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Risk aversion remained yesterday's main market theme, even if the Turkish lira managed a short term comeback after authorities cracked down on short selling the currency. Additionally, Qatar was said to be ready to invest $15bn in the country. EUR/TRY dropped from 7.4 towards 6.8. The relief didn't spill over to other markets. Chinese stock markets lost another 2% with Tuesday's disappointing eco numbers still echoing. The malaise spread of EMU (-1.5%) & US (-0.75%) stock markets while commodities shared some of the pain as well. Copper for example tumbled by 4.4%. The Japanese yen (USD/JPY 110.74 from 111.15) and Swiss franc (EUR/CHF new YTD low 1.1244) profited on FX markets while EUR/USD tested the 1.13 big figure, also in the wake of strong US retail sales. The pair eventually closed unchanged around 1.1345. The likes of BRL and ZAR lost more ground. Core bonds played their safe haven role. The German yield curve bull flattened with yields 0.9 bps (2-yr) to 2.4 bps (30-yr) lower. US yields declined by 2.9 bps (2-yr) to 3.7 bps (5-yr) with the curve matching the flattest level (25 bps) since 2007. Peripheral yield spread changes vs Germany widened by 4 to 6 bps with Italy significantly underperforming (+16 bps). Traded volumes on the BTP market were low though because of a regional holiday. Lega Salvini blamed the EU's fiscal constraints for Tuesday's deadly bridge collapse, suggesting willingness disobey EU targets in the ongoing budget review. The Italian 10-yr yield spread equals the post-election high around 290 bps.

Risk sentiment improved overnight after news that a Chinese trade delegation will go to the US for low-level trade talks end of August. It will be the first official negotiations since they broke down two months ago. Asian equity indices regained most/all opening losses. The US Note future loses ground while USD/JPY (110.88) and EUR/USD (1.1390) are upwardly oriented. We expect a weaker opening for the Bund as well. Today's EMU eco calendar is again empty while the US one contains some second tier numbers (weekly jobless claims, Philly Fed Business outlook, housing starts and building permits). We don't expect them to play first fiddle in today's action. Sentiment about EM will be key. Overnight gains in the ZAR also suggest some improvement in sentiment and could support EUR/USD and USD/JPY in a daily perspective while weighing on core bonds. From a technical point of view, EUR/USD lost 1.1510 key support last week, improving the technical picture for the dollar and unlocking a new trading range between 1.1187 and 1.1510. The German 10-yr yield is near the bottom of the 0.28%-0.50% range, which we deem strong support. The US 10-yr yield hovers in the middle of its 2.8%-3% trading band.

UK inflation picked up to 2.5% Y/Y in July while core CPI stabilized at 1.9% Y/Y, both as expected. Sterling didn't react to the news and remained in the defensive ahead of today's restart of brexit-talks between the EU and UK. The Irish border issue features on today's agenda and will probably prime the UK retail sales release. EUR/GBP rose from an intraday low of 0.89 yesterday to 0.8950 currently and is again drifting towards 0.9031 key resistance.

News Headlines

The Turkish banking authority has taken extra measures to keep its currency in check, such as tightening the rules for short-selling by reducing the ability of Turkish banks to supply the market with lira by half.

China's Commerce Ministry will dispatch a delegation led by Vice Commerce Minister Wang Shouwen to the US for low-level trade talks in late August. The talks, at the invitation of the US, would be the first official exchanges since earlier negotiations two months ago broke down.

Australia's employment declined by 3.9k in July (from a 50.9k increase in June), while an increase of 15.0k was expected. However, full time employment rose 19.3k while part time employment declined with 23.2k jobs. The unemployment rate decreased from 5.4% in June to 5.3% in July. The AUD gained some ground on the news.

The Dollar Index retreated from its 2018 peak of 96.98 following news that China will resume trade talks with the U.S. later this month. The news allowed the Yuan and other emerging market currencies to rally after a steep selloff led by the Turkish crisis and ongoing trade tensions. However, most Asian equity indices remained in the red, suggesting that investors aren’t confident that trade discussions will end successfully. After all, the world’s largest two economies seemed very close to reaching a deal in May but instead, both sides have been slapping tariffs on each other’s imports since then.

The Turkish Lira, which lost almost half its value for 2018 on Monday, recovered by another 5% yesterday, gaining 20% from its record low of 7.23 per Dollar. Actions taken by the Turkish Banking Regulation and Supervision Agency to limit short-selling the Lira through swaps seems to have worked well, at least in the short run. Also supporting the Lira was the announcement that Qatar has offered $15 billion in direct investment. However, such measures may only provide short-term relief and policy makers need to address the longer-term challenges that will face the country. With inflation expected to skyrocket in the coming months, a current account deficit that exceeds $50 billion and more than $16 billion of debt maturing in 2019, investors fear that the currency crisis will turn into a debt crisis. Even if tensions between the U.S. and Turkey are resolved, investors still need to see serious fiscal and monetary measures to restore confidence.

