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Downside risks prevailed in the market on Wednesday, thus sending the common European currency to decline by 81 base points against the Japanese Yen. The pair broke the three weeks ascending channel as shown on the 1(H) chart.

The currency pair tested a support cluster formed by the 200-hour simple moving average and the combination of the weekly and the monthly PPs near the 131.75 mark.

If this support cluster holds, the EUR/JPY currency exchange rate could move towards the 50– and 100-hour SMAs at 132.65 during the following trading session.

Although, if the rate passes the support line, a new descending channel might reveal tomorrow.

The AUD/USD currency pair traded with high volatility on Wednesday. The pair tested a one-month high mark at 0.7315 during the end of yesterday's trading session.

However, today's session begins with a bearish momentum. As a result, the exchange rate breached the 200-hour simple moving average and also broke out through the lower boundary of a three-week ascending channel at 0.7245.

Given that the three SMAs is above the price, it is likely that the currency exchange rate continues moving south for potential targets at 0.7187.

Although, the bottom border of a junior descending channel at 0.7228 might provide support for the rate to reverse north within this session

Upside risks dominated the US Dollar against the Canadian Dollar on Wednesday. The currency pair ended the previous session with a 100 base points gained.

Today's session begins with a bullish momentum and by the middle of the European trading session, the exchange rate has tested the 50.00% Fibonacci retracement level at 1.3057.

Given that the USD/CAD currency pair has breached the 50.00% Fibo, the next targets for the rate will be the 38.20% Fibo retracement level at 1.3097.

However, it is expected that the currency exchange rate makes a brief pullback towards the 61.80% retracement level at 1.3016 during the following trading session.

A two-week ascending channel has guided the New Zealand Dollar higher against the US Dollar.

However, the currency pair broke out through the lower boundary of the two weeks ascending channel at 0.6654 during the first part of Thursday's trading session. Currently, the 200-hour simple moving average at 0.6636 is providing support for the rate.

If this support level holds, the NZD/USD currency exchange rate could make a pullback north towards a resistance level formed by the monthly pivot point at 0.6664 during the following trading session.

The World Trade Organization warned today that "escalating trade tensions and tighter credit market conditions in important markets will slow trade growth for the rest of this year and in 2019". WTO now projects growth in global merchandise trade volume of 3.9% in 2018 and 3.7% in 2019. The 2018 figure is notably lower than April's projection of 4.4%. Though, it still falls within April's range of 3.1-5.5%. The new range is lowered to 3.4-4.4%.

It noted that some of the downside risks identified in April have materialized. These include "most notably a rise in actual and proposed trade measures targeting a variety of exports from large economies". While the direct economic effects are "modest" but the uncertainty they generate may already be having an impact through reduced investment spending. In addition, it noted "monetary policy tightening in developed economies has also contributed to volatility in exchange rates and may continue to do so in the coming months."

WTO Director General Roberto Azevêdo also warned "while trade growth remains strong, this downgrade reflects the heightened tensions that we are seeing between major trading partners".

Full report here.

Copper holds in red for the fourth straight day and hit one-week low at $2.7815 in extension of pullback from $2.8695/55 double-top, after bulls repeatedly failed to close above cracked Fibo barrier at $2.8425 (38.2% of $3.3140/$2.5510) and falling 100SMA capped the advance. The metal came under increased pressure on fresh strength of dollar on hawkish tone from Fed after raising interest rates. Dips eye strong supports at $2.7616/$2.7591 zone (Fibo 38.2% of $2.5870/$2.8695 / rising 10SMA) which is expected to contain correction and keep bulls in play for renewed attempt higher. Conversely, close below 10SMA would signal deeper pullback and put bulls on hold.

Res: 2.8270, 2.8465, 2.8695, 2.9000
Sup: 2.7815, 2.7590, 2.7283, 2.7000

EU's chief Brexit negotiator Michel Barnier said today "the EU continues to work for an orderly Brexit and an ambitious future partnership with the UK that should include a close economic relationship."

Separately, UK opposition Labour party leader Jeremy Corbyn visits Brussels today and warned that "crashing out of Europe with no deal risks being a national disaster." Corbyn also urged EU to "do all they can to avoid a "no-deal" outcome, which would be so damaging to jobs and living standards in both the UK and EU countries."

European Commission spokesman Margaritis Schina said today that "keep calm and keep negotiating," but he also noted "we are ready for all scenarios."

