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Dollar trades notably higher against Japanese Yen and Swiss Franc as comments from a top Fed official revived the speculation of one more hike this year. On the background, risk aversion also receded as threat of imminent war between US and North Korea abated. DOW rebounded 0.62% to close at 21993.71. S&P 500 also gained 1.00% to close at 24.52. Sentiment in Asian session is also positive with Nikkei trading up 1.2% at the time of writing. While the greenback is trying to stage a general rebound, it should be noted that Euro is staying firm too. EUR/USD is bounded in range of 1.1688/1908, maintaining near term bullishness. Also, we don't see any solid buying to push Dollar index back above 94.28 key near term resistance yet.

Fed Dudley favors another rate hike this year

New York Fed President William Dudley, an influential member of FOMC, affirmed that he remained in "favor of doing another rate hike later this year". He prefers a rate hike despite soft inflation as "1) monetary policy is still accommodative, so the level of short-term rates is pretty low, and 2) and this is probably even more important, financial conditions have been easing rather than tightening". He indicated that "financial conditions are easier today than they were a year ago". Dudley added that it is not unreasonable to announce the balance sheet reduction plan in September. He forecast the portfolio would shrink to between USD 2.5-3.5T after five years.

Market's pricing of Fed rate path is back to normal. On Friday just after the release of weak CPI, Fed fund futures priced in 4.1% of a rate cut in September and less than 36% chance of a hike by December. Currently, Fed fund futures are pricing 0% chance of a cut in September. Chance of a rate hike by December is now back at around 50%.

German FM Schaeuble hoped ECB to end ultra-loose policy soon

In Eurozone, German Finance Minister Wolfgang Schaeuble said the he hoped ECB's ultra-loose monetary policy would end in the foreseeable future. He noted that "no one seriously disputes that interest rates are rather too low for the strength of the German economy and the exchange rate of the euro, which is rising now." And in his view, most people expect ECB to take a further step at the upcoming meeting in September.

RBA minutes paint positive outlook

RBA's minutes for the August meeting revealed that policymakers were optimistic over the global and domestic economies. The central bank forecast that the economy would soon be growing at an annual rate of 3%, assuming that there's no major change in the Australian dollar. The central bank added that 'This assumption was one source of uncertainty'. Policymakers went to warn of the Aussie's strength, suggesting that 'a further appreciation of the Australian dollar would be expected to result in a slower pick-up in inflation and economic activity than currently forecast'. Meanwhile, RBA also signaled concerns over the housing market and household debt, while appeared more comfortable over the employment situation. More in RBA's Main Concerns Shifted to Housing Market From Employment

Oil price falls on China slowdown

WTI crude oil dropped notably overnight and is now back trading at 47.6. The decline in crude oil prices was the most in 5 weeks, driven mainly by weakened Chinese demand and bigger-than-expected slowdown in Chinese economic activities at the start of the second quarter. Bloomberg estimated that the country's oil processing dropped 4.4% ,p, to 10.76M bpd in July. The decline was the biggest since 2014. Chinese industry consultant SCI99 noted that state refineries in northwest and southern regions cut runs to 66.9% and 64.68% of capacity, respectively, also the lowest since 2014, last month. Independent refiners were operating at just around 58.78%, a level not seen since May 5.

UK CPI the main focus in European session

Looking ahead, the economic calendar is very busy today. UK inflation will be a key to watch in European session. Headline CPI in UK is expected to climb back to 2.7% yoy while core CPI might rise back to 2.5% yoy. Sterling was under much selling pressure after last month's CPI miss. Another downside surprise today will send GBP/USD through 1.2932 key near term support. German GDP and Swiss PPI will be other features of European session.

From US, main focus will be on retail sales which is expected to stage a rebound in July. Empire state manufacturing index, import price, NAHB housing index and business inventories will also be featured.

USD/CHF Daily Outlook

Daily Pivots: (S1) 0.9642; (P) 0.9687; (R1) 0.9765; More...

Intraday bias in USD/CHF remains on the upside as rebound from 0.9582 is in progress for retesting 0.9772. Decisive break there will revive the bullish case of reversal. That is, whole decline from 1.0342 has completed at 0.9437 after defending 0.9443 support. USD/CHF should then target channel resistance (now at 0.9880) next. On the downside, below 0.9675 minor support will turn intraday bias neutral first. Also, the pair is bounded inside medium term falling channel and limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783 for the moment. Break of 0.9582 will dampen our bullish view and turn bias back to the downside for 0.9437. This could also extend the fall from 1.0342 through 0.9437/43 key support level.

In the bigger picture, current development argues that USD/CHF has successfully defended 0.9443 key support level. And long term range trading in 0.9443/1.0342 is extending with another rise. At this point, there is no sign of an up trend yet. Hence, while further rise is expected in USD/CHF, we'll start to be cautious on loss of momentum above 61.8% retracement of 1.0342 to 0.9437 at 0.9996. However, firm break of 0.9443 will carry larger bearish implication and would target next key support at 0.9072.

