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The British pound has started the week quietly. In the North American session, the pair is trading at 1.2984, down 0.20% on the day. On the release front, there are no British or US events on the calendar. On Tuesday, the UK releases a host of inflation data, led by CPI. The US will publish retail sales and core retail sales reports.

The crisis between North Korea and the US remains a geopolitical hot spot, but the political temperature is lower this week between Washington and Pyongyang. Last week saw some saber rattling between the two countries, culminating with North Korea threatening to hit Guam with a missile strike. Although both sides are interested in a diplomatic solution, the crisis has unnerved investors, boosting safe-haven assets such as gold and the Japanese yen. Donald Trump has his hands full on the domestic front as well. The White House faced stinging criticism from both Republicans and Democrats, as Trump failed to single out white supremacists for the violence in Charlottesville, Virginia, where one person was killed at a demonstration against far-right marchers.

The British manufacturing sector is showing signs of fatigue, based on a key indicator, Manufacturing Production. The indicator has managed just one gain in 2017, and the June reading of 0.0% is hardly reassuring news. There was no relief from Britain's trade balance, as the deficit climbed to GBP 12.7 billion in June, marking a three month high. Investors remain concerned about Brexit, and the Bank of England has not shied away from warning that Britain's departure from the EU will hurt the British economy. One of the buzz words surrounding Brexit is "transition period", as some politicians have come out in favor of a period between Britain's departure and post-Brexit rules coming into effect. This would minimize the destabilizing effect of Brexit on financial companies, for example. Last week, BoE Deputy Governor Sam Woods said that "some form of implementation period is desirable", although he stopped short of providing any specifics. The concept of a transition period could come up in talks between the two sides if the May government decides that it wants a transition period.

During European trading hours, the dollar managed to reverse partially from losses made on Friday, after comments by two US civil officials and the South Korean president on Monday eased war tensions between the US and North Korea. Meanwhile, the euro weakened as data out of the eurozone showed that industrial output in the area missed expectations.

Following Trump's comments on Friday, who warned that the US army was "locked and loaded" if North Korea acted unwisely, the South Korean president, Moon Jae-in, said on Monday in a meeting with aides and advisers, that conflicts between the two countries must be resolved "peacefully". The risks of a nuclear war have also diminished following the remarks by the US National security adviser H. R. McMaster and the US Central Intelligence Agency Director Mike Pompeo on Sunday. The former expressed that the country is "not close to a war than a week ago", while the latter supported that the situation was exaggerated and that a potential war would not take place even if the North Korean president continued with missile tests.

The dollar gained against its rivals, with the dollar index rising from 92.96 at the end of the Asian session to 93.18 during afternoon European trading hours.

Demand for safe-haven assets also slowed down amid fewer concerns of a possible nuclear war. Dollar/franc posted the greatest gain in approximately three-weeks, climbing to 0.9687, while dollar/yen was in an uptrend during the day despite upbeat Japanese GDP data released early on Monday.

In other news, eurozone industrial production contracted by 0.6% month-on-month in June after posting the highest growth – specifcally, 1.2% – seen in 2017 during May (downwardly revised from 1.3%). Expectations were for a milder reduction by 0.5%. However, year-on-year, the figure was positive at 2.6%, below the forecasted 2.8% and May's six-year high of 3.9%.

As a response to the data, the euro retreated against the greenback, falling from $1.1806 prior the data release to $1.1788.

Sterling lost ground versus its US counterpart, declining to $1.2969 after UK ministers Phillip Hammond and Liam Fox held on Sunday a joint position that the transition period after Brexit should be limited in duration and should not be used to prevent Brexit.

The aussie and the kiwi continued their downtrend as a consequence of the disappointing Chinese data published during Asian trading and which involved industrial production, retail sales, and fixed capital investment. The aussie traded lower at $0.7862 and the kiwi was down to $0.7287.

The loonie weakened versus the dollar, with dollar/loonie climbing to 1.2707.

Regarding commodity markets, oil prices rebounded from intra-day losses. WTI crude and Brent both last traded up on the day at $49.00 and $52.25 per barrel, up 0.4% and 0.2% on the day respectively. Gold recovered moderately to $1283.14 per ounce after touching a session low of $1278.48.

The EUR/USD price is dropping after a strong upward impulse at the end of last week following the weaker than expected report on American consumer price index. The increase of inflation in July by only 0.1% reduced the possibility of the third rate hike by the Fed during 2017. The main factor that supports the greenback is some easing in tensions related to the confrontation between the US and North Korea. Investors are waiting for tomorrows data on American retail sales that may possibly lead to high volatility.

The USD/JPY demonstrates confident upward movements amid a stronger US dollar and a lower demand for the Yen as a defensive asset. We should note that those two factors have been able to offset the strong statistics according to which the Japanese economy expanded by 1.0% in the second quarter compared to 0.3% in the previous period.