EUR/USD has posted slight losses in the Thursday session, following the trend seen on Wednesday. Currently, the pair is trading at 1.1710, down 0.26% on the day. It’s a busy day on the release front. Germany releases Preliminary CPI, which is expected to post a small gain of 0.1%. Later in the day, ECB President Mario Draghi will speak at a conference in Frankfurt. Over in the U.S, there a host of key indicators. Core durable goods orders and durable goods orders are expected to improve in August, with forecasts of 0.4% and 1.9% percent, respectively. Final GDP is expected to post a strong gain of 4.2% and unemployment claims are forecast to climb to 209 thousand. On Friday, Germany releases unemployment change and the eurozone publishes CPI Flash Estimate, while the U.S releases Personal Spending and UoM Consumer Sentiment.

As widely expected, the Federal Reserve pressed that rate trigger for the third time this year, raising the benchmark rate by a quarter-point, to a range of 2 percent to 2.25 percent. The Fed intends to continue gradually raising rates, with another rate hike expected in December and three hikes in 2019. What was of more interest to investors was the rate statement, in which the Fed removed the word ‘accommodative’ in the statement, which means that the Fed now considers monetary policy to be neutral. Fed Chair Jerome Powell, in a bid to keep markets calm, stated in a follow-up press conference that removing accommodative language in the statement did not reflect a change in policy. Still, the markets were upbeat after the Fed meeting and the U.S dollar has responded with slight gains against the euro on Thursday.

The ECB was not as cheery as the Federal Reserve on Thursday, as the Bank’s economic bulletin said it expected global growth to slow in the near term and warned about the effects of the escalating global trade war. The report highlighted “further tariff increases and uncertainties about future trading relations” as factors which could dampen global growth. Still, with the eurozone economy performing fairly well, the ECB is on track to halve its monthly asset purchases to EUR 15 billion, and wind up the stimulus program in December. Earlier in the week, the ECB released a study which indicated that if the U.S-China trade spat continued, the U.S would be the big loser, as a result of a decrease in trade and weaker investor and consumer confidence

Dazed and confused

It was a hectic day in Asia as virtually everyone had a different read or take of yesterday’s FOMC. I guess we can assume that the extremely mixed trading session was a result of the markets extremely mixed view of yesterday FOMC

Asia Oil

There was a complete unwinding of bearish oil sentiment after the market digested Energy Secretary Rick Perry comments suggesting there is little chance the Whitehouse will tap into SPR for the sole purpose of price intervention.

EURO

Just when you thought it was safe to buy the post FOMC EURO dip, Italian risk rears its ugly head making it difficult to hold an absolute bullish view at current levels and completely catching the market napping on this one!

The reason why Italy warrant a considerable amount of attention is that it’s big and as simple as that view is we could just as easily see a leak lower to the significant EURUSD 1.1660 support levels. But these politically inspired moves tend to have little legs so I would expect solid support on this dip.

However, the local German inflation data releases do warrant a bit of attention as this regional uptick supports the ECB view of rising inflation expectations.

Asia Markets

Asia market took the Fed hike in stride with equities mixed on China weakness, but Asian currencies were in demand despite the firmer G-10 backdrop

INR

The RBI remains in to defend the Rupee at all cost mode increase in SLR available to banks by 2% to 15% to ease funding pressures in the short term money market along with introducing tariffs on 19 non-essential imports to help stem the currency weakness.

KRW

$KRW dropped 6 won early in the session to 1110.00 as there was a holiday catch up in play as he Kospi reacted very favourably to the revised US-South Korea bilateral trade agreement signed Monday

Hong Kong Rate Hike

HKMA raised it’s benchmark rates by 25bp taking its lead from the Fed while local lender raised prime by 12.5 %. Keeping in mind that the Pboc announced they would tap into HK money market for funding, so this is not helping matter much. Until that point, the HSI was trading fluidly but took it on the chin after the rate hike announcement. Rising interest rate create a wall of worry for local property investors

Notes/Observations

• European Indices trade lower led by the Italian FTSE MIB as political wrangling continues
• Latest reports suggest Italy Ministers are to meet later today over budget following earlier reports of a postponement
• Indices tracking Asian Indices lower after the FED hiked rates and removed accommodative from the statement
• Saudi Arabia said to plan boosting oil supply by 200-300Kbpd in next 2 months to compensate for lower Iran output

Asia:

• China reported a fall in Aug industrial profits to 9.2%, marking the slowest rise since March
• US President Trump said to suggest he is going to call China President Xi today to discuss tariffs
• New Zealand leaves rates unchanged; Indonesia raises rates 25bp to 5.75% as expected; Philippines raises rates 50bp as expected
• HSBC raises its prime rate in Hong Kong for the first time in 12 years from 5% to 5.125%
• Argentina to have a flexible exchange rate, but not floating. Central bank says will not intervene in peso in 34 - 44 range. Non intervention zone will be adjusted daily at a rate of 3% per month until the end of 2018. Bank will use FX reserves to intervene up to US$150M/day

