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Yesterday's trading session resembled Monday's in the sense that the sting was in the tail. Trump's criticism on China, the EU and the Fed drew a lot of additional headlines during European trading hours, but failed to trigger follow-up action. EUR/USD entered a tough fight at the 1.1510 battle ground with other markets mainly thriving on an improved risk sentiment. German yields added up to 2.8 bps (belly of the curve) on a daily basis. Peripheral spreads narrowed by 13 bps for Greece and 5 bps for Portugal, Spain and Italy. The S&P 500 managed to record a minor new all-time high intraday. However, stock markets started slipping away and continue to do so overnight (US futures) as news broke that US President Trump's former lawyer Cohen plead guilty to several charges including campaign-finance violations. He implicated president Trump in doing so. Former campaign manager Manafort was more or less simultaneously convicted of fraud in a win for Special Counselor Mueller's investigation of Russian interference in the 2016 election. The mirror image of equity weakness are overnight gains for the US Note future. The dollar lost key technical levels with EUR/USD closing significantly above 1.1510 (1.1571) and the trade weighted dollar falling below the 95.50 handle (95.27 close). However, we must add that these technical breaks occurred two hours before the correlated trade on the stock and bond market, suggesting stand-alone events. USD/JPY bounced off 109.86 support in the morning and managed to hold upward momentum despite a brief dip in today's early Asian trading which did match the post Cohen/Manafort risk aversion. Dallas Fed Kaplan's (no voter) suggestion to hike rates another 3 to 4 times until they hit a neutral level fell in deaf man's ears yesterday. EUR/GBP closed yesterday's session almost unchanged at 0.8969 as brexit-talks between UK Brexit minister Raab and EU chief negotiator Barnier continue. More of the same will probably be on the UK cards today.

Most Asian stock markets trade positive overnight (China underperforming) while USD/JPY's rise and US Note future's stabilization also suggest no lasting/additional impact from US President Trump's legal blow for now. The eco calendar remains thin today with only FOMC Minutes which are expected to pave the way for a September Fed rate hike. The US and China start low-level trade talks. We hold a close eye on dollar markets after the greenback gave away key technical levels (conquered on August 10). A weekly close below levels mentioned above makes technical pictures neutral again. The German and US 10-yr yields bounced off key support levels at 0.3% and 2.8% respectively. This week's eco calendar still contains EMU PMI's (Thursday) and Powell's speech (Friday).

News Headlines

US President Trump had a bad day in court yesterday. His personal lawyer Michael Cohen pleaded guilty to charges of paying silence money to women who claimed affairs with the president. Paul Manafort, his ex-campaign manager, was convicted of tax evasion and bank fraud.

Irish banks are offloading bad loans from the financial crisis. The move followed regulators increasing pressure on Irish banks to accelerate the repairing of balance sheets whom still are burdened by bad lending practices stemming from the crisis. The regulators fear elevated NPL rates present a risk to financial stability.

EU's chief negotiator, Michel Barnier had said the EU and the UK will negotiate on Brexit continuously from now on. He added the negotiations are entering the final stage, but it needs Britain to “respect the single market”. He wouldn't commit to October as the long-planned deadline for a deal, making November a possibility.

The US and Mexico are heading in the right direction with Nafta-talks. Key hurdles have yet to be taken, such as the ‘sunset clause', but a consensus is said to be within reach. The US-Mexico talks are seen as an important precursor for a final three-way deal that also includes Canada on a revised Nafta-agreement.

General Trend:

• Asian equity markets trade mixed, Australia and Shanghai underperform
• New Zealand Q2 retail sales rise more than expected, hardware and building supplies had the largest increase
• US Fed minutes due for release on Wed
• Australia’s Qantas is expected to report financial results on Thursday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.2%
• ASX 200 Utilities index -1.6%, Financials -1.1%, Resources -1%, Energy -0.4%; Telecom +6.5% (Telstra +6.2%)
• (AU) AUSTRALIA Q2 CONSTRUCTION WORK DONE: 1.6% V 0.8%E
• (AU) RBA Assist Gov Debelle: We would like to be more confident inflation will be sustained at target (2-3%), current accommodative stance of monetary policy will assist this outcome
• (AU) Australia PM Turnbull: Tax cuts for big businesses have failed to pass the Senate, government will not take tax cuts to the next election
• (AU) Australia sells A$1B v A$1B indicated in Nov 2022 bonds, avg yield 2.1415%, bid to cover: 4.6x
• (NZ) NEW ZEALAND Q2 RETAIL SALES EX INFLATION Q/Q: 1.1% V 0.3%E