Economic Indicators Update

The EUR/GBP swing high resistance obviously wasn't enough to keep the pair capped, but I wanted to take the opportunity today to discuss why I see a zone rather than a hard level in this particular forex currency pair.

EUR/GBP Daily:

Price is hugging the top of that bullish channel, which is the obvious area of resistance on the EUR/GBP daily chart. But as you can see here, there's also quite the large horizontal resistance zone with no real clear top to draw a single line from.

As you well know, each forex currency pair has a personality all of its own. In my opinion, EUR/GBP just isn't the type of pair that touches support/resistance and then immediately moves away. Like all pairs, it respects major levels, but it consolidates in a lot of sideways price action before moving off or through them.

Now just look back at the 2016 spikes that my horizontal resistance levels have tried to be drawn off and look at the price action at that time. Like I said above, there is definitely a level there, but the sideways choppy price action makes it much more of a zone. What a zone at that!

For me, that channel resistance inside a huge resistance zone just isn't clear enough to cleanly be able to trade the level. The best bet here is to wait and see what sort of reversal pattern that the charts print in here and then zoom in and look for short term support turned resistance to possibly short off.

RBA's minutes for the August meeting revealed that policymakers were optimistic over the global and domestic economies. However, they reiterated the warning of the strength of Australian dollar, noting that its appreciation would curb growth and inflation over time. The central bank signaled concerns over the housing market and household debt, while appeared more comfortable over the employment situation. AUDUSD recovered after the release of the minutes.

The central bank appeared less concerned over the job market. At noted in the minutes, 'wage growth had remained low but was still expected to increase a little as conditions in the labor market improved'. It added that 'recent strong employment growth would be likely to contribute to an increase in household disposable income, and therefore consumption growth, over the forecast period'. In June, Australia's unemployment rate stayed unchanged at 5.6%. Yet, the increase in the number of full time jobs (up +62K) unveiled that the employers are more confidence over the economic outlook. The participation rate also added + 0.1 percentage point to 65%.

On the housing market, RBA noted that the rising prices and household balance sheets 'warrant careful monitoring'. The minutes noted that while the conditions in top-tiered cities, such as Sydney and Melbourne, had eased, housing price growth in these cities had 'remained relatively strong'. Housing markets in other regions 'had been declining', though. It added that the 'overall housing credit growth had continued to outpace the relatively slow growth in household incomes'. Indeed, the latest data from CoreLogic suggested that home values increased, from a year ago, in Sydney, Melbourne, Brisbane and Adelaide in the week ended August 13, while Perth edged lower. Meanwhile, the number of homes taken to auction rose to 2 011, compared with 1 857 over the previous week, across the combined capital cities this week. This marked the largest number of auctions held since the last week of June 2017 and approximately one third higher compared with the same week a year ago.

The RBA forecast that the economy would soon be growing at an annual rate of +3%, assuming that there's no major change in the Australian dollar. The central bank added that 'This assumption was one source of uncertainty'. Policymakers went to warn of the Aussie's strength, suggesting that 'a further appreciation of the Australian dollar would be expected to result in a slower pick-up in inflation and economic activity than currently forecast'.

Price rallies and looks to stabilize in the green zone if possible. Has extended the Friday’s rally and tries to recover after the immense drop. I’ve said in the previous week that the retreat could be completed after the failure to close on the upper median line (uml) of the minor ascending pitchfork.

Brent Oil drops like a rock and is very close to hit some important support levels. I’ve said in the previous analysis that the price may drop on the short term because was too overbought. Technically was expected to drop after the last false breakout above the 53.03 static resistance. Is attracted by the confluence between the sliding line (SL) with the minor uptrend line (dotted line). A breakdown through the mentioned support area will accelerate the sell-off. Will drop much deeper if will breakout from the minor ascending channel.

Price climbs higher after the Friday’s massive drop. It is trading in the green again as the dollar index has managed to rebound and to recover after the minor decrease. Looks like that the behavior will change on the USDX on the daily chart, signaling that we may have a larger rebound. USDX has started to make higher lows on the bullish pressure, but maybe he’ll need a bullish spark from the US economy to be able to climb towards fresh new highs.

The greenback will dominate the currency market if the USDX will have enough energy to jump and stabilize above the 93.81 and more importantly above the 94.00 psychological level. We’ll have a rebound if will stay above the 92.55 previous low.

Looks like we had a false breakdown below the 1.2678 static support, a minor consolidation above it will confirm a further increase. As you already know, the rate could be attracted by the median line (ML) of the major descending pitchfork. The median line is acting as a magnet, is expected to approach and reach also the uper median line (uml) of the minor descending pitchfork after the failure to retest the median line (ml).

A major upside movement will appear only if it will take out the mentioned resistance levels, this scenario will happen if the USDX will jump above the 94.00 psychological level.

You have to be careful because a failure to reach and retest the mentioned resistance levels will send the rate down quickly.

Fed Dudley: A precursor to Jackson Hole?

The markets continue to recover from last week’s disorder as US equities orchestrated a splendid showing recouping some of the sharp losses from last Friday as investor confidence returns with the de escalation of North Korea tension.