Europe:

• Euro fades earlier weakness after an Italian Official noted budget decision won't be postponed, contradicting earlier reports of a possible postponement
• Earlier Italy Five-Star and League parties said to prefer 2019 deficit target at 2.4% of GDP, seeks agreement with League on this level

Americas

• US President said to plan to tell Congress that plan to move NAFTA forward without Canada is part of a broader trade initiative - US financial press
• The broader Trump trade initiative may include Japan, Europe, the UK and Philippines.
• Pres Trump said he rejected one-on-one meeting with Canada PM Trudeau; doesn't like their trade policy or negotiating style; we're not getting along with Canada's negotiators; Canada PM Trudeau later denied he asked for such a meeting

Macro Matters

• (IT) Italy: Di Maio continues to push forward with his agenda with a degree of confidence. If the budget is to include citizen's income, pension reforms & tax cuts, it's hard to see it come within a target of under 2%. Key dates: Oct 15 - submit draft budget to the European Commission Oct 20 - The actual measures have to be approved by the Italian cabinet.
• (DE) Germany: GfK consumer confidence offered mixed signals, but the overall improvement in the headline October number and the fact that readings remain at high levels suggests consumption will continue to support growth.
• (DE) Germany: States inflation showed marked acceleration in fresh food prices. which suggests that the summer's heatwave is filtering through to the numbers. These effects should be transitory and not really affect the ECB's medium term inflation projections.
• (EU): Eurozone: M3 money supply growth slowed to just 3.5% y/y in August, from 4.0% y/y in July. Credit growth continues to expand, which will add to concerns that bubbles in the financial sector continue to build while the ECB sticks it's expansionary policy.

Economic Data:

• (DE) GERMANY SEPT CPI SAXONY M/M: 0.4% V 0.0% PRIOR; Y/Y: 2.3% V 2.0% PRIOR
• (DE) GERMANY OCT GFK CONSUMER CONFIDENCE:10.6 V 10.5E
• (DE) Germany Sept CPI Brandenburg M/M: 0.3% v -0.1% prior; Y/Y: 2.1% v 2.0% prior
• (DE) Germany Sept CPI Bavaria M/M: 0.5% v 0.2% prior; Y/Y: 2.5% v 2.2% prior
• (DE) Germany Sept CPI Hesse M/M: 0.5% v -0.1% prior; Y/Y: 1.9% v 1.7% prior
• (EU) EURO ZONE SEPT BUSINESS CLIMATE INDICATOR: 1.21 v 1.19e; CONSUMER CONFIDENCE(Final): -2.9 v -2.9e
• (ID) INDONESIA CENTRAL BANK (BI) RAISES 7-DAY REVERSE REPO BY 25BPS TO 5.75%; AS EXPECTED
• (PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 50BPS TO 4.50%, AS EXPECTED
• (IT) Italy Sept Consumer Confidence: 116.0 v 115.0e
• (SE) Sweden Sept Consumer Confidence: 103.6 v 102.3e
• (HU) Hungary Aug Unemployment Rate: 3.7% v 3.6% prior
• (TR) Turkey Sept Economic Confidence: 71.0 v 83.9 prior
• (NL) Netherlands Sept Producer Confidence: 5.7 v 5.9 prior
• (IT) Italy Aug PPI M/M: 0.5% v 0.4% prior; Y/Y: 5.1% v 3.6% prior

Fixed Income Issuance:

• (IT) ITALY DEBT AGENCY (TESORO) SELLS TOTAL €4B VS. €3-4B INDICATED RANGE IN 5-YEAR AND 10-YEAR BTP BONDS
• (IT) Italy Debt Agency (Tesoro) sells €1.75B v €0.75-1.25B indicated in Sept 2025 CCTeu (Floating Rate Note); Avg Yield: 1.77% v 2.31% prior; Bid-to-cover: 1.67x v 2.77x prior (Aug 30th 2018)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx50 -0.6% at 3,415, FTSE flat at 7,512, DAX -0.6% at 12,308, CAC-40 -0.4% at 5,489, IBEX-35 -0.8% at 9,447, FTSE MIB -1.6% at 21,309, SMI -0.8% at 9,011, S&P 500 Futures -0.1%]
• Market Focal Points/Key Themes: European indices open down across the board and maintain negative trend as the session progressed; risk sentiment impacted by trade concerns; Italy most impacted over budget concerns; Israel closed for holiday; financial sector among worst performers, with emphasis on the periphery; energy sector supported by crude prices; Danske Bank impacted as Danish tax authorities announce initiating probe; upcoming earnings expected in the US session include Accenture, Rite Aid and ConAgra Brands

