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Dollar suffers selloff against most major currencies except Sterling after slightly weaker than expected CPI data. But it's Euro that really shines in early US session, extending recent rally against Sterling and is trying to rebound against Yen and Swiss Franc. That could be technical driven as both EUR/JPY and EUR/CHF are close to near term fibonacci support. Still, for the week as a whole, Yen and Swiss Franc are still trading as the strongest currencies. Commodity currencies and Sterling will likely end as the weakest on risk aversion.

Trump Tweets: Military solutions are now fully in place, locked and loaded

US-North Korea tension remain the main focus of the markets and traders are getting more cautious ahead of the weekend. US President Donald Trump continues his verbal combat and tweets today that "military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully Kim Jong Un will find another path!" Trump warned yesterday that "they should be very nervous, because things will happen to them like they never thought possible, OK?"

China issues formal statement: Hopes that all relevant parties will be cautious on their words and actions

On the other hand, China Foreign Ministry spokesman Geng Shuang said in a formal statement. "The current situation on the Korean Peninsula is complicated and sensitive." And "China hopes that all relevant parties will be cautious on their words and actions, and do things that help to alleviate tensions and enhance mutual trust, rather than walk on the old pathway of taking turns in shows of strength, and upgrading the tensions."

RBA Lowe: Next move will be up rather than down

RBA Governor Philip Lowe told the parliament today that the next move in interest rate will be "up rather than down", but that is "quite some time away". He referred to market pricing that "implies greater probability of a rate rise than a rate reduction". Also, another implication is that "the next move in interest rates is a long way out". Lowe said they're "both reasonable assumptions". Meanwhile, he also pointed to the high exchange rate as having negative impact on the outlook. He noted that "further appreciation, all else constant, would cause a slower pick-up in inflation and slower progress in reducing unemployment."

US CPI disappointing

US headline CPI rose merely 0.1% mom in July, below expectation of 0.2% mom. On annual basis, headline CPI climbed to 1.7% yoy, up from 1.6% yoy but missed expectation of 1.8% yoy. Core CPI rose 0.1% mom, below expectation of 0.2%. On annual basis, core CPI was unchanged at 1.7% yoy, in line with consensus.

Released earlier today, German CPI was finalized at 0.4% mom, 1.7% yoy in July. New Zealand business NZ manufacturing index dropped to 55.4 in July.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 128.01; (P) 128.78; (R1) 129.33; More...

EUR/JPY formed a temporary low at 128.04 and recovered. The cross is drawing support from 38.2% retracement of 122.39 to 131.39 at 127.95 as we expected. Intraday bias is turned neutral first. On the upside, break of 129.54 minor resistance will argue that pull back from 131.39 is completed. In such case, intraday bias will be turned back to the upside for retesting 131.39. However, sustained break of 127.95 will bring deeper decline to 125.80 cluster support (61.8% retracement at 125.82) before completing the correction.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds.

Economic Indicators Update

Daily Pivots: (S1) 128.01; (P) 128.78; (R1) 129.33; More...

EUR/JPY formed a temporary low at 128.04 and recovered. The cross is drawing support from 38.2% retracement of 122.39 to 131.39 at 127.95 as we expected. Intraday bias is turned neutral first. On the upside, break of 129.54 minor resistance will argue that pull back from 131.39 is completed. In such case, intraday bias will be turned back to the upside for retesting 131.39. However, sustained break of 127.95 will bring deeper decline to 125.80 cluster support (61.8% retracement at 125.82) before completing the correction.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds.

USD/CHF - 0.9605

Original strategy :

Bought at 0.9610, Target: 0.9710, Stop: 0.9575

Position : - Long at 0.9610

Target :  - 0.9710

Stop : - 0.9575

New strategy  :

Hold long entered at 0.9610, Target: 0.9710, Stop: 0.9575

Position : - Long at 0.9610

Target :  - 0.9710

Stop : - 0.9575

Although the greenback dropped again in NY morning, loss of near term downward momentum should prevent sharp fall below 0.9580 and upside risk remains for another rebound, above 0.9640-45 would bring test of resistance at 0.9675 but break of latter level is needed to signal an intra-day low is formed, bring test of previous support at 0.9710, above there would provide confirmation, bring stronger rebound to 0.9740 but price should falter well below 0.9773.

In view of this, we are holding on to our long position but one must exit on such rebound. Below 0.9580 would signal the fall from 0.9773 top is still in progress for retracement of recent upmove to 0.9565-70 (61.8% Fibonacci retracement of 0.9438-0.9773), then 0.9550 but price should stay well above support at 0.9490. 

GBP/USD - 1.2981

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Despite falling marginally to 1.2952 yesterday, lack of follow through selling and the subsequent rebound suggest further consolidation would take place and another bounce to 1.3025-30 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 support at 1.2950-52 would 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. 

EUR/USD - 1.1818

Original strategy  :

Buy at 1.1725, Target: 1.1825, Stop: 1.1690

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.1790, Target: 1.1890, Stop: 1.1755

Position : -

Target :  -

Stop : -

Current rally in NY morning adds credence to our view that low has been formed at 1.1689 earlier this week and further gain to 1.1850, then 1.1880 would be seen, however, a firm break above latter level is needed to confirm correction from 1.1910 top has ended, bring retest of this level, break there would signal early upmove has resumed and extend headway towards 1.1940-50 first.

In view of this, we are still looking to buy euro on dips but at a higher level as 1.1790 should limit downside. 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 next week.

