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The US currency is being traded near annual highs. Yesterday, the US dollar index (#DX) closed the trading session with a slight decrease (-0.02%). Conflict between the US and Turkey is still in the spotlight. Ankara took retaliatory measures and imposed duties on a number of American goods. The Japanese yen has started increasing, as demand for safe assets rises in the period of financial instability. At the moment, the currency majors are consolidating.

Yesterday, economic data were published in the United Kingdom and the United States. So, the consumer price index in the UK counted to 2.5% in July, as investors expected. The core retail sales index in the US counted to 0.6% in July and was above the forecasted value of 0.4%. The volume of retail sales in the US rose by 0.5% in July instead of 0.2%. Today, during the Asian trading session mixed data on the labor market have been published in Australia.

The "black gold" prices began to recover after a sharp decline during yesterday's trading. At the moment, futures for the WTI crude oil are testing a mark of $65.15 per barrel.

Market Indicators

Yesterday, the bearish sentiment was observed in the US stock market: #SPY (-0.75%), #DIA (-0.57%), #QQQ (-1.22%).

At the moment, the 10-year US government bonds yield is at the level of 2.86%-2.87%.

The news feed on 2018.08.16:

Report on retail sales in the UK at 11:30 (GMT+3:00);

Statistics on the real estate market in the US at 15:30 (GMT+3:00);

Philadelphia Fed manufacturing index at 15:30 (GMT+3:00).

July is a rather strong month in UK retail sales, thanks to World Cup and good whether.

Headline retail sales including fuel rose 0.7% mom, 3.5% yoy, well above expectation of 0.2% mom, 2.9% yoy.

Ex-auto and fuel sales jumped 0.9% mom, 3.7% yoy, also well above expectation of 0.0% mom, 2.7% yoy.

Full release here.

But just like employment and inflation data released earlier this week, the Pound basically has no reaction. It's trading mixed today, digesting this week's loss against Dollar and Yen.

Here are the latest developments in global markets:

FOREX: The US dollar index is lower by a little over 0.2% on Thursday, pulling back after touching a new 13-month high in the previous session, aided by risk aversion and encouraging US retail sales prints. The Japanese yen is also on the retreat, after news that the US and China will hold another round of trade talks in late August curbed demand for haven assets.

STOCKS: Wall Street closed in the red on Wednesday, as a selloff in tech shares dragged the broader market lower. The tech-heavy Nasdaq Composite led the selloff (-1.21%), after disappointing earnings results from Chinese tech behemoth Tencent Holdings shook the tech sector. The S&P 500 and Dow Jones closed down by 0.76% and 0.54% respectively. Sentiment appears to have reversed overnight though, following reports the US and China will seek trade negotiations. The Dow, S&P, and Nasdaq 100 are all set for a higher open today, according to futures. Asia was a sea of red on Thursday. Japan’s Nikkei 225 (-0.05%) and Topix (-0.64%) ended lower, as did the Hang Seng in Hong Kong (-0.98%). In Europe, futures tracking all the major indices are pointing to a notably higher open today, though not for the Italian FTSE MIB.

COMMODITIES: Oil prices plunged on Wednesday, weighed on by a stronger US dollar, a risk-averse mood in markets, and a surprisingly large buildup in the weekly EIA crude inventory data, instead of the anticipated drawdown. WTI and Brent are a little higher on Thursday, by 0.11% and 0.38% respectively, likely aided by news that the US and China will hold another round of trade talks in late August. In precious metals, gold is marginally higher by 0.1% today. That said, the yellow metal touched a new 17-month low of $1,160 per troy ounce earlier in the Asian trading session before rebounding, confirming that the broader downtrend is back in force.

Major movers: Dollar & yen pull back on reports of fresh US-China trade talks

The US dollar and the Japanese yen recorded another round of gains on Wednesday as investors’ risk appetite turned sour once more. Risk aversion took hold after Chinese tech giant Tencent reported disappointing earnings results, with an escalating political standoff between Washington and Ankara likely adding to concerns after Turkey doubled its tariffs on iconic US goods yesterday, including American cars and tobacco. Hence, investors sought the safety of the Japanese yen, with the greenback also attracting some haven inflows under the view that the US economy is probably better prepared than most of its peers to weather any storm that may arise. The dollar index briefly touched a fresh 13-month high.

Sentiment seems to have reversed on Thursday, though, with risk appetite being boosted by overnight reports that the US and China will make another attempt at resolving their trade dispute through negotiations, scheduled for late August. The news sent the yen and greenback lower during the Asian trading session. The euro – which in recent months had been hurt by signs of escalation in the trade dispute – capitalized on the news, staging a recovery against its major peers today. Similarly, risk-sensitive currencies like the aussie and kiwi got a lift today, though both continue to hover not far above their respective multi-year lows.