The Australian dollar has been hit by a number of factors during today's trading session, including the rebound of the US dollar, lower commodities' prices and disappointing macro statistics from the country's main trading partner China. Thus, the industrial production in the second largest economic power in the world slowed to 6.4% in June, that is 0.7% worse than expected. At the same time, retail sales in China during June increased by 10.4% vs the similar period of 2016 while experts anticipated an increase of 10.9%.

EUR/USD

The single currency price has rolled back after it tested the local resistance near 1.1850. The potential of growth is limited by the important 1.1900 mark and its breaking will open the way for a further increase up to 1.2000 and 1.2200. On the other hand, fixing below 1.1800 may become a trigger for a continued fall to 1.1700 and 1.1620. The volatility is likely to remain high tomorrow.

USD/JPY

After a number of attempts to overcome the 108.85 level and to fix below it, the USD/JPY has shown a confident growth within the descending channel and currently is around 109.60. In order to change the trend to positive, the price needs to break through the upper boundary of the channel and to gain a foothold above 110.30. In case of success, the targets will be at 113.00 and 114.70. Currently the price is moving within the descending band and its next goal in case of the fall resumption will be at 108.85.

AUD/USD

The AUD/USD is falling sharply within the limits of the descending channel. In case of updating the local low near 0.7840 we are likely to see the drop to 0.7800. After a rapid movement, we may see the upward correction pointing to the RSI near the oversold zone on the 15-minute chart. In such cases, the quotes may return to 0.7900 and its breaking may trigger a further increase to 0.8000-0.8050.

USD/JPY has edged higher in the Monday session. In North American trade, the pair is trading at 109.83, up 0.33% on the day. The week started on a positive note, as Japan's Preliminary GDP was solid in the second quarter, posting a gain of 1.0%. This easily beat the estimate of 0.6%. On Monday, there are no Japanese or US releases. On Tuesday, the US releases Retail Sales and Core Retail Sales.

The Japanese economy has shown signs of improvement, and this was underscored as Preliminary GDP in Q2. Japan has now posted a sixth consecutive of growth, marking the longest expansion in over a decade. Although exports have declined, domestic demand has rebounded. With a tight labor market and the business sector confident about economic conditions, better times could continue in 2017. The fly in the ointment remains inflation, as BoJ's ultra-easy monetary policy has failed to eliminate the threat of deflation. The BoJ has insisted that it will not tighten policy before inflation climbs closer to the bank's inflation target of 2%, but clearly this goal is unrealistic in the short term, and the BoJ may have to lower its inflation target.

The Japanese yen was one of the winners of last week's crisis over North Korea, as investors shunned the stock markets and sought safe-haven assets such as the yen and gold. USD/JPY dropped 1.3% last week, and the low of 108.74 marked the lowest weekly low since April. 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.

USD/CHF - 0.9703

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9676

Kijun-Sen level                    : 0.9662

Ichimoku cloud top                 : 0.9629

Ichimoku cloud bottom              : 0.9616

Original strategy :

Exit long entered at 0.9610

Position : - Long at 0.9610

Target :  -

Stop : -

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Current anticipated rally above indicated resistance at 0.9675 adds credence to our view that the fall from 0.9773 has formed a low at 0.9583 on Friday and although near term upside bias remains for the rebound from there to extend gain to 0.9720-30, as broad outlook remains consolidative, reckon upside would be limited to 0.9750 and price should falter below said resistance at 0.9773, bring retreat later.

As we have taken profit on our long position entered at 0.9610, would not chase this rise here and would be prudent to stand aside for now. Below the Kijun-Sen (now at 0.9662) would suggest an intra-day top is formed instead, bring weakness to the lower Kumo (now at 0.9616) but break there is needed to signal the rebound from 0.9573 has ended, bring weakness to 0.9600 first. 

GBP/USD - 1.2985

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2988

Kijun-Sen level                    : 1.2995

Ichimoku cloud top              : 1.2978

Ichimoku cloud bottom        : 1.2976

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling marginally to 1.2940 last Friday, lack of follow through selling and the subsequent rebound has retained our view that further consolidation above this level would take place and another bounce to 1.3030-35 cannot be ruled out, however, reckon upside would be limited to resistance at 1.3059 and price should falter below 1.3085-90 and bring another decline later.

On the downside, below said support at 1.2940 is needed to signal recent fall from 1.3269 top has resumed and extend weakness to previous chart support at 1.2933 but reckon 1.2900 would hold from here, risk from there has increased for a rebound to take place later. As near term outlook is still mixed, would be prudent to stand aside for now. 

EUR/USD - 1.1782

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.1804

Kijun-Sen level                  : 1.1809

Ichimoku cloud top             : 1.1784

Ichimoku cloud bottom      : 1.1762

Original strategy  :

Bought at 1.1790, Target: 1.1890, Stop: 1.1770

Position : - Long at 1.1790

Target :  - 1.1890

Stop : - 1.1770

New strategy  :

Hold long entered at 1.1790, Target: 1.1890, Stop: 1.1770

Position : - Long at 1.1790

Target :  - 1.1890

Stop : - 1.1770

As the single currency has retreated after meeting resistance at 1.1847 on Friday, suggesting consolidation below this level would be seen, however, reckon 1.1770 would limit downside and bring another rebound, above said resistance at 1.1847 would add credence to our view that low has been formed at 1.1689 last week, bring further gain to 1.1880 but a firm break above there is needed to confirm correction from 1.1910 top has ended, bring retest of this level.

