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US-North Korea Dispute Remains on the Forefront; Dollar Weakens on Inflation
Rising tensions between North Korea and the United States were once again the theme of the day with only the release of much-awaited inflation figures out of the US managing to divert attention away from developments on that front. Inflation numbers surprised to the downside, leading the dollar to post considerable losses relative to other major currencies within the first minutes of data release.
The all-important July inflation numbers out of the US failed to satisfy dollar bulls' hopes of strongly putting a Fed rate hike later in the year back on the table. In particular, July headline inflation came in at 0.1% month-month in July, falling short of expectations for CPI growth to stand at 0.2% – still this was better than June's 0.0%. On an annual basis, inflation grew by 1.7%, below the 1.8% that was expected but above the 1.6% from the previous month. Core inflation that excludes volatile food and energy items grew at a pace of 0.1% m/m, the same as in June but below the forecasted 0.2%. Year-on-year, the measure remained unchanged relative to June – it stood at 1.7% as expected. Odds of a Fed rate rise during the December meeting currently stand at around 40% according to the CME Group's 30-day Fed Fund futures prices.
In terms of forex market movements, the US currency lost significant ground relative to majors including the yen, sterling and the euro – most notably the latter one – as the news on inflation went public. Interestingly though, it soon after managed to more than make up for its losses relative to the Japanese and British currencies, while it recovered a significant portion of its losses versus the euro as well.
The dollar index, which gauges the greenback against the currencies of six major US trading partners, was last 0.2% down on the day during afternoon European trading hours – it stood at 93.20. It fell to a one-week low of 92.99 a few minutes after the release of inflation figures. Meanwhile, euro/dollar was 0.2% up, just shy of the 1.18 handle, pound/dollar was flat, having earlier hit a three-week low of 1.2939 and dollar/yen was 0.1% down above the 109 level – the pair fell to 108.72 after the data on US CPI, its lowest since April 20.
The US-North Korea spat that allowed safe havens to rally this week continued during today's European session. US President Donald Trump added to the heat by tweeting that "Military solutions are now fully in place,locked and loaded,should North Korea act unwisely. Hopefully Kim Jong Un will find another path!" [sic]. North Korea accused him of driving the Korean Peninsula to the brink of nuclear war. Safe-haven perceived gold rose to a more than two-month high of $1291.99 an ounce during today's trading. It later retreated to last trade slightly below the day's open at $1286.49. The precious metal posted hefty gains in the three preceding days. The Swiss franc, another safe-haven, failed to maintain momentum from earlier days, losing ground relative to the euro and was last broadly flat versus the dollar after dollar/franc fell to a fresh two-week low 0.9582 earlier in the day.
Turning to the oil-linked loonie, it managed to post some gains relative to the greenback despite weakening oil prices. Dollar/loonie was last down 0.3% and below the 1.27 mark after rising to a one-month high of 1.2752 earlier in the day. The pair advanced in the preceding nine out of ten trading days.
Concluding with oil, WTI was last 1.0% down on the day, just above $48 a barrel, while Brent crude was 0.9% down, around $51.40 a barrel.
Trade Idea Wrap-up: USD/CHF – Hold long entered at 0.9610
USD/CHF - 0.9626
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 0.9611
Kijun-Sen level : 0.9621
Ichimoku cloud top : 0.9693
Ichimoku cloud bottom : 0.9652
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: 0.9580
Position : - Long at 0.9610
Target : - 0.9710
Stop : - 0.9580
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.
Trade Idea Wrap-up: GBP/USD – Stand aside
GBP/USD - 1.2981
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 1.2986
Kijun-Sen level : 1.2983
Ichimoku cloud top : 1.3003
Ichimoku cloud bottom : 1.2996
New strategy :
Stand aside
Position : -
Target : -
Stop : -
Despite falling marginally to 1.2940 in NY morning, 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 said support at 1.2940 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. As near term outlook is still mixed, would be prudent to stand aside for now.
Trade Idea Wrap-up: EUR/USD – Hold long entered at 1.1790
EUR/USD - 1.1795
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.1792
Kijun-Sen level : 1.1777
Ichimoku cloud top : 1.1754
Ichimoku cloud bottom : 1.1728
Original strategy :
Bought at 1.1790, Target: 1.1890, Stop: 1.1755
Position : - Long at 1.1790
Target : - 1.1890
Stop : - 1.1755
New strategy :
Hold long entered at 1.1790, Target: 1.1890, Stop: 1.1755
Position : - Long at 1.1790
Target : - 1.1890
Stop : - 1.1755
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 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 next week.