The fact that the two sides are still actively pursuing a negotiated solution is an encouraging sign by itself, and suggests the endgame is probably still some kind of “grand accord”, not a prolonged trade war. That said, judging from the relatively moderate market reaction, investors likely took the news with a pinch of salt, recalling that similar talks earlier in the summer did not ultimately bear fruit. Instead, they may have even increased distrust, as the Chinese side perceived the US to be backtracking from issues they believed they had agreed on. For now, the prospect of a deal still appears somewhat remote, considering the large rifts between the two sides.

Elsewhere, the British pound posted new one-year lows against both the dollar and the yen yesterday, while it also retreated against the euro. With the EU-UK negotiations resuming today, Brexit is likely to move firmly back into the spotlight.

Turning to EM, the Turkish lira regained some ground in recent sessions, with dollar/lira falling back below the 5.80 handle, helped by reports that Qatar will invest as much as $15 billion in the country. The latest rebound is also being attributed to profit taking on prior short positions, as well as the central bank tightening liquidity through its daily operations.

Day ahead: UK retail sales and US housing starts due; Norges Bank decides; US-China plan trade talks, with Brexit talks again underway

Retail sales figures out of the UK, as well as US housing data will be on tap on Thursday. In the meantime, trade developments will be in focus after news that China and the US will be holding trade talks in late August, while any Turkey-related news will also be attracting attention. In addition, Brexit talks will be resuming.

The Norwegian central bank’s interest rate decision will be made public at 0800 GMT. A “hawkish hold” of rates is perhaps the meeting’s most likely outcome, with the central bank maintaining its benchmark rate at 0.50% and reiterating that it remains on track to hike rates at next month’s meeting. Also in the Nordic sphere, the Swedish Finance Minister Magdalena Andersson will today be presenting the country’s new economic forecasts and spending plans for the coming years as Sweden heads for general elections on September 9.

UK retail sales for July are due at 0830 GMT. Sales are projected to grow by 0.2% m/m, returning into positive territory after declining by 0.5% in June. This would put the annual pace of expansion at 3.0% from June’s 2.9%. Core retail sales that exclude fuel are also anticipated to record positive monthly growth after contracting in June. Sterling pairs though may prove more sensitive to any Brexit updates with another round of talks between the UK and the EU getting underway today in Brussels.

Out of the US, housing starts are expected to have grown by 7.4% in July, after declining by 12.3% in June to touch a nine-month low. Meanwhile, July’s building permits, weekly jobless claims data, as well as August’s Philly Fed Business index will be released at the same time; the Philly Fed survey, which in the past recorded a notable deterioration on the back of rising worries over the US-China trade spat, is projected to reflect a worsening compared to July’s print.

Canadian manufacturing sales for June are due at 1230 GMT.

China’s Ministry of Commerce saying that it had received an invitation from the US for talks to be held between the two parties in late August is a positive development for risk sentiment. Should this story receive traction, with the world’s two largest economies shying away from protectionist actions, then it is likely for riskier assets and perceived risk-on currencies such as the aussie to appreciate. The situation in Turkey will also be monitored though, as it can also affect sentiment in the markets.

In equities, Walmart and Nvidia will be releasing quarterly results on Thursday; the former before the US market open and the latter after the closing bell.

Technical Analysis: EURGBP bullish bias eases

EURGBP is trading roughly 90 pips below last week’s 10-month high of 0.9029. The Tenkan-sen remains above the Kijun-sen in support of a bullish bias, though the flat Kijun-sen is signaling an easing positive momentum.

Upbeat UK retail sales figures or an indication from Brussels that the UK and the EU are getting closer to a deal on Brexit, are expected to push the pair lower. Immediate support may take place around the Kijun-sen at 0.8922 – including the 0.89 handle – with steeper losses increasingly bringing into scope the area around the current level of the 50-day moving average line at 0.8859.

Conversely, weaker-than-anticipated retail sales numbers or higher odds for a no-deal Brexit are likely to lead to a firmer EURGBP. Initial resistance to advances may occur around the Tenkan-sen at 0.8957. Further above and given a break above the 0.90 round figure, the 10-month high of 0.9029 from August 29 would come in focus.

Markets are on the rise on Thursday morning on the news about the U.S.-China trade talks later this month. As a result, Asian bourses have stabilized: MSCI adds 0.3% after a decrease of 1.1% on Wednesday. The Chinese offshore yuan adds about 1% on Thursday morning and trades at 6.875 after reaching 18-month lows to the dollar overnight. The central bank of Turkey decided not to raise the key rates but had limited the possibility of speculative attack on lira. As a result, its course rose by 19% to 5.85 per dollar against the 7.24 at the start of trading on Monday.

