Sample Category Title

Chinese Premier Li Keqiang said in a forum today that the talk of China deliberately weakening the Yuan exchange rate was "groundless". He added that "one-way depreciation of the yuan brings more harm than benefits for China." Also, a weaker currency "will only come at a cost of damaging China's economic environment".

And he pledged that "China will never go down the road of relying on yuan depreciation to stimulate exports." Instead, China would "tick to market-oriented foreign exchange reform". But he also said, the currency would be kept "basically stable at an adaptive level".

On US-China trade war, Li said "no unilateralism will offer a viable solution". Instead, "it is essential that we uphold the basic principles of multilateralism and free trade." He noted intellectual property theft would be "dealt with seriously" with "doubled or even tripled unaffordable penalties" for breaches in order to ensure firms are "comfortable" bringing their business to China.

Li also said China is "deeply integrated into the world economy, the Chinese economy is inevitably affected by notable changes in the global economic and trade context." And he admitted that "we're facing greater difficulties in keeping stable performance of the Chinese economy." But he also indicated Beijing has "prepared sufficient tools for us to deal with risks and challenges" and added that "these policy tools will boost China's resilience to cope with various challenges and difficulties."

BoJ Governor Haruhiko Kuroda warned in the post meeting press conference "protectionism could affect not only the countries that are engaged (in trade wars) but the global economy as a whole through supply chains." He added that the BoJ is "watching developments with grave concern." For the moment, Kuroda said "it's hard to say what specific impact this could have". But he noted "there could be wide-ranging effects, given the complex global supply chain in the world economy."

On monetary policy, he said that "we must maintain our powerful monetary easing given it will take time to achieve our inflation target." And, if 2% inflation is met, "we won't be continuing our current unconventional policy". Also, he commented on the bond market activity since BoJ explicitly allowed 10 year JGB yield to move between -0.1% and 0.1%. He said "bond market trading activity has heightened somewhat... but trading tends to thin in August of each year, so it's too early to gauge the impact of our July decision."

EURAUD short-term Elliott wave view suggests that the rally to 1.6353 high ended intermediate wave (1) higher. The internals of that degree unfolded as impulse structure with lesser degree cycles showing the sub-division of 5 waves structure. Below from 1.6353 high, the pair is doing an intermediate wave (2) pullback in 3, 7 or 11 swings before upside renew. We don’t like selling the pair as the right side tag favoring more upside.

Down from 1.6353, the pair is doing a 3 wave pullback with lesser degree cycles showing the sub-division of 5-3-5 structure thus favored it to be doing a zigzag correction. The initial decline to 1.6282 low ended Minor wave ((i)), Minor wave ((ii)) bounce ended at 1.6339. Minute wave ((iii)) ended at 1.6152 & Minute wave ((iv)) ended at 1.6192 high. Then finally a move lower to 1.6136 low ended Minute wave ((v)) & also the Minor wave A.

Up from there, the bounce to 1.6332 high ended Minor wave B bounce in lesser degree zigzag correction where Minute wave ((a)) ended at 1.6285. Minute wave ((b)) ended at 1.6226 and Minute wave ((c)) of B 1.6332 high. Near-term focus remains towards 1.6107-1.5969 100%-161.8% Fibonacci extension area of A-B to complete Minor wave C lower in another 5 waves structure and should ideally complete intermediate wave (2) pullback as well. Afterwards, the pair is expected to find buyers looking for new highs or for 3 wave bounce at least.

EURAUD 1 Hour Elliott Wave Chart

Market movers today

Today and tomorrow, an informal EU summit is set to discuss Brexit and migration. At the summit, EU leaders could soften Michel Barnier's negotiation guidelines in order to make it easier to reach a withdrawal agreement in Q4. Media reports suggest another high level summit in the course of Q4 to finalise the Brexit deal.

Markets will naturally focus on the likely retaliation measures from China in response to yesterday's announcement from President Trump adding tariffs worth USD200bn to the Chinese exports.

We expect today's UK CPI inflation data to indicate a headline inflation decline to 2.3% y/y from 2.5% y/y in July, in particular because the impact of GBP depreciation is fading. CPI core inflation is likely to have fallen to 1.8% from 1.9%.

There are no market movers in Scandi today, yet focus is set on tomorrow's Norges bank meeting where we expect the first policy rate hike in seven years.

