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New Zealand GDP grew 1.0 qoq in Q2, doubled the speed of 0.5% in Q1 and beat expectation of 0.8% qoq. That's also the fastest quarterly rate in two years. Over the year ended June 2018, growth also accelerated to 2.8% yoy, up fro 2.6% yoy and beat expectation of 2.5% yoy. Growth was broad based with 15 of 16 industries up. GDP per capita also gained 0.5%.

Looking at more details, the 1.0% quarterly rise in services was the main contributor. Goods-producing industries were up 0.9%. Primary industries grew 0.2%, with strong growth in agriculture, forestry, and fishing offset by a significant fall in mining.

Full release here.

NZD/USD's strong rally today solidify the case that 0.6500 is a short term bottom. There is prospect of it being a medium term bottom considering bullish convergence condition in daily MACD. But it's early to tell as NZD/USD is held well below 0.6726 resistance. For now, outlook stays bearish as we'd still expect recent down trend to extend lower to 161.8% projection of 0.7557 to 0.6779 from 0.7436 at 0.6177 on down trend resumption.

Canadian Foreign Minister Chrystia Freeland met US Trade Representative Robert Lighthizer again on NAFTA overnight. After the meeting, Freeland said the talks had been constructive, without giving any details. She said earlier that while Canada is a "country that is good at finding compromises", the team was also there to "defend the national interest".

Back at home in Ottawa, Canadian Prime Minister Justin Trudeau urged more flexibility from the US side in making a deal. He said, "we're interested in what could be a good deal for Canada but we're going to need to see a certain amount of movement in order to get there and that's certainly what we're hoping for."

Referring a key deadlock in Canadian diary market access, Dairy Farmers of Canada vice president David Wiens said, "For American farmers the Canadian market is a drop in the bucket. For us it's our livelihood." And he added that concessions in past trade deals had already hurt Canadian farmers.

US Chamber of Commerce President Thomas Donohue warned that a damaging trade war would be underway if Trump puts all his tariff threats to China into practice. However, he also added "if we can do something next week and get NAFTA done and we do it on a tripartite deal, if we make progress, by the way we are talking in Europe, if we can get that done...we can pretty quickly resolve some of this."

In Japan, the chairman of the Japan Automobile Manufacturers Association, Akio Toyoda said "Japanese automakers' businesses in North America are based on the NAFTA framework, and that framework is based on a three-party agreement." And, "We hope that framework continues this way, and that it remains well-balanced."

At the dinner in the first day of the EU summit in Salzburg, Austria, UK Prime Minister Theresa May was given the stage to sell her Chequers Brexit proposal. It's reported that she said theses were "serious and workable proposals" and hoped that the EU will "respond in kind". She emphasized the Irish border problem could be solved by the type of "frictionless trade" envisaged in the Chequers plan. But the Commission's proposal is "not credible.

But there were little responses from the leaders of the other 27 EU nations. They are expected to discuss the issues among themselves over lunch on Thursday today, so as to give a united stance for chief negotiator Michel Barnier to conclude a final in two months.

After the dinner, Lithuanian President Dalia Grybauskaite said "At this stage, it's a standstill. There is no progress." Slovak Prime Minister Peter Pellegrini said, "On the border issue, there has been no progress." An unnamed diplomat said "She spoke. There was no reaction."

USDCAD - The pair closed lower again following its Tuesday losses on Wednesday. This has cleared the way for more weakness. Support lies at the 1.2900 level where a break will aim at the 1.2850 level. Further down, support comes in at the 1.2800 level where a turn lower may occur. But if further weakness is triggered support comes in at the 1.2750 level. Conversely, resistance lies at the 1.2950 level where a violation will target the 1.3000 level. Further up, resistance resides at the 1.3050 level and then the 1.3100 level. All in all, USDCAD looks to weaken further lower.

Tap the brakes or foot on the gas?

U.S. stocks closed mostly higher Wednesday as investors continue looking past the US-China trade dispute while focusing on solid US economic fundamentals. Indeed, US investor and equity markets, in general, are showing little sensitivity to US tariff implementations, at least at current levels anyway. So, with investors in evaluation mode and with both the US and China s likely to resume negotiations, expectations are still there for a resolution before the President Trumps deems it necessary to double down on tariffs.

In addition, US stock markets are impervious to rising US yield while choosing to focus on increasing banks stocks, benefiting from those juicy US yields and the energy sectors are on the ups due to spirited oil markets. Indeed the trend is your friend.

Oil markets

Oil prices are soaring after the more conclusive EIA reported a 5th consecutive inventory drop but more significantly to a three year low. And US crude exports rose 539 K per day to an eye-catching 2.37 million barrels per day. The bulls are back in charge even more so after traders were conveying a high degree of resistance to the unexpected build on the API survey. Suggesting that in the near term at least, Iran sanctions matter more than the yet to be determined negative Oil demand impacts from US tariffs.

But ultimately, OIL prices remain strongly supported by Tuesday's Bloomberg reports that suggest Saudi Arabia is now comfortable with Brent at $80.

