retreat towards the upper median line (uml).

You should know that the major upside target will be at the fifth warning line (WL5) of the major descending pitchfork. Resistance could be found also at the third warning line (WL3) of the major ascending pitchfork. I’ve said in the previous weeks that the perspective will remain bullish as long as the rate is trading above the upper median line (uml).

Risk Aversion Has Ebbed Significantly Fueling a Comeback by The Dollar. The greenback closed another day in the green against most of its peers after a solid start for the week as North Korean tensions were absent from the headlines. Although dollar-negative factors are suddenly decreasing, some analysts attributed these gains to short-covering. The dollar index against a basket of six major currencies was flat at 91.882 after closing Tuesday a shade lower. It has managed to remain above the 2-1/2-year low of 91.011 plumbed on Friday.

Dollar Capped Vs Euro as German Yield Spike Neutralizes Support. German bund yields jumped nearly 7 basis points as safe-haven government debt came under pressure from a respite in North Korea tensions, helping prevent the dollar from gaining on the euro.

Sterling Hovers Near 1-year High After Robust UK Inflation Data. The pound extended its rally from the previous trading session, buoyed by upbeat CPI results and positive expectations for the BOE decision later this week. Sterling was little changed at $1.3286 following its ascent to $1.3300 overnight, its highest in a year.

Dollar Extends Rally Vs Yen, Hits 12-day High as US Yields Rise. The dollar extended its sharp rally against the yen on Wednesday as the pair shows the highest correlation to U.S. yields and is benefiting from the latest rise in yields. The dollar was up 0.1 percent at 110.270 yen and at its highest in almost two weeks.

For the 24 hours to 23:00 GMT, the AUD declined 0.14% against the USD and closed at 0.8019.

LME Copper prices declined 2.0% or $135.5/MT to $6601.5/MT. Aluminium prices declined 0.8% or $17.5/MT to $2083.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.8034, with the AUD trading 0.19% higher against the USD from yesterday's close, following upbeat consumer confidence data from Australia.

Overnight data revealed that Australia's Westpac consumer confidence index climbed to a level of 97.9 in September, compared to a reading of 95.5 in the prior month.

The pair is expected to find support at 0.8008, and a fall through could take it to the next support level of 0.7981. The pair is expected to find its first resistance at 0.8055, and a rise through could take it to the next resistance level of 0.8075.

Looking ahead, market participants will focus on Australia's unemployment rate for August and consumer inflation expectation for September, both slated to release in the early hours of tomorrow.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR rose 0.06% against the USD and closed at 1.1971.

In economic news, the US NFIB small business optimism index surprisingly climbed to a level of 105.3 in August, compared to a reading of 105.2 in the prior month, while markets were expecting the index to fall to a level of 104.8. Additionally, the nation's JOLTs job openings registered an unexpected rise to a level of 6170.0K in July, defying market consensus for a drop to a level of 6000.0K. In the previous month, JOLTs job openings had recorded a revised level of 6116.0K.

In the Asian session, at GMT0300, the pair is trading at 1.1985, with the EUR trading 0.12% higher against the USD from yesterday's close.

The pair is expected to find support at 1.1943, and a fall through could take it to the next support level of 1.1901. The pair is expected to find its first resistance at 1.2010, and a rise through could take it to the next resistance level of 1.2035.

Going ahead, investors will direct their attention to the release of the Euro-zone's industrial production for July as well as Germany's final consumer price inflation for August, both slated to release in a few hours. Additionally, the US monthly budget statement for August, due to release later in the day, will be on investors' radar.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.9% against the USD and closed at 1.3296, surging to a one-year high level, after larger-than-expected rise in UK inflation reinvigorated hopes that the Bank of England (BoE) will raise interest rates sooner than expected.

Data indicated that Britain's consumer price index (CPI) climbed more-than-expected by 2.9% on a yearly basis in August, matching a five-year high level recorded in May 2017 and exerting fresh pressure on the BoE to make moves with interest rates to try and limit soaring inflation. Markets had expected the CPI to gain 2.8%, after recording a rise of 2.6% in the prior month.

In the Asian session, at GMT0300, the pair is trading at 1.3315, with the GBP trading 0.14% higher against the USD from yesterday's close.

The pair is expected to find support at 1.3219, and a fall through could take it to the next support level of 1.3123. The pair is expected to find its first resistance at 1.3363, and a rise through could take it to the next resistance level of 1.3411.

Going forward, UK's ILO unemployment rate data for the three months to July, set to release in a few hours, will pique significant amount of investor attention.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.85% against the JPY and closed at 110.21.

In the Asian session, at GMT0300, the pair is trading at 110.04, with the USD trading 0.15% lower against the JPY from yesterday’s close.

Overnight data showed that Japan’s business survey index (BSI) of large manufacturing industries rose more-than-anticipated to a level of 9.4 on a quarterly basis in 3Q 2017. In the previous quarter, index registered a level of -2.9.

The pair is expected to find support at 109.46, and a fall through could take it to the next support level of 108.87. The pair is expected to find its first resistance at 110.46, and a rise through could take it to the next resistance level of 110.87.

Moving ahead, traders will keep a close watch on Japan’s final industrial production data for July, due to release tomorrow.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.