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Daily Pivots: (S1) 0.9466; (P) 0.9513; (R1) 0.9599; More....

USD/CHF rebounded notably after hitting 0.9427 and intraday bias is turned neutral firm. Some consolidations would be seen and considering that it's close to 0.9443 key support, the rebound could extend higher. Still, break of 0.9772 resistance is needed to confirm near term reversal. Otherwise, outlook stays bearish for another decline. Break of 0.9427 will target 61.8% projection of 1.0099 to 0.9437 to 0.9772 at 0.9363.

In the bigger picture, current development suggests that 0.9443 key support (2016 low) could be taken out firmly as down trend form 1.0342 extends. There are various interpretation of the price actions. But in any case, medium term outlook will stay bearish as long as 0.9772 resistance holds. Current down trend could extend to 38.2% retracement of 0.7065 (2011 low) to 1.0342 (2016 high) at 0.9090.

Key Points:

• Crude oil supply glut worsens as tankers stuck offshore awaiting refinery openings.
• Meteorological data suggests storm could target Louisiana refinery area.
• Monitor the pending EIA Crude Oil Inventory figures which are due out shortly.

Crude oil prices have remained under pressure overnight as the ongoing damage from flooding in Texas, and the Gulf Coast, continues to wreak havoc amongst refineries. Subsequently, in what is being touted as potentially the most expensive of the decade, is severely impacting refinery operations throughout most of the U.S. In fact, if the rain and flooding continues to move as predicted, we could see further ramifications for gasoline production in the wider Southern regions. Subsequently, there could be further price declines for the black gold on the cards in the coming days.

Presently, WTI prices are trading around the $46.29 a barrel mark and are down around 1.17% for the prior day. However, what is potentially very interesting is the fact that oil and gasoline prices have diverged strongly as, due to the lack of refinery capacity, crude oil supplies continue to stack up. In fact, at last count there are currently 9 oil tankers offshore from Texas awaiting an opportunity to unload. Subsequently, the supply glut is likely to worsen as more tankers continue to arrive with little prospect of increased refinery operations in the near term.

In fact, prospective damage to the Gulf Coast refineries is yet to be assessed and it could be a significant period of time before they are again returned to full capacity. Additionally, many of the roads and infrastructure around these key supply points have been damaged and it remains uncertain as to what extent they will be able to be utilised to carry product. Subsequently, there still remains plenty of unknown factors and a rapid return to maximum production seems fairly unlikely.

Subsequently, the market could potentially be dealing with a significant crude oil supply glut for at least the next few weeks as both refinery and infrastructure damages are assessed and accounted for. Additionally, it would still take significant time to process the current crude oil stockpiles even if full capacity was returned rapidly. However, if the storm continues to move towards the Louisiana refineries, as met data seems to suggest, we could be in for a much deeper decline in crude oil prices.

Ultimately, WTI prices are likely to remain around the $46.00 handle in the coming days until further information is received on the status of the Texas based refineries and the surrounding infrastructure. However, monitor the EIA’s weekly oil inventory data because this could provide somewhat of a cushion to crudes bearishness if it shows a moderate draw.

For the 24 hours to 23:00 GMT, the AUD rose 0.47% against the USD and closed at 0.7955.

LME Copper prices rose 1.2% or $83.0/MT to $6797.0/MT. Aluminium prices declined 0.2% or $4.5/MT to $2092.0/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7990, with the AUD trading 0.44% higher against the USD from yesterday's close.

Early morning data indicated that Australia's seasonally adjusted building approvals dropped less-than-anticipated by 1.7% on a monthly basis in July, compared to market consensus for a fall of 5.0%. In the prior month, building approvals had registered a rise of 10.9%.

On the other hand, the nation's seasonally adjusted construction work done sharply rebounded by 9.3% on a quarterly basis in 2Q 2017. In the prior quarter, construction work done had fallen by 0.7%.

The pair is expected to find support at 0.7943, and a fall through could take it to the next support level of 0.7895. The pair is expected to find its first resistance at 0.8017, and a rise through could take it to the next resistance level of 0.8043.

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

For the 24 hours to 23:00 GMT, the EUR rose 0.07% against the USD and closed at 1.1975, after data showed that Germany’s GfK consumer confidence index surprisingly jumped to a nearly sixteen-year high level of 10.9 in September, while markets expected the index to remain steady at a level of 10.8 registered in the previous month.

Macroeconomic data released in the US indicated that the CB consumer confidence index rose more-than-expected to a level of 122.9 in August, notching a five-month high level, as a healthy job market and optimism about current business conditions boosted investor sentiment. Meanwhile, market participants had envisaged the index to advance to a level of 120.7, following a revised reading of 120.0 in the previous month.