Dollar Yen bulls are smiling this morning in the wake of Fed Bill Dudley interview with the Associated Press where he was unabashedly hawkish. In what may be a precursor to Jackson Hole, the powerful New York Federal Reserve President believes the Fed’s balance-sheet reduction plan will begin in September and he is still confident of another rate hike this year. But realistically given how slight the markets 2017 rate hike expectations are, how much more bearishness could the FX markets price into the equation?

Oil markets leaked 2 % overnight on the back of weak China data and a stronger greenback. Commodity markets have been on edge since last week’s softer mainland trade data, so the sharp fall in CNY Industrial output will continue to weigh negatively on commodity markets as this is a clear sign that growth momentum in the world’s second largest economy is slowing.

Australian Dollar

The stronger USD and weaker China data have set the sagging tone for the Aussie dollar overnight ahead of today Monetary Policy Meeting Minutes. The weaker China data prints indicate the People’s Bank of China (PBOC ) cooling measures have the impact that economists predicted since the PBOC moved to deleverage.With commodity risk sentiment teetering, selling into commodity currency rallies will remain in vogue, and with base metals falling under renewed pressure, the Aussie will be the preferred short on this view.

Also weighing on regional sentiment President Donald Trump has set the wheels in motion for a US trade investigation of China’s intellectual property policies and, potentially, new tariffs on Chinese imports.

RBA Meeting Minutes revealed little change in the RBA’s view but the Aussie dollar is finding some support in morning trade on the back of improving risk sentiment.

Japanese Yen

A report published this morning stating that North Korea is backing off military escalation is adding more momentum to the haven trade unwind that began yesterday and coupled with some timely Fed speak, USDJPY moved through 110 with little opposition. External factors will continue to drive sentiment, with a more confident sounding Fed and risk sentiment rebounding, it would suggest there is room for USDJPY to extend the current rally over the days ahead. However, keep August 21-31 circled as South Korea & the US’s joint annual military exercise begins. With satellite photos suggested that North Korea seems to be preparing a new submarine launched ballistic missile, I suspect the markets will get testy again.

Euro

The market continues to re-engage the long EUR trade, this market darling is not about to give way anytime soon. It’s going to action not Fed rhetoric to shift the buy on dip sentiment

4 positions were entered last week with total profit of 240 points and the positions are listed below.

 1 Aug : AUD/USD - Short at 0.8030, exited at 0.7880 (+ 150 points)
 8 Aug : EUR/GBP - Short at 0.9080, exited at 0.9080 ( 0 point )
10 Aug: EUR/JPY - Short at 129.50, exited at 128.60 (+ 90 points)
14 Aug: GBP/JPY - Short at 142.50, exited at

|                 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           +150           + 60                 + 100                              +15            - 20
Sep              
Oct           
Nov         
Dec                                                                                                                                               
Y-T-D        + 366           - 22               +167            +463             -170            +110

Gold has posted losses to start off the week. In North American trade, spot gold is trading at $1283.99, down 0.43% on the day. On the release front, there are no US events on the schedule. On Tuesday, the US releases retail sales and core retail sales, key gauges of consumer spending.

The US economy remains strong, and although consumer confidence levels are high, this hasn't translated into higher consumer spending, a key driver of economic growth. After declines in retail sales in June, the markets are expecting gains in July, and strong readings could lift the US dollar and send gold prices lower. Investors are also keeping an eye on the Federal Reserve, which has said that it will begin trimming its bloated balance sheet of $4.2 trillion, most likely in September. This could weigh on gold prices, as a cut of $60 billion in the balance sheet is equivalent to a rate hike of 25 basis points.

Gold prices have dipped on Monday, as the crisis between North Korea and the US has eased. Last week, tensions soared between the two enemies, sending gold about 2.4%, as investors dumped shares and snapped up the safe-haven metal. Tensions between North Korea and the US remain high, but the prevalent sentiment in the markets is that a diplomatic solution will be found to end the crisis. Still, Donald Trump and Kim Jon-un are unpredictable leaders, and any move by either side could easily ratchet up tensions and unnerve investors. Donald Trump continues to deal with domestic problems as well, and the White House faced stinging criticism from both Republicans and Democrats, as Trump failed to single out white supremacists for the violence in Charlottseville, Virginia, where one person was killed at a demonstration against far-right marchers.

5 positions were entered among all 4 currency pairs with total profit of 55 points and the positions are listed below:

  8 Aug : USD/JPY - Long at 110.30, exited at 110.25 (- 5 points)
  9 Aug : EUR/USD - Short at 1.1770, exited at 1.1770 ( 0 point)
  9 Aug : GBP/USD - Long at 1.3000, exited at 1.2965 (- 35 points)
11 Aug : USD/CHF - Long at 0.9610, exited at 0.9705 (+ 95 points)
11 Aug : EUR/USD - Long at 1.1790,

|                 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           + 75            + 65                + 95             -35        
Sep             
Oct         
Nov        
Dec                                                                                               
Y-T-D       + 403            +68               +287           -109