Selected market news

As expected, the Chinese government yesterday responded to the 10% tariff imposed by the US on USD200bn worth of Chinese goods by announcing retaliatory tariffs of 10% on USD60bn worth of US goods. Moreover, the Chinese Ministry of Commerce said that it has filed a complaint with the WTO over tariffs imposed by the US. In addition, China's Premier Li Keqiang said he will not let the currency devalue to stimulate exports. Hence, China's strategy right now appears to be to respond to US measures but without escalating tensions.

Risk markets seems to have shrugged off concerns about trade tensions and the rally in global equity markets has extended this morning led by Japanese and Chinese markets. The positive reaction in risk markets likely reflects that the actions from both the US and China have been less aggressive than initially feared. Markets will continue to focus on the US-Chinese trade war and there is clearly a risk that tension will escalate further.

The Bank of Japan (BoJ) kept its monetary policy unchanged this morning, and the policy balance rate and the yield target on 10-year Japanese government bonds was maintained at -0.1% and 0% (+/-20bp), respectively. The BoJ also maintained its forward guidance and left its asset purchases unchanged. The BoJ has clearly shifted to auto pilot mode after it announced some policy tweaks at the July meeting, and an unchanged signal from the BoJ today was fully expected. Hence, no reaction in USD/JPY or the Japanese fixed income market. PM Shinzo Abe is expected to win the LDP (Liberal Democratic Party) leadership election, which takes place tomorrow. The BoJ's aggressive stimulus has been an important pillar of ‘Abenomics', and given that Abe will continue as PM for several more years, political support for the BoJ monetary policy is likely to remain intact. We expect the BoJ to keep its current policy intact until the end of 2019 at least.

The GBP/USD is unable to break or bounce at the 100% Fibonacci target of wave Y vs W. A bullish breakout could see the price move up higher towards the next cluster of Fibonacci levels, whereas a bearish bounce could break below the support trend line (blue) and a larger bearish correction.

The GBP/USD is moving sideways and is building a corrective zone. The price could be completing an ABC pattern (brown) within wave B (orange) as long as the price stays above the Fibonacci retracement levels of wave B vs A. A bearish break below the 100% Fibonacci level invalidates this wave pattern, whereas a bullish breakout could see a continuation towards 1.3250-1.33.

The EUR/USD is unable to break above the major resistance zone (red lines) at 1.1730, which is a key bounce or break zone.

The EUR/USD bearish breakout below the support trend line (blue) could see price fall back towards the Fibonacci retracement levels of wave B vs A. A bullish breakout could see price move higher towards 1.18 and 1.20 target areas.

The EUR/USD made a bearish bounce at the resistance zone which could confirm the expected wave B (green) pattern. Price however will need to break below the support trend lines before a larger wave C can be expected. A break above the resistance zone (red) could indicate an impulsive uptrend continuation.

Rates: US yields clear final technical hurdles ahead of cycle highs

The stoic market reaction to new tariffs in the US/Chinese trade conflict suggests that the moves were discounted and/or the worst could be over. Technical factors dominated trading with the US Treasury sell-off accelerating as the US 10-yr and 30-yr yields pierced through resistance levels, paving the way for a test of cycle highs at 3.12% and 3.26% respectively.

Currencies: Conflicting drivers are leaving USD in indecisive trading pattern

Yesterday, EUR/USD held a remarkably stable trading pattern even as the US/China trade conflict moved into a new phase. The dollar faced confliction drivers, but a rising US interest rates apparently prevail and are giving the US currency downside protection, at least for now. Sterling traders are keeping an eye at the UK CPI and at the EU summit in Salzburg.

The Sunrise Headlines

• US markets bounced back up yesterday as global risk sentiment improved. All three major indices closed with gains north of +0.5%. Asian equity markets opened in green as well, with Japan and China outperforming (+1.5%).
• The Bank of Japan kept its targets for the short-term interest rate and the 10-y bond yields unchanged at -0.1% and 0.0% resp. The bank maintained an optimistic view on the economy. Exports grew 6.6% in Augusts (vs. 3.9% in July).
• Kim Jong Un stated that he agreed to continue North Korea's denuclearization at the presence of foreign inspectors. However, only on the condition that the US takes reciprocal actions to relief international sanctions.
• The US and Canada continue trade talks today, as Canadian PM Freeland travels to Washington. In the meantime, business groups from both countries are urging their political leaders to agree on a deal to renew Nafta.
• The US Senate has approved a short-term spending bill that keeps the government running through December 7, avoiding a government shutdown before the midterm elections over President Trump's border wall fight.
• Ahead of the EU-summit in Salzburg today, UK PM May told that she urges the European Union to evolve its position, just as the UK did. In that way, she believes she is close to achieve a deal with the EU on an orderly Brexit.
• Today's eco calendar contains second tier data in the US and inflation numbers in the UK. Bank of England's Haldane speaks in Estonia while ECB president Draghi is speaking in Berlin