In the Asian session, at GMT0300, the pair is trading at 1.1976, with the EUR trading a tad higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1925, and a fall through could take it to the next support level of 1.1875. The pair is expected to find its first resistance at 1.2048, and a rise through could take it to the next resistance level of 1.2121.

Moving ahead, traders will look forward to the Euro-zone’s final consumer confidence and Germany’s flash consumer price inflation data, both for August, slated to release in a few hours. Moreover, the US 2Q annualised GDP and ADP employment change data for August, slated to release later today, will keep investors on their toes.

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

For the 24 hours to 23:00 GMT, the GBP slightly declined against the USD and closed at 1.2928.

On the macro front, Britain's seasonally adjusted Nationwide house prices recorded an unexpected drop of 0.1% on a monthly basis in August, compared to a revised advance of 0.2% in the prior month, while markets anticipated for a flat reading.

In the Asian session, at GMT0300, the pair is trading at 1.2926, with the GBP trading marginally lower from yesterday's close.

The pair is expected to find support at 1.2901, and a fall through could take it to the next support level of 1.2876. The pair is expected to find its first resistance at 1.2965, and a rise through could take it to the next resistance level of 1.3004.

Looking ahead, UK's net consumer credit and mortgage approvals data, both for July, set to release in a few hours, will garner a lot of market attention. Moreover, the nation's GfK consumer confidence for August, due to release overnight will also be eyed by traders.

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

For the 24 hours to 23:00 GMT, the USD rose 0.87% against the JPY and closed at 109.60.

In the Asian session, at GMT0300, the pair is trading at 109.76, with the USD trading 0.15% higher against the JPY from yesterday's close.

Overnight data revealed that Japan's retail trade advanced 1.1% MoM in July, compared to a gain of 0.2% in the previous month and beating market consensus for it to climb 0.3%. On the contrary, the nation's large retailers' sales dropped 0.2% on a monthly basis in July, at par with market expectations and after recording a rise of 0.2% in the previous month.

The pair is expected to find support at 108.71, and a fall through could take it to the next support level of 107.67. The pair is expected to find its first resistance at 110.36, and a rise through could take it to the next resistance level of 110.97.

Looking forward, investors will pay attention to Japan's flash industrial production data for July, scheduled to release overnight.

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 0.3% against the CHF and closed at 0.9547.

In the Asian session, at GMT0300, the pair is trading at 0.9554, with the USD trading 0.07% higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9465, and a fall through could take it to the next support level of 0.9377. The pair is expected to find its first resistance at 0.9606, and a rise through could take it to the next resistance level of 0.9659.

Ahead in the day, market participants will closely monitor Switzerland’s UBS consumption indicator for July, followed by the nation’s ZEW expectations index and KOF leading indicator, both for August.

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

For the 24 hours to 23:00 GMT, the USD slightly declined against the CAD and closed at 1.2510.

In the Asian session, at GMT0300, the pair is trading at 1.2510, with the USD trading flat against the CAD from yesterday’s close.

The pair is expected to find support at 1.2451, and a fall through could take it to the next support level of 1.2393. The pair is expected to find its first resistance at 1.2559, and a rise through could take it to the next resistance level of 1.2609.

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

Daily Pivots: (S1) 108.69; (P) 109.30; (R1) 110.34; More...

USD/JPY staged a strong rebound after dipping to 108.26 and intraday bias is turned neutral first. Near term stays bearish as long as 110.94 resistance holds and deeper fall is expected. Firm break of 108.12 will resume the whole corrective decline from 118.65. In that case, USD/JPY will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, considering bullish convergence condition in 4 hour MACD, break of 110.94 will indicate near term reversal and bring stronger rebound back towards 114.49 resistance.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Risk appetite returned as DOW staged the a 200 points swing in the biggest intraday comeback in near nine months overnight. Major indices ended higher with DOW gained 0.26%, S&P 500 rose 0.08% and NASDAQ added 0.30%. 10 year yield dived to as low as 2.091 but pared back much losses to close down -0.023 at 2.136. Dollar also stabilized and recovered after intraday selloff. Some analysts attributed the rebound to the lack of escalation out of US regarding North Korea's firing of missile over Japan. US President just said that all options are on the table, without any follow up. Nikkei follows by gaining near to 100 pts in Asia at the time of writing. Gold also retreated from intraday high at 1331.9 and is back below 1320.

UNSC condemned North Korea for its outrageous actions

The United Nations Security Council issued a condemned Presidential Statement and condemned North Korea for its "outrageous actions. This is in response to the ballistic missile launch yesterday over Japan and a series of launches on August 25. UNSC demanded that the North-East Asia country "immediately cease all such actions." UNSC warned that the actions were "not just a threat to the region" but to "all UN Member States". And such actions "deliberately undermining regional peace and stability and have caused grave security concerns around the world." UNSC also demanded North Korea to "abandon all nuclear weapons and existing nuclear programs in a  "in a complete, verifiable and irreversible manner, and immediately cease all related activities".