Trade Idea Wrap-up: USD/JPY – Sell at 109.70
USD/JPY - 109.13
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 109.07
Kijun-Sen level : 109.22
Ichimoku cloud top : 110.20
Ichimoku cloud bottom : 109.85
Original strategy :
Sell at 109.50, Target: 108.50, Stop: 109.85
Position : -
Target : -
Stop : -
New strategy :
Sell at 109.70, Target: 108.70, Stop: 110.05
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 limit dollar’s upside. Above the lower Kumo (now at 109.85) 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.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.2946; (P) 1.2980; (R1) 1.3011; More...
Breach of 1.2950 suggests that GBP/USD's fall from 1.3267 is resuming. Intraday bias is back on the downside. . As noted before, price actions from 1.1946 are seen as a corrective pattern and could have completed at 1.3267. Break of 1.2932 will affirm this bearish case and target 1.2588 key near term support for confirmation. However, break of 1.3111 resistance will turn bias back to the upside for retesting 1.3267 high.
In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern that is still in progress. While further upside is expected, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.9603; (P) 0.9639; (R1) 0.9660; More...
USD/CHF breached 0.9594 support but quickly recovered. Intraday bias stays neutral first. Outlook is a bit mixed as the pair is bounded inside medium term falling channel. The pair was also limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783. Firm break of 0.9594 will dampen our bullish view and turn bias back to the downside for 0.9437. This could also extend the fall through 1.0342 through 0.9437/43 key support level. On the upside, above 0.9772 will revive the bullish case of reversal and turn bias back to the upside.
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.
USD/JPY Mid-Day Outlook
Daily Pivots: (S1) 108.84; (P) 109.51; (R1) 109.87; More...
Intraday bias in USD/JPY remains on the downside for the moment. Firm break of 108.81 support will resume whole correction from 118.65 and target 61.8% retracement of 98.97 to 118.65 at 106.48. On the upside, above 109.55 minor resistance will turn intraday bias neutral first. But near term outlook will remain bearish as long as 110.61 support turned resistance holds.
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, down side should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.
EUR/GBP Mid-Day Outlook
Daily Pivots: (S1) 0.9027; (P) 0.9051; (R1) 0.9095; More
EUR/GBP's rally resumed by breaking 0.9087 and intraday bias is turned back to the upside. Current rise from 0.8312 should be targeting 0.9304 key resistance. At this point, there is no clear sign of up trend resumption yet. Hence, we'll be cautious on strong resistance from 0.9304 to limit upside and bring another fall. On the downside, below 0.9050 minor support will turn intraday bias neutral first. But further rise will remain in favor as long as 0.8948 resistance turned support holds.
In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. It's uncertain whether it is finished yet. But in case of another fall, we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside and bring rebound. Whole up trend from 0.6935 is expected to resume after consolidation from 0.9304 completes.
Canadian Dollar Improves as U.S. CPI Reports Miss Estimates
The Canadian dollar has posted considerable gains in Friday's North American session. Currently, USD/CAD is trading at 1.2679, down 0.50% on the day. On the release front, US CPI and Core CPI posted weak gains of 0.1%, shy of their estimates of 0.2%. There are no Canadian events on the schedule. Later in the day, we'll hear from two FMOC members, Dallas Fed President Robert Kaplan and Minneapolis Fed President Neel Kashkari.
More US inflation numbers, more disappointment for the markets. Consumer Price Index reports in June underscored a soft inflation picture, as both CPI and Core CPI showed negligible gains of 0.1%. This follows a 0.1% decline in the Producer Price Index for June. The persistently soft inflation indicators may hamper plans by the Federal Reserve to raise rates, as some FOMC members continue to advocate against a rate increase until inflation climbs closer to the Fed's inflation target of 2%. However, inflation is not showing any signs of moving higher, which means that a December rate hike remains very much in doubt.
Global markets remain jittery over rising tensions between North Korea and the US. With the war of words escalating between the two countries, global markets are down, as investors have dumped shares in favor of safe-haven assets, such as the Japanese yen and gold. North Korea has vowed to retaliate over new sanctions imposed by Washington and has threatened to attack Guam, which is a major US military base. President Trump and North Korean President Kim Jong-un are on a possible collision course, which has caused alarm in South Korea and Japan, strong allies of the US. The present situation is being compared to the Cuban Missile crisis, and although the likelihood of actual hostilities breaking out remains small, the crisis has reached levels where the markets cannot ignore it.
In contrast to the uncertainty over the Fed's monetary plans, the Bank of Canada is leaning towards further tightening, possibly before the end of 2017. The bank raised interest rates in July and the odds of a rate increase in October are at 78 percent. In May, annualized GDP was up 4.6%, and the labor market continues to produce jobs. The increase in oil prices has revived the economy has also pushed the Canadian dollar higher. At the same time, similar to the situation in the US, inflation remains subdued, despite a stronger economy and an improving labor market. The lack of inflation could cause the Federal Reserve to abandon plans for another rate hike this year, and this could also lead to the BoC deciding to delay a rate hike until inflation moves higher.