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Canadian Annual Inflation Rose As Expected In July
For the 24 hours to 23:00 GMT, the USD declined 0.8% against the CAD and closed at 1.2578 on Friday.
The Canadian dollar rose against the USD, after Canada’s consumer price index advanced 1.2% on an annual basis in July, meeting market expectations and compared to a rise of 1.0% in the prior month.
In the Asian session, at GMT0300, the pair is trading at 1.2584, with the USD trading marginally higher against the CAD from Friday’s close.
The pair is expected to find support at 1.2536, and a fall through could take it to the next support level of 1.2487. The pair is expected to find its first resistance at 1.2654, and a rise through could take it to the next resistance level of 1.2723.
The currency pair is trading below its 20 Hr and 50 Hr moving averages.
Market Morning Briefing: Fresh Strength Is Being Seen In The Chinese Yuan
STOCKS
Equities, in general, continue to look a little weak, with the exception of the Shanghai.
Troubles in the USA and the US versus North Korea issue pulled the Dow (21674.51) below near term support at 21800, increasing the chances of a further dip towards 21500-250 over the next couple of weeks. Further decline is being seen in the Nikkei (19382, -0.45%) raising the chances of a test of 19000 on the downside this month.
While the Dow and Nikkei look bearish, the DAX (12165, -0.31%) appears ranged between 12000-12500, as mentioned on Friday. The Shanghai (3272, +0.11%) continues to look potentially bullish, in line with Friday's reading, but a clean break above 3300 is needed in order to push into a new bullish territory. This will be interesting to watch.
In India, the Nifty (9837.40, -0.70%) did indeed dip to 9800 on Friday and we have to see if it drops further to 9700 or not. There are growing chances that the GST implementation could lead to near-term negative impact on the economy, resulting in deeper decline towards 9500 at least. The picture looks similar to Dow.
In South Korea, the KOSPI (2355) could be vulnerable to a fresh decline towards 2300.
COMMODITIES
Overall commodities listed below are all trading below resistances and could move up in the next few sessions before seeing a corrective dip in the medium term.
Gold (1285.62) came off from resistance at 1300 but while it remains above 1275, there is a scope of re-testing 1300 in the near term. Else a fall towards 1270-1260 levels is possible in the coming sessions. While the US Dollar Index (93.45) heads towards 93.0-92.50 levels, gold might remain within 1300-1275 region in the next few sessions.
Silver (16.96) came off sharply from 17 on Friday. Immediate resistances visible near 17.00-17.50 which if holds could push the price towards 16.50 or lower in the coming sessions.
Copper (2.9515) is headed upwards and could test interim resistance at 3 this week. Thereafter a dip towards 2.85/80 is possible before it tries to again move up towards 3.00. Note crucial resistance zone of 3.00-3.20 with some interim resistances seen near 3.05 and 3.12 levels.
Brent (52.71) is trading above our initial resistance of 51.50 mentioned in the earlier edition. Brent could now test levels of 53.00-53.80 before coming off in the medium term. WTI (48.56) has some chances of testing 49.75 in the next 2-3 sessions before coming off to current levels.
FOREX
In currencies, the market has to decide this week (or the next) whether it is "Risk ON or Risk OFF". There's not much economic data this week, so the market could be quiet at least today/ tomorrow.
Crucial Supports at 109.00 on Dollar-Yen (109.20) and 128.00 on Euro-Yen (128.42) were breached on intra-day basis on Friday, but held on day-close basis.
Dollar-Yen (109.22) may be quiet between 109.95 and 108.60 while the Euro-Yen (128.42) may trade between 127.50-129.50 this week. The Euro (1.1755) is trading right on its 200-week Moving Average and might have a slight bias towards 1.1830 while above 1.1700.
The German-US Yield Spreads, both 2Yr and 10Yr, can bounce a bit, favuoring the Euro. See Interest Rates below.
The Pound (1.2880) trades at a crucial Support coming up from the March 2017 low near 1.2106. It is vulnerable to further decline while below 1.30. The Aussie (0.7931) had dipped to a low near 0.7807 last week, but has recovered well from there. It is trading just below the 200 week Moving Average at 0.7970 with a chart structure similar to Euro.