OPEC and other producers including Russia will meet Sept. 23 in Algeria to discuss possibly compensating the loss of Iranian output, estimated at 1.4 million barrels a day. The current market betting line suggests price levels rather than global supply levels will be the key determinant on turning on the oil taps.

And with comments from Saudi Arabia suggesting $80 is not the level or that OPEC, more generally, is not considering raising output at next weeks Sept 23 meeting. As such, traders are apt to push the envelope and are targeting $85 Brent level especially on a bullish confirmation from the Algeria meeting.

Venezuela will but their 5 billion line of credit from China to good use by likely ramping up production which will be earmarked for China. We could view this as a tit for tat indirect escalation of a trade war in the broader context.

The US LNG sector is indeed feeling the pressure as China has dialled back it's direct LNG purchase for the US in favour of Australia and Russian supplies.

Gold Markets

Gold Markets are edging higher again but the performance has been very meek.

The weaker dollar has lent some support, but the yellow metal has not been able to break free of the downward trend which continues to run near $1210 level. Until there's a convincing break higher or lower on G-10 currencies, the $1190-1210 range play should remain intact.

EM Currencies

Tap the brakes or foot on the gas, synchronicity or idiosyncrasy; these are the question facing EM traders this morning. Indeed, EM markets have been catching the tailwind from CBT rate hike, CBR surprise rate hike, BI potential mandatory FX conversion for exporters and the RBI currency countermeasures. All of which contributed to taming the beast (USD) to various degrees, but this semi consorted intervention when taken in context with the de-escalation on trade war bluster has investors and traders alike dipping their toes back into the EM water.

Indeed there was a massive fire sale on the weaker links in the EM chain, but from my seat at least it would be sheer folly to discount US-China trade war, 10y US yield which climbing above 3.05 %and the two year yields returning to 2008 highs suggesting the bond market is indeed pricing in a more hawkish Fed in 2019 than currently priced in . These are indeed big negatives.

Buy traders where feasting on a smorgasbord of EM assets there has been some outsized interest in the IDR after a convincing bond rally after news of a potential mandatory FX conversion for exporters hit the wires.

But in no small degree, comments from the current Premier of the State Council of the People's Republic of China, Li Keqiang, stated that China would not devalue their currency to make exports more competitive as 'one-way devaluation will do more harm than good to China's economy.' Is having a lot of influence on the current proceedings, and therefore I'm erring on the side of caution as history tells us the Pboc policy is very fluid and can shift on a dime

Local EM

MYR: The stronger Yuan profile and improving global risk and EM sentiment are helping regional currencies in general. But oil remains the Ringgits ace in the hole and with Brent looking to test convincingly north of $ 80.0 there will be some appeal for the Ringgit. However, given the lower than expected Q2 GDP print and tepid inflation the MYR will get little help from BNM for the rest of 2018

IDR: Odds suggest that BI will match next weeks Fed hike but despite the nascent bond rally, too many negative factors despite a solid performance on yesterday tape, to suggesting going full bore in this trade

INR: Likewise, the RBI will likely match the Fed move, but oil prices on the boil again suggest traders will probably tap the brakes below .72. even despite RBI ‘s 'whatever it takes approach to defend the rupee.'

G-10

The dollar is looking very tired, and while the natural trade is to be long dollar ahead of a possible hawkish shift from the Feds next week, price action says otherwise keeping the dollar bulls at bay

Aussie continues to benefit from the unwinding of the consensus short AUDJPY trade. Commodities are on the swing higher suggesting a bit more room to run on the AUDUSD momentum which could see us test .7300

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Solid risk appetite and surging treasury yields are the main theme in the financial markets today. At the time of writing, DOW is up over 190pts or 0.73% at 26438.91. S&P 500 trails and is up 0.23%. But NASDAQ lags behind. US treasury yields continue to show tremendous trend, in particular in the long end. 30 year yield is currently up 0.030, 10 year yield 10 up 0.028 and five yield up 0.021. In Europe, FTSE gained 0.42%, DAX rose 0.50% and CAC added 0.56%.

In the currency markets, Swiss Franc remains the weakest one for the day. Dollar gets no support from yield and is the second weakest. Sterling experienced a roller coaster ride on strong CPI and negative Brexit news. But for now, the Pound is patiently awaiting the outcome of the EU summit in Austria. Commodity currencies are the strongest ones, led by Australian Dollar.

DOW is having a rather strong rally this week and it shows upside acceleration with daily MACD back above signal line too. Current momentum suggests that DOW will soon challenge 26616.71 record high and should take it out without much difficulty. This will stay the preferred case as long as 26030.35 support holds.

TNX's rally is showing rather strong upside acceleration as seen in daily MACD. 3.115 key resistance should be challenged soon too. It's early to tell but based on current momentum, it shouldn't be too difficult to break this key resistance level decisively. And with such developments, Dollar should eventually follow and stage strong rally against other major currencies. It's just a matter of time.

As the leaders of the EU gather in Austria today, British PM May hopes to convince them of the merits of her Chequers plan, in an attempt to lay the groundwork for a breakthrough in the Brexit negotiations. While no formal announcements will be delivered, sterling could still prove sensitive to any relevant remarks. Going forward, a realistic proposal that solves the Irish border issue may be needed for the currency to extend its recent gains.