China/Hong Kong

• Shanghai opened -0.1%, Hang Seng +0.3%
• Hang Seng Energy index +2%, Info Tech +1.8%, Consumer Goods +0.7%, Services +0.6%, Financials +0.4%; Telecom -0.7%, Materials -0.5%, Utilities -0.4%, Property/Construction -0.1%
• (CN) China PBoC set yuan reference rate at 6.8271 v 6.8360 prior
• (CN) China PBoC Open Market Operation (OMO): Skips OMO v CNY50B injected in 7-day reverse repos prior
• (CN) China Hebei Province said to plan low-emission campaign related to steel companies - Xinhua

Japan

• Nikkei 225 opens +0.2%
• TOPIX Iron & Steel index +2%, Securities +1.2%, Marine Transportation index +1.1%, Electric Appliances +1%; Real Estate -0.2%, Info & Communications -0.1%

Automakers generally outperform

• (JP) Japan Finance Aso and China Vice Premier Liu might meet in Beijing - Japanese Press
• (JP) Former BoJ Official Ishida: BoJ could 'whittle down' stimulus before inflation hits the 2% target
• (JP) Japan Jun All Industry Activity Index M/M: -0.8% v -0.8%e

Korea

• Kospi opened +0.2%
• (KR) South Korea Q2 Short-term External Debt: $125.1B v $120.5B prior
• (KR) South Korea government said to be discussing measures on the housing market - Local Press

Other

• (TH) Thailand July Customs Trade Balance: -$0.5B v $0.0Be

North America

• US equity markets ended higher: Dow +0.3%, S&P500 +0.2%, Nasdaq +0.5%, Russell 2000 +1.1%
• S&P500 Consumer Discretionary +0.8%
• (MX) US said to announce 'handshake' NAFTA deal related to Mexico on Thursday – Politico
• (MX) Mexico said to deny the existence of a 'handshake' deal related to NAFTA
• (US) Former Trump lawyer Cohen enters guilty plea at court hearing; says he violated campaign law at direction of the 'candidate', sought to influence the election
• (US) Trump Attorney Giuliani: Government's charges against Cohen contain no allegation of any wrongdoing against the President
• (US) Former Trump campaign chair Paul Manafort found guilty on eight counts including tax fraud, bank fraud charges – press
• (US) Weekly API Oil Inventories: Crude: -5.2M v +3.7M prior

Levels as of 01:30ET

• Nikkei 225 +0.4%, ASX 200 -0.4%, Hang Seng +0.4%; Shanghai Composite -0.6%; Kospi +0.3%
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.3%, Dax +0.1%; FTSE100 +0.2%
• EUR 1.1583-1.1567 ; JPY 110.51-110.02 ; AUD 0.7371-0.7345 ;NZD 0.6721-0.6686
• Aug Gold +0.2% at $1,202/oz; Sept Crude Oil +0.5% at $66.16/brl; Sept Copper +0.1% at $2.689 /lb

Daily Pivots: (S1) 1.3022; (P) 1.3058; (R1) 1.3076; More...

At this point, with 1.3091 minor resistance intact, deeper fall is in favor in USD/CAD for 1.2961 support. Break there will resume whole decline from 1.3385. More importantly, that will also break medium term channel support firmly and carries larger bearish implications. On the upside, above 1.3091 minor resistance will turn bias back to the upside for 1.3173 resistance. Break there will indicate completion of fall from 1.3385 and turn outlook bullish again.

In the bigger picture, as long as channel support (now at 1.2965) holds, we're holding to the bullish view. That is, fall from 1.4689 (2015 high) has completed at 1.2061, ahead of 50% retracement of 0.9406 (2011 low) to 1.4689 (2015 high) at 1.2048. Further rally should be seen for 61.8% retracement of 1.4689 to 1.2061 at 1.3685 and above. However, sustained break of the channel support will argue that rise from 1.2061 has completed. Further decline should be seen to 38.2% retracement of 1.2061 to 1.3385 at 1.2879 first. Sustained break will pave the way to 61.8% retracement at 1.2567 and below.

Daily Pivots: (S1) 0.7339; (P) 0.7360; (R1) 0.7388; More...

A temporary top is in place at AUD/USD at 0.7381 and intraday bias is turned neutral first. As long as 0.7295 minor support holds, rebound from 0.7201 short term bottom could still extend high. But we'd expect upside to be limited by 0.7425 resistance to bring larger down trend resumption. On the downside, below 0.7295 minor support will argue that the rebound is finished and turn bias back to the downside for retesting 0.7201 low.

In the bigger picture, rebound from 0.6826 (2016 low) is seen as a corrective move that should be completed at 0.8135. Fall from there would extend to have a test on 0.6826. There is prospect of resuming long term down trend from 1.1079 (2011 high). But we'll look at downside momentum to assess at a later stage. On the upside, break of 0.7452 resistance, however, will indicate medium term bottoming, on bullish convergence condition in daily MACD. In that case, a correction should be seen first, with stronger rebound would be seen to 38.2% retracement of 0.8135 to 0.7201 at 0.7558. The down trend from 0.8135 will resume after the correction completes.

Daily Pivots: (S1) 109.84; (P) 110.20; (R1) 110.62; More...

