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Strong risk appetite is the main theme in the financial markets today even though it's not quite reflected in the forex markets. Strength in Nikkei and Yen on the same day is relatively unusual. But that could be a reflection of reactions to both Fed chair Jerome Powell's speech, as well as Prime Minister Shinzo Abe's announcement to seek power extension. Also, Japanese markets remain rather immune from global trade war threat.

Anyway, Nikkei's rally since last week maintains near term bullishness. That is the development is in line with the view that price actions from 23050.39 are merely a sideway consolidation pattern. And the rally from 20347.49 is not over. The focus is now back on 23050.39 resistance. Break will confirm resumption of rally from 20347.49 and target 61.8% projection of 20347 to 23050.39 from 21851.32 at 23521.71 first. Break will likely send the index through 24129.34 to 100% projection at 24554.22. This bullish case is favored as long as 21851.32 support holds.

China 50 stock index (CHI50) resumed its bullish mode after it failed to break a strong support at the 18-month trough of 10,826 first reached in early July, rising back above the 11,000 handle. Momentum indicators have improved as well, with the RSI surpassing slightly the 50 mark and the MACD increasing strength to the upside and above its red signal line. However, these could be considered weak bullish signals for the short-term given that both indicators hold near their neutral thresholds – the RSI not far above 50 and MACD still close but below zero. Fast stochastics on the other hand hint that bearish corrections are more likely in the very short-term as the green %K line is set to meet the red %D line above 80 in overbought territory.

In case the price heads up, the 38.2% Fibonacci of the downleg from 12,797 to 10,826, near 11,576 could restrict upside movements as it did in early July and early August. A step above the 50% Fibonacci of 11,811, however, and more importantly above the previous high of 12,007, where the 61.8% Fibonacci stands, would drive the pair above the Ichimoku cloud for the first time since February. Such a decisive bullish move could also significantly violate the blue long-term downtrend line with a top at 14,914, increasing speculation that the market is set for an uptrend.

On the other hand, if downside pressures dominate, the price could retest the 23.6% Fibonacci of 11,287. Even lower, bears could find it hard to pierce the 10,826 bottom. Yet, if this proves to be a weak obstacle this time round, traders could look for support between 10,730 and 10,668, taken from the peaks in November 2016 and July 2017 respectively.

Looking at the bigger picture, the negative sentiment is expected to hold as long as the bearish wave started in late January from 14,914 remains in place. Still, the death cross between the 50- and the 200-day simple moving averages (SMA) posted in May could be a sign that the downtrend is not near its end.

To summarize, the market looks neutral to bullish in the short-term, while in the long-term the index is still bearish. Traders could be interested to see whether the index can extend gains above the long-term downtrend line in coming sessions.

There is mixed sentiment towards the Greenback at the start of the new trading week. The Dollar has edged marginally higher against the Euro, Pound and Australian Dollar with the Greenback broadly stronger against those in the EMEA as all eyes return to the Lira after Turkish markets resume trading following a week-long holiday. The Turkish Lira is down over 3% at the time of writing, which seems to have weighed on the Rand with the South African currency lower by above 1%.

The Dollar is however showing a far less consistent performance against the APAC region with the Singapore Dollar, Indian Rupee and Chinese Yuan being the only currencies to have weakened on Monday. The Korean Won, Indonesian Rupiah, Malaysian Ringgit and Thai Baht have all strengthened.This could be linked to some expectations following Jerome Powell’s speech at Jackson Hole that the pace of monetary tightening from the Federal Reserve next year will not mirror the number of interest rate increases expected for 2018.

There is a bit of a mixed consensus over whether the speech from Jerome Powell at Jackson Hole can be considered as either dovish or hawkish. Some view his indication that the US Federal Reserve sees no reason to speed up interest rate increases as dovish, but the same message that he sees “further, gradual” rate hikes suggests that the Federal Reserve remains committed towards consistent tightening of US monetary policy.

This mixed consensus is perhaps why the Dollar is showing signs of a mixed performance today.

Where we can expect volatility to return this week is in the Turkish Lira after the markets in Turkey resume trading after a week-long holiday. I personally expect the Lira to remain under pressure for some time as the same structural concerns that terrified traders away from Turkish assets still remain unchanged. Fears over an over-heating economy, widening current account deficit, a conflict in central independence and imminent jump in inflationary pressures is enough to keep investors away from buying the Lira.