Currencies: Conflicting Drivers Are Leaving USD In Indecisive Trading Pattern

USD stalemate persists on conflicting drivers

On Tuesday, the dollar didn't show a clear directional trend in the wake of the escalation in the US-China trade war. Contrary to what was often the case of late, the USD hardly profited for the trade tensions. EUR/USD tested the 1.1720 area twice, but the 1.1733 resistance stayed out of reach. Risk sentiment wasn't too bad and improved during the day, even as China announced countermeasures. At the same time, US yields surpassed important technical levels. It gave the dollar downside protection, but USD gains remained modest. EUR/USD finished the day at 1.1667 (from 1.1683). USD/JPY closed at 112.36 (from 111.85). Overnight, Asian equities further ‘ignore' the US-China trade conflict, showing broad-based gains. The BOJ as expected left its monetary policy unchanged. In a speech at WEF, Chinese PM Li reiterated that China won't use currency devaluation as an instrument in the trade war and that it aims a stable currency. The Yuan gains slightly ground (USD/CNY 6.85 area). The comments from Li had also modest positive spill-over effects on the Aussie $. AUD/USD extended its rebound beyond 0.72. Overnight, US data showed that China reduced holdings of Treasuries in July. This might raise US yields, but it is doubtful that it will support the dollar. There are again few eco data today. US housing starts/ permits are not the focus of USD trading. A speech of ECB's Draghi is a wildcard. Of late, there were plenty of conflicting factors for EUR/USD trading (trade war, EM stress, Draghi's positive assessment, rising US interest rates), leaving the cross rate in an indecisive pattern. The USD performance is not really convincing, but for now, it looks that the big interest rate buffer is strong enough to prevent a building up of USD shorts. Short-term, we keep a neutral bias on EUR/USD until it becomes clear which narrative will prevail as a driver for USD/global FX trading. 1.1733/50/91 resistance is the first topside reference. A break won't be evident, but we are becoming more alert for a move in that direction.

Yesterday, there were no UK data. Brexit headlines brought little hard news. EUR/GBP closed at 0.8875. Today, the UK CPI is expected slightly softer at 2.4% Y/Y from 2.5%. There will be plenty of Brexit comments on the sidelines of the EU Summit. EU politicians will probably maintain a positive tone. We don't expect a break-through, but a constructive tone might be slightly sterling supportive in a daily perspective

USD holding near recent lows, despite rising US yields

General Trend:

• Asian equites track US gains
• Japan steel makers continue outperformance
• China to levy tariffs on $60B worth of US goods at 5-10% rates, effective Sept 24th (counters US move)
• China mulling sending Vice Commerce Minister instead of Vice Premier for trade talks this month in US (Press)
• Few surprises seen in the BoJ’s policy statement , Gov Kuorda to hold press conference at 2:30 AM EST
• New Zealand Q2 GDP due for release on Thursday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.2%
• (AU) Australia Aug Westpac Leading Index M/M: 0.1% v 0.0% prior
• (NZ) NEW ZEALAND Q2 BOP CURRENT ACCOUNT BALANCE (NZ$): -1.6B V -1.32BE; CURRENT ACCOUNT GDP RATIO YTD: -3.3% V -2.9%E
• (NZ) New Zealand Q3 Westpac Consumer Confidence: 103.5 v 108.6 prior (6-year low)
• (NZ) New Zealand to offer NZ$150M in April 2037 bonds at auction on Sept 20th