Thus, the markets have received hope for stabilization of two most sensitive issues for the latest days, on Turkey and China. In both cases, the situation is far from being resolved, but the attention of the authorities to the topic and attempts to stabilize the situation, deter markets from further decline, allowing speculators to fix a part of the profits from the recent strong moves.

The mood for profit-taking has also spreads to major currency pairs. The dollar index has decreased by 0.6% from the highs of the Wednesday and is trading near 96.30. The EURUSD pair gained on support on decline to 1.13, adding almost a figure (1 cent) to the lows of the previous day, and is trading at 1.14 before Europe open. In case of development of a rollback in a pair it is necessary to pay attention to dynamics near 1.15 which until recently was important support level. Strong growth above this mark gives signal about the serious intentions of the Euro-bulls and can become a testament to the end of the impulsive sale-off. However, by now we could hardly talk about serious chances to reverse in the euro dynamics

Still, there is a lot of evidence of the growing strength of the dollar. The volatility of the Turkish lira, although capable of worsening the positions of European banks, affecting on lending and possibly containing the ECB on the way to normalize rates.

Moreover, we have strong statistics from the United States. Yesterday’s retail sales were marked by an increase of 0.5% m/m and by 6.4% y/y, which significantly surpasses the rate of price growth, which is 2.9% y/y.

Brent Crude Oil fell on Wednesday to $70.50, updating the 4-month lows, but later have stabilized around the $71.30. Oil fell by 2.3% yesterday after reports of unexpected growth in inventories and production in the US last week. Crude oil inventories declined by 11% to last year’s levels, but it is almost half the rate of March, when the fall to the last year was 20.6%. Despite the short-term stabilization of the price, it is worth noting the dominance of the downward trend. An important technical indicator for observation is the line of 200-day average, which passes near $70 per barrel. Overcoming this mark can serve as a signal to a prolonged sale.

XAUUSD (1172.34): Gold prices were seen declining further as prices touched down to fresh lows of 1160 earlier this morning. The sharp pullback off the lows could trigger a short-term rebound in prices. However, with the previously held support level at 1211.50 now likely to turn to resistance, the gains could be limited. To the downside, we expect gold prices to consolidate around the 1160 - 1150 region in the short term.

USDJPY (110.78): The USDJPY currency pair was bearish on Wednesday with price action closing with an outside bar on the day. The declines send the currency pair plunging below the support level of 111.13 - 110.85 level. Failure to hold the declines at this level could trigger further losses in store. The USDJPY currency pair could be seen targeting the 109.45 level of support as a result. However, the declines are expected to be gradual with further consolidation likely to take place near the support/resistance level of 111.13 - 110.85.

EURUSD (1.1382): The EURUSD currency pair extended the declines touching down to fresh intraday lows of 1.1301. Price action managed to recover slightly closing with a doji near the lows. On the 4-hour chart, the EURUSD currency pair was seen attempting to trade back above the 1.1366 level. As this level served as a brief support, the rebound off 1.1366 could signal a potential correction in the near term. A retest of 1.1366 could confirm the upside bias as the EURUSD could be seen pushing higher to test 1.1540 level where resistance could be established.

The U.S. dollar was seen trading a bit subdued on Wednesday. However, price action was seen staying firm for the most part. Economic data over the day saw the Australia wage price index. For the second quarter, wages grew at a pace of 0.6% matching estimates.

In the UK, inflation was seen rising for the first time this year. Headline inflation rate rose to 2.5% during July matching estimates. Core inflation rate was seen rising 1.9%, the same pace as the month before.

The NY trading session saw the U.S. retail sales rising 0.5% on the headline and 0.6% on the core. Both the reports beat market expectations. Manufacturing activity as measured by the Empire State manufacturing index rose to 25.6.

Looking ahead, the economic calendar today will see the release of the UK's retail sales report. Economists forecast headline retail sales to rise 0.5% in July.

In the NY trading session, building permits and housing starts reports are due.

Pivot (invalidation): 0.7225

Our preference Long positions above 0.7225 with targets at 0.7290 & 0.7320 in extension.

Alternative scenario Below 0.7225 look for further downside with 0.7200 & 0.7180 as targets.

Comment The RSI is supported by a rising trend line.

Pivot (invalidation): 1.3150

Our preference Short positions below 1.3150 with targets at 1.3095 & 1.3065 in extension.

Alternative scenario Above 1.3150 look for further upside with 1.3175 & 1.3200 as targets.

Comment The RSI shows downside momentum.