Equities

• Consumer discretionary: Air France-KLM AF.FR +1.0% (government not planning stake sale), ASOS ASC.UK -5.3% (placement), Bonmarche BON.UK -19.4% (profit warning), DCC DCC.UK -5.1% (placement), Hennes & Mauritz HMB.SE +10.9% (results), Trigano TRI.FR -9.8% (results), TUI TUI.UK +2.1% (trading update)
• Consumer staples: Norway Royal Salmon NRS.NO -1.6% (profit warning)
• Financials: Danske Bank DANSKE.DK -1.8% (Danish Tax Agency probe), Mediobanca MB.IT -1.8% (Bollore leaves shareholder agreement early)
• Healthcare: Indivior INDV.UK -8.7% (profit warning), Targovax TRVX.NO +5.7% (study results)
• Industrials: Hella HLE.DE +1.0% (results), Obrascon Huarte Lain OHL.ES -18.3% (results)

Speakers

• (IT) Italy Dep PM DI Maio: budget to include citizen income, pensions and tax cuts
• (CN) China Commerce Ministry (MOFCOM) Gao: US shouldnt politicize trade issues
• (IT) Italy Treasury Official: Tria won't resign over budget, Tria is said to want 2019 deficit target at up to 2%; budget decision will not be postponed
• (SE) Acting Swedish PM Lofven: Can't exclude possibility of a grand coalition; only excludes speaking to Sweden Democrats

Currencies

• EUR/USD trades lower but bounces off the 1.1685 low with concerns over an Italian Budget deficit agreement.
• Month/Quarter end flows may well be a big factor in currencies to end the week.

Fixed Income

• Bund Futures trades at 158.62 up 16 ticks as expectations dwindle for Italy to make a budget. Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
• Gilt futures trades at 121.15 up 28 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
• Thursday's liquidity report showed Wednesday's excess liquidity rose from €1.850T to €1.855T. Use of the marginal lending facility stayed fell from €8M to €48M.
• Corporate issuance saw issuance take a break

Looking Ahead

• 05:30 (ZA) South Africa Aug PPI M/M: 0.3%e v 0.6% prior; Y/Y: 5.9%e v 6.1% prior
• 06:00 (CA) Canada Sept CFIB Business Barometer: No est v 61.6 prior
• 06:00 (PT) Portugal Sept Consumer Confidence: No est v -0.5 prior; Economic Climate Indicator: No est v 2.5 prior
• 07:00 (BR) Brazil Central Bank (BCB) Quarterly Inflation Report (QIR)
• 07:00 (BR) Brazil Sept FGV Inflation IGPM M/M: 1.5%e v 0.7% prior; Y/Y: 10.0%e v 8.9% prior
• 07:00 (ES) Spain Aug YTD Budget Balance: No est v -€9.0B prior
• 08:00 (DE) Germany Sept Preliminary CPI M/M: 0.1%e v 0.1% prior; Y/Y: 2.0%e v 2.0% prior, CPI EU Harmonized M/M: 0.1%e v 0.0% prior; Y/Y: 1.9%e v 1.9% prior
• 08:00 (BR) Brazil Aug PPI Manufacturing M/M: No est v 1.1% prior; Y/Y: No est v 14.3% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) Initial Jobless Claims: 210Ke v 201K prior; Continuing Claims: 1.678Me v 1.645M prior
• 08:30 (US) Weekly USDA Net Export Sales
• 08:30 (US) Aug Advance Goods Trade Balance: -$70.6Be v -$72.2B prior
• 08:30 (US) Q2 Final GDP Price Index: 3.0%e v 3.0% prelim; Core PCE Q/Q: 2.0%e v 2.0% prelim
• 08:30 (US) Aug Preliminary Durable Goods Orders: +2.0%e v -1.7% prior; Durables Ex Transportation: 0.4%e v 0.1% prior
• 08:30 Q2 Final GDP Annualized Q/Q: 4.2%e v 4.2% prelim; Personal Consumption: 3.8%e v 3.8% prelim
• 08:30 (US) Aug Preliminary Wholesale Inventories M/M: 0.3%e v 0.6% prior, Retail Inventories M/M: No est v 0.4% prior
• 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 21st: No est v $460.9B prior
• 09:00 (MX) Mexico Aug Trade Balance: -$2.6B v -$2.9B prior
• 10:00 (US) Aug Pending Home Sales M/M: -0.5%e v -0.7% prior; Y/Y: -1.0%e v -0.5% prior
• 10:30 (US) Weekly EIA Natural Gas Inventories
• 11:00 (US) Sept Kansas City Fed Manufacturing Activity: 16e v 14 prior
• 15:00 (AR) Argentina Q2 Current Account: No est v -$9.6B prior