The heads of state of the EU27 will meet for an informal two-day summit in Austria today, the first time these leaders will share the same roof since the UK government publicized its Chequers plan for Brexit back in July. During dinner tonight, British PM Theresa May will be allowed 10 minutes to “pitch” her withdrawal proposals, before the 27 officials discuss Brexit in May’s absence on Thursday.

Note that no negotiations will actually take place between them. The EU chiefs will simply listen to May, respecting the authority of Michel Barnier to conduct all negotiations on their behalf. Moreover, since this is an informal gathering, there will be no official EU statement on Brexit. Hence, any market reaction to this event will probably come from potential comments by the relevant EU leaders – if at all.

The EU has adopted a more conciliatory tone lately. Key EU officials including Barnier have gone out of their way to stress the Union wants a deal, even noting Europe is ready to improve its proposals on what is likely the biggest obstacle left; the Irish border. Naturally, sterling regained a lot of lost ground in the midst of this, as traders became less pessimistic and positioned for the possibility of an agreement.

Yet, filtering out much of the noise, the bigger picture hasn’t changed. For all the optimistic remarks out of Brussels, there’s been no fundamental shift by either side on the Irish border question. Both want a frictionless border between the two Irelands but cannot reach common ground on the mechanics that would govern it, each rejecting the other’s proposals as unworkable. The UK believes it has compromised enough to reach the controversial Chequers plan, over which two UK ministers resigned, and that it’s now the EU’s turn to soften its stance. While that is certainly possible, it may also be a case of wishful thinking on the UK’s part, as the EU has long been adamant that it won’t put the integrity of the single market at stake to strike a deal with Britain. Similarly, May has stressed that she won’t put the UK’s constitutional integrity at risk by drawing a regulatory border across the Irish Sea as proposed by the EU.

Although this event may prove out to be a “dud”, in the sense it’s unlikely to deliver any concrete announcements, sterling has displayed a tendency to move sharply even on the tiniest bit of news. Hence, the tone of any remarks by EU leaders may prove crucial for the currency’s near-term direction – even in the absence of real substance.

Looking ahead however, sterling’s performance may hinge primarily on whether some realistic and workable proposal for the Irish border is submitted, and whether there is tangible progress in the negotiations beyond merely appeasing remarks. If so, the pound could explode higher as the prospect of a no-deal exit fades into the rear-view mirror.

On the contrary, a lack of meaningful progress before the next formal EU summit on October 18, could spell bad news for sterling as speculation for a no-deal exit regains steam. Expectations are currently riding high that an accord may be finalized ahead of this summit, and if not, that the EU will announce a special Brexit summit for November as a last-ditch attempt to reach an agreement.

In the meantime, the Conservative Party conference commencing on September 30 is also worth watching, as Theresa May could have a mutiny on her hands. Hardline Brexiteers in her party like Boris Johnson – who are unhappy with her softening Brexit stance – might mount a leadership challenge. This presents a downside risk for sterling, as such an internal fight would raise political uncertainty at a time when the government’s full efforts should be focused elsewhere.

Technically, looking at sterling/dollar, further advances could encounter resistance near 1.3210, the high of July 26. An upside break may pave the way for a test of 1.3290, this being the peak of July 16, before the July 9 top of 1.3360 comes into view. Conversely, in case of declines, support may be found around 1.3045, the high of August 30. If the bears pierce below it, the September 11 low of 1.2970 would be eyed next, ahead of the September 10 trough at 1.2895.

USDCHF: The pair remains biased upside on price recovery. This is coming on the back of its second day of strength. On the downside, support lies at the 0.9650 level. A turn below here will open the door for more weakness towards the 0.9600 level and then the 0.9550 level. On the upside, resistance resides at the 0.9719 level where a break will clear the way for more strength to occur towards the 0.9758 level. Further out, resistance comes in at the 0.9800 level. Above here will open the door for more strength towards 0.9850. All in all, USDCHF faces further price recovery.

Wednesday's action remains directionless for now and shaped in Doji candle, as bulls show hesitation after strong rally on Tuesday. Conflicting daily studies (overbought slow stochastic in sideways mode and strengthening momentum) provide no clear direction signal, as US action and China's reaction on trade conflict add to market's current indecision. Fibo barrier at 112.37 (76.4% of 113.17/109.77 descend) proves to be stronger than anticipated as it capped Tuesday's rally and today's probes above were so far marginal. As mentioned in yesterday's comment, risk of top formation exists, despite it was sidelined by Tuesday's bullish acceleration. Today's close will be watched for initial signals, as repeated close below 112.37 would suggest a breather in recent rally. Dips are expected to find ground at 111.87/61 zone (broken Fibo 61.8% of 113.17/109.77 descend / rising 10SMA) to keep bulls in play for possible extension towards key barriers at 113.17/24 (19 July high / weekly 200SMA). Conversely, break below these supports would risk deeper correction and put bulls on hold.

Res: 112.44; 112.62; 112.92; 113.17
Sup: 112.17; 111.87; 111.61; 111.42