The South African Rand is another currency that will remain on the radar of traders. It had previously shown sensitivity to contagion concerns after the freefall in the Turkish Lira earlier this month, before the currency succumbed to further selling pressure even more recently on concerns that South Africa could be next in line to face the wrath of President Trump. The United States President tweeted recently around one of the most sensitive issues in post-apartheid history, land reform. The tweet from Trump initially prompted fears that South Africa could unexpectedly find itself as the next nation to be under the public eye due to President Trump’s focus of attention, following in the line of Turkey, Iran, Russia, China and North Korea to name just a few over the past couple of months.

Notes/Observations

• Risk-on appetite aids Far East and EU stock
• German Aug IFO survey beats expectations as domestic economy hums along
• European budget matters drifting onto the front-burner
• UK markets closed for banking holiday

Asia:

• China July Industrial Profits slowed for the 3rd consecutive month in July. (Y/Y: 16.2% v 20% prior
• President Trump asked Sec of State Pompeo to cancel North Korea trip at this time due to lack of denuclearization progress; says China was not helping with denuclearization process 'as they once were'

Europe:

• Reportedly deadline to reach agreement on Brexit has been pushed back by 4 weeks to a "hard" deadline in mid-November
• Germany Fin Min Scholz said public sector debt could decline below the EU debt ceiling (60% of GDP) before the end of 2018 (previously said 2019)
• Italy PM Conte said to threatened to pull the plug on European budget plans
• Italy disembarks stranded migrants
• Italy Interior Min Salvini (also Dep PM) said he had been placed under investigation by a prosecutor in Sicily for abuse of office, kidnapping and illegal arrest
• Bank of International Settlements (BIS) General Manager Carstens said to warn that reversing globalization could lead to higher prices and unemployment, along with slower growth

Americas:

• Senator John McCain (R-AZ) ex-POW and 'maverick Republican', dies at 81. Vacancy created by McCain’s death narrows the number of Republican-held seats in the 100-member U.S. Senate to 50, with Democrats controlling 49
• Mexico Economy Min Guajardo: Mexico negotiators will be back to the USTR on Monday; Says still working on the NAFTA deal, we are advancing and will come back on Monday.

Energy:

• Iran Finance Minister Masoud Karbasian has been impeached by parliament amid public concerns over the economy

Economic Data:

• France Fin Min Le Maire: Uncertainty surrounds the global economic outlook but had avoided a trade war. French GDP growth of 1.7% in both 2018 and 2019 was still a sustained pace. France was committed to keeping budget deficit to GDP ratio within 3% for 2019
• France Budger Min Darmanin: 2018 budget deficit to GDP to be above 2.3% but below 3.0%
• Italy Interior Min Salvini (also Dep PM) reportedly sought discussion on Italy's EU costs. EU had been absent and uncaring in discussion over standoff on taking action on migrants. Supportive of PM Conte comments on using possible veto on the EU's ten-year funding draft following a standoff between the two powers
• German IFO Institute stated that the domestic economy was performing robustly and saw Q3 GDP growth of 0.5% (in-line with Q2 pace) and saw Q3 GDP growth of 0.5% (in-line with Q2 pace)
• Russia Dep PM Kozak stated that govt to raise excise tax for diesel and gasoline fuel to help stabilize domestic prices; effective Jan 1st. Move to compensate for tax cuts made in Jun/July period
• China Govt: Trade with BRIC nations exceeded $5T over the past 5 years

Fixed Income Issuance:

• None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +0.2% at 384.4, FTSE Closed, DAX +0.4% at 12440, CAC-40 +0.4% at 5453, IBEX-35 +0.2% at 9607, FTSE MIB +0.4% at 20690, SMI +0.1% at 9059 S&P 500 Futures +0.3%]
• Market Focal Points/Key Themes: European Indices trade higher across the board in quiet trade as the UK markets are closed for Bank Holiday. In a light morning for corporate news shares of Metro outperform after Ceconomy said it was in talks to sell the majority of of its 10% stake in the retailer; DIDA in Spain also trades higher after reports of bid interest. On the earnings front Alpiq trades lower after a decline in Profit; Greenyard a sharp decliner after cutting its outlook.