In view of this, we are holding on to our long position entered at 1.1790. Only below support at 1.1748 would defer and risk weakness to 1.1720, however, downside should be limited to 1.1700 and support at 1.1689 should remain intact, bring another rally later.

USD/JPY - 109.54

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 109.62

Kijun-Sen level                  : 109.36

Ichimoku cloud top             : 109.46

Ichimoku cloud bottom      : 109.18

Original strategy  :

Sell at 110.10, Target: 109.10, Stop: 110.45

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 110.10, Target: 109.10, Stop: 110.45

Position :  -

Target :  -

Stop : -

As the greenback has staged a strong rebound after Friday’s brief fall to 108.73, suggesting a temporary low has been formed there and consolidation with mild upside bias is seen for retracement of recent decline to 109.80, however, reckon upside would be limited to resistance at 110.18 and bring retreat later, below 109.00 would signal the rebound from 108.73 has ended, bring retest of this level, break there would extend recent decline to 108.50 but previous chart support at 108.13 should remain intact. 

In view of this, we are inclined to sell dollar on further subsequent rebound as resistance at 110.18 should cap upside. Above previous support at 110.25 would risk a stronger corrective rise to 110.50 but still reckon upside would be limited and resistance at 110.83 should remain intact, bring another selloff.

EUR/GBP - 0.9084

 
Recent wave: Major double three (A)-(B)-(C)-(X)-(A)-(B)-(C) is unfolding and 2nd (A) has possibly ended at 0.6936.

Trend: Near term up

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

 
As the single currency has maintained a firm undertone after surging to 0.9119 on Friday, suggesting near term upside risk remains for recent upmove to extend one more rise and gain to 0.9145-50 cannot be ruled out, however, weakening of near term upward momentum should prevent sharp move beyond 0.9175-80 and price should falter below 0.9100, bring correction later.

In view of this, would not chase this rise here and would be prudent to stand aside for now. Below 0.9050 would bring another test of 0.9008-10 support but break there is needed to suggest a temporary top is possibly formed, bring retracement of recent rise to 0.8965-70 and later towards 0.8922 support which is likely to hold from here.

Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.

USD/CAD - 1.2703

 
Recent wave: Only wave v of c has ended at 0.9407 and wave C of major A-B-C correction is underway with wave iii ended at 1.4690, wave v of C may bring one more marginal rise probably in 2018

Trend:  Down

 
Original strategy       :

Sell at 1.2800, Target: 1.2600, Stop: 1.2860

Position: -

Target:  -

Stop: -

 
New strategy             :

Sell at 1.2800, Target: 1.2600, Stop: 1.2860

Position: -

Target:  -

Stop:-

Although the greenback retreated after meeting resistance at 1.2753, reckon downside would be limited to support at 1.2651-52 and near term upside risk remains for the corrective rise from 1.2414 (tentatively wave iv) to extend gain to 1.2771 (previous resistance as well as 38.2% Fibonacci retracement of wave iii), however, reckon upside would be limited and renewed selling interest should emerge around 1.2800, bring retreat later, below said support would bring test of 1.2625-30, break there would suggest top is possibly formed but below 1.2540-50 is needed to add credence to this view and suggest the rebound from 1.2414 has ended instead, bring further fall to 1.2490-00, having said that, reckon support at 1.2451 would hold on first testing. We are keeping our count that wave v as well as wave (C) ended at 1.3794 and impulsive wave (i ii, i ii) is now unfolding with minor wave iii possibly ended at 1.2414, hence wave iv correction is underway.

In view of this, would be prudent to stand aside for now and look to sell on further subsequent rebound as 1.2800-10 should limit upside. Above 1.2800-10 would defer and risk a stronger correction to 1.2850, however, still reckon upside would be limited to 1.2880-85 (50% Fibonacci retracement of wave iii) and bring retreat later next week.

To recap, wave B from 1.3066 is unfolding as an a-b-c and is sub-divided as a: 1.2192, b: 1.2716 and wave c is a 5-waver with i: 1.1983, ii: 1.2506, extended wave iii with minor iii at 1.0206, wave iv ended at 1.0781 and wave v as well as wave iii has ended at 0.9931, hence the subsequent choppy trading is the wave iv which is unfolding as (a)-(b)-(c) with (a) leg of iv ended at 1.0854, followed by (b) leg at 1.0108 and (c) leg as well as the wave iv ended at 1.0674. The wave v is sub-divided by minor wave (i): 0.9980, (ii): 1.0374, (iii): 0.9446, (iv): 0.9913 and (v) as well as v has possibly ended at 0.9407, therefore, consolidation with upside bias is seen for major correction, indicated target at 1.3700 and 1.4000 had been met and further gain to 1.4700 would be seen later.