Fresh strength is being seen in the Chinese Yuan (USDCNY 6.6685) and the Indian Rupee is quoting at 64.06/12 in the Offshore market after having closed near 64.14 on Friday. It may trade in a range of 64.00-40 (narrow) and 63.70-64.70 (wide) for some days.
INTEREST RATES
The US yields are all stable just now. But there could be some more scope of downside in the coming sessions. The 5Yr (1.76%), 10Yr (2.19%) and the 30Yr (2.78%) could test 1.70%, 2.10% and 2.70% respectively as mentioned in our previous edition.
The German-US 2Yr (-2.02%) and the 10Yr (-1.78%) have both bounced from channel supports and could move up in the near term towards -1.97% and -1.75% respectively. This could possibly pull up the Euro in the near term.
The Japan 30Yr (0.85%) could test lower levels of 0.80% in the coming sessions. The 5Yr (-0.09%) is already headed downwards and looks bearish for the coming sessions while the 10Yr (0.04%) is stable just now and could move down too in the near term.
The UK yields are also looking bearish just now. The 10YR (1.09%) could move down towards 1% while the 20YR (1.65%) has scope of testing 1.50% on the downside.
EURUSD – Retains Bull Bias Despite Price Hesitation
EURUSD - The pair continues to hold on to its upside pressure though seeing price hesitation the past week. Resistance comes in at 1.1800 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 1.1700 level where a violation will aim at the 1.1650 level. A break of here will aim at the 1.1600 level. All in all, EURUSD faces further upside pressure.
GOLD – Faces Pullback Threats On Correction
GOLD - With the commodity retaining its upside pressure, more strength is envisaged but with caution of a pullback. On the downside, support comes in at the 1,280.00 level where a break will turn attention to the 1,270.00 level. Further down, a cut through here will open the door for a move lower towards the 1,260.00 level. Below here if seen could trigger further downside pressure targeting the 1,250.00 level. Conversely, resistance resides at the 1,300.00 level where a break will aim at the 1,310.00 level. A turn above there will expose the 1,320.00 level. Further out, resistance stands at the 1,330.00 level. All in all, GOLD looks to weaken further.
The Bannon Bounce ?
The Bannon Bounce?
The markets pivot to Jackson Hole this week could obscure the underlying political Trump risk that currency markets have been feeding off. And while debate unfolds as to what Bannon's removal means for the Trump administration economic agenda, it's difficult to believe the answer to all that ails the West Wing, was a Steve Bannon departure.
Traders were looking to square positions ahead of Jackson Hole and even the subtle notion that Bannon's departure would skewer the presidents contentious ” America First” policies was signal enough ahead of the potentially Topsy Turvy Thursday when Jackson Hole summit commences. Overall one senses the FX markets are adopting a neutral to flatting bias in early APAC trade
US Dollar
Whitehouse politics will remain in play, but given some of the outsized currency moves of late, it's not too surprising dealers are paring short dollar risk as the shift to the Jackson Hole summit will put the focus back on Centeral Bank watch. And of course, dealers will start to factor in the best case calculus for the USD dollar. As unlikely as it may be, if the Feds provide a definitive balance sheet reduction date, and affirmation of a December rate hike we could have an abrupt shift in USD sentiment.
Japanese Yen
Given the North Korea Geo risk and the Whitehouse expanding quagmire, it's difficult to view Friday's move above 109.25 USDJPY as little more than a dead cat bounce. But with the shift to Monetary Policy on tap as we approach Jackson Hole, market moves are more about risk paring than risk taking
Euro
There's been a lot of anticipation on whether ECB President Mario Draghi used the Jackson Hole platform to signal a change in ECB balance sheet policy. However, the unknown ECB sources threw cold water on the debate last week, and while the EURO has remained bid on dips, it's lacked any serious upward momentum since. And with the ECB minutes showing officials expressing concern over EUR strength, it's hard to hard to see this view changing ahead of Thursday
Australian Dollar
A highly debatable rebound in risk appetite saw the Aussie trading above the .7940 level into the weekend. From my seat, it looks more about weekend positions squaring rather than anything else. With the lack of fundamental drivers for the moment, best to pick your spots wisely and trade nimbly.