Movers

• Consumer Discretionary Metro Ag [B4B.DE] +12.5%, Cecnonomy {CEC.DE] +5.5% (Ceconomy looking to sell stake in Metro), DIDA [DIA.ES] +5.0% (Bid speculation)
• Consumer Staples Greenyard [GREEN.BE] -6.7% (Earnings, cuts outlook)
• Industrials Volkswagen [VOW3.DE] +1.4% (Said to be one of the investors bankers lined up if Tesla going private proposal went ahead)
• Healthcare Ambu [AMBUB.DK] -4.5% (Reportedly Chairman sold DKK61M shares)
• Energy Alpiq [ALPH.CH] -1.4% (Earnings)

Speakers

• France Fin Min Le Maire: Uncertainty surrounds the global economic outlook but had avoided a trade war. French GDP growth of 1.7% in both 2018 and 2019 was still a sustained pace. France was committed to keeping budget deficit to GDP ratio within 3% for 2019
• France Budger Min Darmanin: 2018 budget deficit to GDP to be above 2.3% but below 3.0%
• Italy Interior Min Salvini (also Dep PM) reportedly sought discussion on Italy's EU costs. EU had been absent and uncaring in discussion over standoff on taking action on migrants. Supportive of PM Conte comments on using possible veto on the EU's ten-year funding draft following a standoff between the two powers
• German IFO Institute stated that the domestic economy was performing robustly and saw Q3 GDP growth of 0.5% (in-line with Q2 pace) and saw Q3 GDP growth of 0.5% (in-line with Q2 pace)
• Russia Dep PM Kozak stated that govt to raise excise tax for diesel and gasoline fuel to help stabilize domestic prices; effective Jan 1st. Move to compensate for tax cuts made in Jun/July period
• China Govt: Trade with BRIC nations exceeded $5T over the past 5 years

Currencies

• EU budget matters appear to be moving onto the front burner as France conceded it would miss its initial 2018 target of 2.3% due to slower growth. Italy threatening its payments to the EU budget as the govt was not satisfied with EU’s promised to address the migrant issue
• EUR/USD holding above the 1.16 level in quiet trade as UK participants was off for a banking holiday.
• Turkey returned following a prolong holiday to find the TRY currency back under modest pressure with USD/TRY higher by 2% to test above 6.13 level.

Fixed Income

• Bund Futures trades at 162.83 down 29 ticks retracing some of the move as European Indices trade higher. Resistance moves to 163.82 then 164. A downside break of 163.00 sees 162.69 initially.
• Monday 's liquidity report showed Friday's excess liquidity fell from €1.856T to €1.851T. Use of the marginal lending facility fell from €68M to €55M.
• Corporate issuance saw high grade issuers raise $8.3B in the primary market last week

Looking Ahead

• (IT) Italy Fin Min Tria in China to help build economic dialogue (thru Sept 1st)
• 06:30 (IS) Iceland to sell 3-month Bills
• 06:45 (US) Daily Libor Fixing
• 07:00 (BR) Brazil Aug FGV Construction Costs M/M: 0.3%e v 0.7% prior
• 07:25 (BR) Brazil Central Bank Weekly Economists Survey
• 07:30 (TR) Turkey Aug Capacity Utilization: No est v 77.1% prior
• 07:30 (TR) Turkey Aug Real Sector Confidence (Seasonally Adj): No est v 101.5 prior; Real Sector Confidence (NSA): No est v 102.7 prior
• 08:00 (IN) India announces details of upcoming bond sale (held on Fridays)
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (US) July Chicago Fed National Activity Index: 0.45e v 0.43 prior
• 08:55 (FR) France Debt Agency (AFT) to sell combined €3.5-4.7B in 3-month, 6-month and 12-month BTF Bills
• 09:00 (MX) Mexico July Trade Balance: -$1.7Be v -$0.9B prior
• 09:00 (BR) Brazil July Total Federal Debt (BRL): No est v 3.754T prior
• 09:30 (BR) Brazil July Current Account Balance: -$3.8Be v +$0.4B prior; Foreign Direct Investment (FDI): $4.0Be v $6.5B prior
• 09:30 (EU) ECB announces Covered-Bond Purchases
• 09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
• 10:30 (US) Aug Dallas Fed Manufacturing Activity: 30.0e v 32.3 prior
• 11:30 (US) Treasury to sell 3-month and 6-month Bills
• 13:00 (US) Treasury to sell 2-year notes
• 16:00 (US) Weekly Crop Progress Report

USDTRY The USDTRY pair rose to 6.22 level on Monday, as markets in Turkey reopened after week-long holiday. The lira was down 3.5% on Monday and attempts to break out of last week's narrow range. The outlook remains negative for lira on persisting worries over the independence of Turkish central bank and recent increased political tensions between the US and Turkey. Traders fear that lira could retest recent record high at 7.1074 and fall further if inflation rises further (Aug CPI report is due on 3 Sep) with focus also on CBRT's 13 Sep monetary policy meeting.