China/Hong Kong

• Shanghai Composite opened -0.2%, Hang Seng +0.3%
• (CN) China Premier Li Keqiang: China will further open itself at a faster pace: Has been sluggish global growth and sluggish trade recently; will not resort to forceful stimulus; reiterates won't devalue yuan to stimulate exports
• (CN) China PBoC Open Market Operation (OMO): To inject CNY60B in 7 and 14-day reverse repos v CNY200B injected in 7 and 14-day reverse repos prior: Net: Nil v CNY200B injection prior
• (CN) China PBoC set yuan reference rate: 6.8569 v 6.8554 prior
• (CN) China Cotton Futures decline over 2% after China announces retaliatory tariff measures on the US
• (CN) China Shanghai said to crack down on certain property market violations - Chinese Press
• (CN) China said to be drafting rules related to tax deduction for housing rents - Chinese Press
• (CN) Brokerage firms in China said to have been asked to increase control related to public comments - Chinese Press
• (CN) China government backed think tank says China can raise the leverage ratio of the government - Chinese Press
• (CN) Moody's: Yuan (CNY) depreciation will not impact China credit profile for now; yuan will show greater volatility over time

Japan

• Nikkei 225 opened +1.4%
• TOPIX index trades at highest level since June
• Japan 10-yr JGB yield traded above 0.115% ahead of BoJ policy decision (highest since early Aug); Tracks increase in US Treasury yields
• (JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%, AS EXPECTED; Vote on yield curve control 7-2 (Harada and Kataoka again dissent)
• (JP) JAPAN AUG TRADE BALANCE: -444.6B V -¥483.2BE; ADJUSTED TRADE BALANCE: -190.4B V -¥144.1BE

Korea

• Kospi opened +0.4%
• (US) Pres Trump: Trade deal with South Korea is done and may be signed at UN General Assembly meeting this month - press conf with Polish Pres
• (KR) North Korea leader Kim signs military agreement with South Korea President Moon, aimed at reducing military tensions

Other

• (MY) Malaysia Aug CPI Y/Y: 0.2% v 0.4%e (3-year low)

North America

• US equity markets ended higher: Dow +0.7%, S&P500 +0.5%, Nasdaq +0.8%, Russell 2000 +0.4%
• MGM [MGM]: Starboard said to take $500M stake (NY Post)
• (US) Senate passed stopgap spending bill to avoid govt shutdown to keep govt funded through early Dec (Press)

Europe

• (UK) Prime Min May: exit deal is 'virtually agreed' to; rules out holding a second Brexit vote - UK press
• (UK) There is speculation that UK PM May to use the Salzburg meeting to seek a Brexit compromise solution for the Ireland border - FT
• (UK) BoE Vlieghe: Several indicators show low jobless rate making it hard for employers to find or keep staff; UK pay growth is accelerating 'quite slowly' - UK Press

Levels as of 01:30ET

• Nikkei 225, +1.2%, ASX 200 +0.5%, Hang Seng +1.4%; Shanghai Composite +1.2%; Kospi +0.1%
• Equity Futures: S&P500 flat; Nasdaq100 +0.1%, Dax flat; FTSE100 +0.1%
• EUR 1.1666-1.1653 ; JPY 112.44-112.22 ; AUD 0.7257-0.7207 ;NZD 0.6599-0.6572
• Dec Gold +0.3% at $1,207/oz; Oct Crude Oil -0.3% at $69.41/brl; Dec Copper +0.4% at $2.749/lb

For the 24 hours to 23:00 GMT, the EUR rose 0.05% against the USD and closed at 1.1679.

In the US, data showed that NAHB housing market index remained steady at 67.0 in September, while market participants had anticipated the index to ease to 66.0.

In the Asian session, at GMT0300, the pair is trading at 1.1665, with the EUR trading 0.12% lower against the USD from yesterday’s close.

The pair is expected to find support at 1.1637, and a fall through could take it to the next support level of 1.1608. The pair is expected to find its first resistance at 1.1709, and a rise through could take it to the next resistance level of 1.1752.

Looking forward, investors would closely monitor the Euro-zone’s construction output data for July. Also, the US housing starts and building permits, both for August along with the MBA mortgage applications, set to release later in the day, will garner significant amount of investor attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 0.08% against the USD and closed at 1.3165.

In the Asian session, at GMT0300, the pair is trading at 1.3146, with the GBP trading 0.14% lower against the USD from yesterday’s close.

The pair is expected to find support at 1.3118, and a fall through could take it to the next support level of 1.3090. The pair is expected to find its first resistance at 1.3175, and a rise through could take it to the next resistance level of 1.3204.

Moving ahead, investors would keep an eye on UK’s house price index for July along with the consumer price index, producer price index and retail price index, all for August, slated to release in a few hours.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.