Intraday bias in USD/JPY remains neutral as it drew support from 38.2% retracement of 104.62 to 113.17 at 109.90 and recovered. At this point, we'd still expect strong support around 109.90 to bring rebound. On the upside, above 111.42 will turn bias back to the the upside for retesting 113.17 first. However, sustained break of 109.90 will put 109.36 key support level in focus. Break of 109.36 will carry larger bearish implications.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.36 support holds. However, decisive break of 109.36 will mix up the outlook again. And deeper fall should be seen back to 61.8% retracement of 104.62 to 113.17 at 107.88 and below.

Daily Pivots: (S1) 0.9818; (P) 0.9871; (R1) 0.9900; More....

USD/CHF's fall extends to as low as 0.9835 so far and intraday bias remains on the downside. Current decline from 1.0067 should be seen to 100% projection of 1.0067 to 0.9866 from 0.9981 at 0.9780 and possibly below. But fall from 1.0067 is seen as the third leg of the consolidation pattern from 1.0056. Hence, we'd expect strong support from 38.2% retracement of 0.9186 to 1.0056 at 0.9724 to bring rebound. On the upside, break of 0.9981 will bring retest of 1.0067 resistance.

In the bigger picture, current development suggests that the consolidation pattern from 1.0056 is extending. As long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds, we'd expect rise from 0.9186 to resume at a later stage to retest 1.0342 key resistance (2016 high). However, sustained break of 0.9724 fibonacci level will bring deeper fall, as another declining leg in the long term range pattern.

Daily Pivots: (S1) 1.1501; (P) 1.1551 (R1) 1.1623; More.....

EUR/USD's rebound form 1.1300 is still in progress and reaches as high as 1.1600 so far. Intraday bias remains on the upside for further rally. But upside should be limited by 1.1745 resistance to bring larger down trend resumption. On the downside, break of 1.1493 minor support will suggest that the rebound is completed. Intraday bias would be turned back to the downside for retesting 1.1300 low.

In the bigger picture, the down trend from 1.2555 medium term is in progress for 61.8% retracement of 1.0339 to 1.2555 at 1.1186. Note again that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. That carries some long term bearish implications. Sustained break of 1.1186 could pave the way back to retest 1.0339 low. For now, outlook will remain bearish as long as 38.2% retracement of 1.2555 to 1.1300 at 1.1779 holds, even in case of strong rebound.

For the 24 hours to 23:00 GMT, the EUR rose 0.73% against the USD and closed at 1.1574.

The US dollar weakened against the euro, following US President, Donald Trump’s critical comments over the Federal Reserve’s interest rate hike policy.

In the Asian session, at GMT0300, the pair is trading at 1.1575, with the EUR trading marginally higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1511, and a fall through could take it to the next support level of 1.1447. The pair is expected to find its first resistance at 1.1620, and a rise through could take it to the next resistance level of 1.1665.

In absence of key macroeconomic releases in the Euro-zone today, investors would direct their attention to the US MBA mortgage applications followed by the US Federal Reserve’s August meeting minutes, slated later in the day. Moreover, the US existing home sales data for July, will also be eyed by traders.

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

For the 24 hours to 23:00 GMT, the GBP rose 0.83% against the USD and closed at 1.2903.

On the macro front, Britain's public-sector net borrowing reported a surplus of £2.9 billion in July, compared to a revised deficit of £3.3 billion in the previous month. Market participants had expected public sector net borrowing to show a surplus of £2.0 billion.

Other data showed that the nation's CBI industrial trends total orders dropped to 7.0 in August, more than market expectations for a fall to a level of 8.0. In the prior month, industrial trends total orders had recorded a reading of 11.0.

In the Asian session, at GMT0300, the pair is trading at 1.2907, with the GBP trading slightly higher against the USD from yesterday's close.

The pair is expected to find support at 1.2838, and a fall through could take it to the next support level of 1.2768. The pair is expected to find its first resistance at 1.2951, and a rise through could take it to the next resistance level of 1.2994.

With no macroeconomic releases in the UK today, investor sentiment would be determined by global macroeconomic news.

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

For the 24 hours to 23:00 GMT, the AUD rose 0.18% against the USD and closed at 0.7358.

LME Copper prices rose 1.1% or $62.5/MT to $6025.5/MT. Aluminium prices rose slightly to $2040.5/MT.

In the Asian session, at GMT0300, the pair is trading at 0.7351, with the AUD trading 0.10% lower against the USD from yesterday’s close.

Overnight data showed that Australia’s Westpac leading index rose 0.01% on a monthly basis in July, in line with market expectations and compared to a revised rise of 0.13% in the prior month

The pair is expected to find support at 0.7334, and a fall through could take it to the next support level of 0.7317. The pair is expected to find its first resistance at 0.7375, and a rise through could take it to the next resistance level of 0.7399.

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