Res: 6.2300, 6.3430, 6.3975, 6.5650
Sup: 6.0713, 6.0226, 5.9607, 5.9209

EUR/USD is almost unchanged in the Monday session. Currently, the pair is trading at 1.1618, down 0.02% on the day. On the release front, German Ifo Business Climate improved to 103.8, above the estimate of 101.9 points. There are no U.S events on the schedule. On Tuesday, the U.S releases CB Consumer Confidence.

Federal Reserve Chair Jerome Powell was the keynote speaker at Jackson Hole, but the dovish tone of his remarks pushed the U.S dollar lower on Friday. Powell reiterated that the Fed would continue its policy of gradual interest rate hikes, saying that a cautious approach was prudent. The Fed has faced criticism about its current policy from both sides. some analysts argue that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds a December hike currently stand at 66%.

The ECB released the minutes of its July meeting on Thursday. Policymakers were in agreement that economic growth in the eurozone was as expected, and saw no need to tweak monetary p0licy. The minutes noted that the eurozone economy remained in expansion mode and unemployment was falling. However, the threat of protectionism and a global trade war marked serious concerns, which if not addressed, could dampen eurozone growth. Inflation has risen to 1.7%, which some, though it remains unclear if this meets the ECB target of “close to but below 2.0%”. With the ECB expected to wind up its asset-purchase program in December, investors will be looking for policymakers to confirm this move.

WTI oil price is holding within tight range on Monday and struggling at strong barriers at $68.60 zone (Fibo 38.2% of $75.34/$64.43 descend / converging 10/55SMA's) which were cracked on Friday, but without clear break.

Friday's daily candle with long upper shadow suggests that bulls might be running out of steam. The notion is supported by south-turning 14-d momentum which is forming bear-cross with its 7-d MA and slow stochastic forming bears cross and attempting to reverse from overbought territory.

From the fundamental side, concerns on US-China trade conflict escalation, add to negative outlook, but fears about the impact on US sanctions on Iran's oil sector, offset negative impact for now.

Near-term action is holding between 55SMA ($68.81) and 30SMA ($67.79), with break of either side needed to generate fresh direction signal.

Bearish scenario on break below 30SMA needs confirmation on extension below 20SMA ($67.34), to risk further weakness.

At the upside, sustained break above $68.60 zone pivots would signal extension of recovery leg from $64.43 (16 Aug low).

Res: 68.81, 69.29, 69.46, 70.15
Sup: 68.33, 67.79, 67.34, 66.64

Spot Gold consolidates within narrow range on Monday, following last Friday's strong rally which marks the biggest one-day gains since 21 Mar.

Yellow metal's safe-haven appeal seems to be fading as investors turned to the US dollar on persisting trade dispute between the US and China, as well as growing crisis in Turkey.

However, near-term structure remains firm and sees scope for extension of recovery leg from $1160 (16 Aug low) after consolidation.

Psychological $1200 support, reinforced by 20SMA, marks ideal support to contain consolidation and keep bulls intact for fresh upside, with close above 30SMA ($1208) needed to confirm scenario.

Conversely, increased risk of deeper pullback, which would put near-term bulls on hold, could be expected on close below 20SMA ($1200).

Res: 1208, 1213, 1217, 1228
Sup: 1203, 1200, 1190, 1183

The US Dollar depreciated against the European Single Currency on Monday morning, as the rate bounced off the senior channel at 1.16. The total downtrend had lost 0.45% since Monday's early morning. During Friday's trading session the currency pair gained 1.00% in total, breaking through the senior channel.

We can observe that the European Single Currency was trading in an uptrend during the last two weeks, passing the weekly PP at 1.1552. Today, the main currency pair was near the 1.16 mark in the morning hours. The nearest support level is the monthly S1 at 1.1581, while the nearest resistance level is the monthly PP at 1.1686.

The British Pound had slightly recovered itself against the American counterpart during the Friday's session, passing the weekly PP at 1.2839. The GBP/USD pair was still testing the weekly PP on Monday early in the morning.

The Sterling should fluctuate between the 55-hour and the 100-hour SMAs this trading session. Even if a breakout occurs to the upside of the junior channel, it is not expected that large gains are apparent today due the lack of significant fundamental data releases during today's trading session. It is expected that the Pound will bounce off the upper boundary of the junior channel and go downwards to the 200-hour SMA near 1.28.