• U.S July Consumer Prices +0.1%; Consensus +0.2%
• US Jul CPI Ex-Food & Energy +0.1%; Consensus +0.2%
• US Jul Consumer Prices Increase 1.7% From Year Earlier; Core CPI Up 1.7% Over Year

Data this morning showed that U.S inflation remained subdued in July, extending a slowdown this year.

The consumer-price index increased +0.1% in July m/m, excluding the often-volatile categories of food and energy, core-prices also rose +0.1%.

Market consensus was expecting the overall and core prices to both advance +0.2% on the month.

From a year earlier, overall consumer prices climbed +1.7%, as did core prices.

The Fed's preferred measure of inflation, the price index for personal-consumption expenditures, was unchanged in June from the prior month, the second straight flat reading. It was up +1.4% in June from a year earlier and has dropped for four consecutive months on an annual basis, from +2.2% in February.

Note: The consumer-price index tends to run a little bit higher than the personal-consumption index, reflecting different methods for calculating inflation.

The CAC index has posted sharp losses on Friday. Currently, the index is at 5,064.50, down 0.99% on the day. On the release front, French indicators were within expectations. Final CPI came in at -0.3%, matching the estimate, while Preliminary Nonfarm Payrolls posted a gain of 0.5%, edging above the forecast of 0.4%.

Rising tensions between North Korea and the US, with threats of military action from both sides, have soured investment sentiment and pushed Asian and European stock markets lower on Friday. Investors have dumped shares in favor of safe-haven assets, such as the Japanese yen, gold and German government bonds. North Korea has vowed to retaliate over new sanctions imposed by Washington and has outlined plans to attack Guam, a major US military base. The fiery rhetoric between President Trump and North Korean President Kim Jong-un is causing alarm in South Korea and Japan, strong allies of the US. The present situation is being compared to the Cuban Missile crisis, and although military action is unlikely to take place, the crisis has reached levels where the markets cannot ignore it.

French Final CPI weakened in July, with a decline of 0.3%. The previous two readings came in at 0.0%, underscoring that the French economy continues to grapple with weak inflation levels. The inflation picture continues to worry ECB policymakers, as stronger economic growth has not translated into higher inflation levels. Inflation in the eurozone stood at 1.3% year-on-year in July, well below the bank's inflation target of 2%. Next week, the ECB releases Final CPI, and a weak reading could dampen investor confidence and send the euro lower.

The cautious ECB has consistently said that it will not adjust its asset purchases program (QE) before inflation levels move higher, but the bank may be prepared to change that view. At its July policy meeting, the bank said it would hold discussions on the scheme in "the autumn", and analysts are split as to whether that means September or October. Either way, this means that the markets expect to hear shortly from the ECB that it will begin winding down its aggressive QE policy, given the stronger economic conditions in the euro zone, even if inflation does not move higher. The bloc's economy is forecast to expand a healthy 2.0% this year, and the eurozone outperformed both the US and the UK in the first half of 2017. Another factor which policymakers must deal with is the ECB's bloated balance sheet, which stands at more than EUR 2 trillion. The Federal Reserve expected to begin trimming its huge balance sheet as early as September, and this could have a significant effect on the currency markets, as a reduction of $60 billion in the Fed's balance sheet is equivalent to a rate hike of 25 basis points.

USD/JPY - 108.83

Original strategy  :

Sell at 109.70, Target: 108.70, Stop: 110.05

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 109.50, Target: 108.50, Stop: 109.85

Position :  -

Target :  -

Stop : -

As the greenback has fallen again after brief recovery and fell to a fresh 4-month low in NY morning, adding credence to our view that recent decline is still in progress and bearishness remains for weakness to 108.50, then towards previous chart support at 108.13, however, loss of near term downward momentum should prevent sharp fall below there and reckon 108.00 would hold on first testing. 

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as previous support at 109.54 should turn into resistance and cap dollar’s upside. Above 109.80 would risk test of indicated resistance at 110.18 but break there is needed to abort and signal recent decline has ended and risk a stronger rebound to 110.50 but price should falter below another previous resistance at 110.83. 

EUR/GBP - 0.9092

 
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

Original strategy  :

Sold at 0.9080, stopped at break-even

Position : - Short at 0.9080

Target :  -

Stop : - 0.9080

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

 
The single currency continued finding decent demand just below 0.9010 and has risen again, dampening our near term bearishness for a correction and signaling recent upmove has resumed, hence further gain to 0.9120-25, then 0.9145-50 would be seen, 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.

Price posted humble gains today as the USD is undecided on the short term after the USDX's failure to close above the 93.81 static resistance. GBP/USD is pressuring an important support level, technically, is expected to rebound from this dynamic obstacle, but remains to see how will react after the United States data will be released later.

The US inflation numbers may bring a high volatility in the currency market, remains to see the direction because some good numbers will boost the greenback, which will resume the minor upside movement.

The United States CPI is expected to increase by 0.2% in July, more versus the 0.0% growth in June, could reach the highest growth on the last 3-months. While the Core CPI may increase by 0.2%, more compared to the 0.1% growth in the former reading period, the economic indicator could reach the highest level of the last 5-months and could lift the greenback.

Price dropped after the retest of the upside line of the up channel and now is retesting the first warning line (wl1) of the ascending pitchfork. A rebound will come only if the USDX will slide further because another bullish momentum will send the rate much below the dynamic support.

Support can be found at the upper median line (UML) of the ascending pitchfork as well. Price will be driven by the fundamental factors in the upcoming hours. The bias is bullish as long as the warning line (wl1) is unharmed.