Fed fund futures pricing in Fed cut again

After the destruction by hurricane Harvey in US and the sudden intensification of geopolitical tensions, markets are starting to price in Fed cut again. Current fed fund futures are pricing 2.7% chance of a cut in September FOMC meeting, and 97.3% chance of standing pat. There is 0% chance priced in for a hike. For December FOMC meeting, there is 1.7% chance for a cut, 61.9% chance of standing pat, and 36.4% chance of a high. Fed is still widely expected to continue with its plan to announce unwinding of balance sheet in September. But low inflation and uncertainty over growth could keep Fed's hands tied. And some interprets fed fund futures pricing as Fed won't move until end at least June. And between now and the end of 2018, there could be just one more rate hike.

No constructive news from Brexit negotiation yet

As the third round of Brexit negotiation carries on in Brussels, there is so far no constructive news out of the meeting yet. It's reported that UK's Brexit Secretary David Davis is demanding legal clarification on the principles EU uses to calculate the divorce bill. And UK is determined not to table a figure as it's perceived as a poor negotiation tactic. UK Prime Minister Theresa May's spokeswoman Alison Donnelly reiterated that May would like to move on to "future relationship" as there are lots of issues that "you can't separate between withdrawal and future relationship." And she reiterated that "our desire is to discuss both at the same time: we've repeatedly said that, and that's what we're working towards." 

On the other hand, European Commission President Jean-Claude Juncker criticized that "none" of UK's positions papers on Brexit is "satisfactory. He complained that "the UK government is hesitant in showing all its cards." EU is also clear that there will be no talks on trade agreement before settling some key issues, including the divorce bill. Juncker emphasized again that "first of all we settle the past before we look forward to the future."

There are only two more rounds of talks scheduled before EU summit in October. EU officials would then decide whether significant progress is made to move on to trade agreements. But based on the current lack of progress, it's highly unlikely to for the negotiations to meet the deadline. It's reported that UK wants to squeeze in more sessions to pick up the pace.

China hit back on IMF criticism on debt

Earlier in the month, IMF criticized China for boosting growth with cost of "further large and continuous increases in private and public debt" that increases downside risks in the medium term. And IMF warned that China's credit growth was on a "dangerous trajectory". But said Yu Yongding, an economist of the Chinese Academy of Social Sciences, hit back and said that IMF's conclusion was "out of line with China's real situation." Yu urged China not to adopt IMF;s suggests on reforms to cut the debt levels. Yu pointed out that China has been resilient in coping with the debt problem. And, a government debt-to-GDP ratio at 36.7% is already lower than most major industrialized and emerging-market economies. On the other hand, rushing to solve the debt problem in hasty manner could risk dampening growth.

Staying in China, the two key phenomena, tightening in liquidity condition and renminbi strength, in the Chinese market have persisted. Last week, PBOC auctioned RMB 80B of 3-month Treasury deposits at 4.51%, the highest since December 2014. This came in after another auction of 3-month Treasury deposits on August 18, at 4.46%. Higher interest rates signaled that the government is trying to increase the borrowing cost, tightening money supply. Indeed, liquidity conditions have remained tight in China, with both interbank rates and bond yields higher. Renminbi firmed, thanks to the broad-based weakness in the greenback and the Chinese government's capital control measures. USDCNY fixing has fallen to 6.6293, lowest level since August 2016, on Tuesday. The current liquidity environment and renminbi strength are in line with PBOC's "prudent and neutral" monetary policy stance, with the main goal of "deleveraging". More in China's Monetary Conditions Remain Tight as Deleveraging in Progress.

On the data front

Japan retail sales rose 1.9% yoy in July. Australia construction work done rose 9.3% in Q2, building approvals dropped -1.8% mom in July. New Zealand building permits dropped -0.7% mom in July. UK BRC shop price index dropped -0.3% yoy in August. Swiss UB consumption indicator and KOF leading indicator will be featured in European session. UK will release mortgage approvals and M4 money supply. Eurozone will release confidence indicators. German will release August CPI flash. From US, main focus will be on ADP employment and GDP revision.

USD/JPY Daily Outlook

Daily Pivots: (S1) 108.69; (P) 109.30; (R1) 110.34; More...

USD/JPY staged a strong rebound after dipping to 108.26 and intraday bias is turned neutral first. Near term stays bearish as long as 110.94 resistance holds and deeper fall is expected. Firm break of 108.12 will resume the whole corrective decline from 118.65. In that case, USD/JPY will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, considering bullish convergence condition in 4 hour MACD, break of 110.94 will indicate near term reversal and bring stronger rebound back towards 114.49 resistance.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Economic Indicators Update