Emerging markets are not the only source of risk aversion. Brexit talks are due to resume in Brussels today and any new signs of the U.K. exiting the European Union without a deal may weigh further of equity markets. Although all major currencies recovered against the Dollar on Thursday, the Pound may continue to suffer further if a “no Brexit deal” becomes the most probable scenario. On the data front, figures for U.K. retail sales for July will be out at 9:30am London time. Although market participants expect to see a recovery from June’s dip, don’t expect good data to provide the needed support for the Pound as politics will continue to overshadow economic fundamentals in the coming weeks.

USDJPY returned to range-bound trading after hitting an almost 7-week low of 110.10 on Monday but the negatively sloped 20-day (simple) moving average which is close to dropping below the 50-day MA may signal that the trend could develop to the downside in the short-term, especially if the bearish cross indeed materializes.

The RSI and the MACD look somewhat neutral at the moment. However, both indicators have yet to exit the bearish zone for negative risks to fade out. That is the RSI to climb above 50 and the MACD above zero and its red signal line.

Should the price reverse lower, the first target in mind could be Monday’s low of 110.10 before attention turns to the 38.2% Fibonacci retracement at 109.89 of the upleg from 104.62 to 113.15, where the 200-day MA currently moves, perhaps adding some importance to the area. Even lower, the 50% Fibonacci of 108.88 could come next into focus, while a break below May’s trough of 108.10 would more decisively confirm the start of a downtrend.

On the upside, the price could find immediate resistance between the 23.6% Fibonacci of 111.13 and May’s peak of 111.38, a frequently tested area over the past 3 weeks. Above from here, attention should be paid to the 112.00 mark as any substantial move above this level would resume the upward pattern started from 104.62 on March and at the same time signal further bullish actions. In this case, bulls could try to overcome the 113.15 top.

As regards the long-term picture, this remains mostly bullish, with the golden cross between the 50- and the 200-day MA acting as a sign that the market is more likely to maintain its positive mood in the longer timeframe.

The US dollar has fallen below the 111.00 level against the Japanese yen on Thursday, after US equity markets experienced heavy losses over fears of a slowdown in the Chinese economy. Bearish intraday pressure is placed back on the USDJPY pair while price trades below the 111.00 level. Sellers will look to hold price below the 110.55 level, while buyers need to push the price back above the 111.37 level.

The USDJPY pair is bearish while trading below the 111.00 level, key support is found at the 110.55 and 110.10 levels.

If the USDJPY pair trades above the 111.00 level, key resistance is located at the 111.37 and 112.05 levels.

The EURUSD pair is starting to move higher on Thursday after sellers failed to break below the key 1.1300 support level yesterday. The 1.1300 support level is important because it was a key technical breakout area for the EURUSD pair during the early part of 2017. Further upside is expected while price trades above the 1.1364 support level, while a loss of this key support level should provoke selling towards the 1.1300 level once again.

The EURUSD pair is intraday bullish while trading above the 1.1364 level, key resistance is now found at the 1.1430 and 1.1480 levels.

If the EURUSD pair moves below the 1.1364 level key support is found at the 1.1340 and 1.1300 levels.

On Tuesday, Bitcoin had a sharp decline that saw it reach a low of $5,800. Yesterday, the BTC/USD pair had some reprieve when it reached an intraday high of $6550. Still, this happened during a low-volume day, highlighting the ever-volatile nature of the crypto sector.

The current price is relatively low from where Bitcoin was trading two weeks ago when the price reached a high of $8,400. This was during the earning season when investment management company, BlackRock, announced that it was exploring a potential entry into the cryptocurrencies industry.

The Bitcoin market is struggling with demand. Bitcoin was established to offer three things. Firstly, it was to act as a replacement for fiat currencies. Secondly, it was created to offer a safer way for people to make transactions. Thirdly, it was intended to be a faster currency, especially for global transactions. It was also intended to offer cheaper transactional costs. To date, Bitcoin has achieved some of these roles but, it faces two major problems. It has not been widely accepted by merchants, its exchange rate is highly volatile, its exchanges have been hacked several times, it is not as fast as fiat currencies and mining it has become expensive.

The BTC/USD pair is currently at $6230, which is at the 23.6% Fibonacci Retracement level. The price is below the 50 and 100-day moving averages and on the four-hour chart, the RSI is climbing. Traders should take yesterday’s gain as an ideal point to sell the pair.

A steady stream of economic data will make its way through the financial markets on Thursday, including the latest on UK retail sales and US housing activity. Currency traders will also be keeping tabs on the latest developments in Turkey following the historic route of the lira.

Action begins at 06:00 GMT with a report on German wholesale prices. Germany's wholesale price index is forecast to grow 0.5% in July.

At 08:30 GMT, the UK's Office for National Statistics will report on retail sales for the month of July. Receipts at retail stores are forecast to rise 0.2% compared with June and 3% annually. Excluding the volatile fuel component, receipts are projected to rise 0.1% month-on-month.

Later in the session, the European Commission's statistical agency will release the latest Eurozone trade data. The euro area's trade surplus is forecast to edge up slightly to €17 billion in June compared with €16.9 billion the month before.

Shifting gears to North America, the US Department of Commerce will release the monthly housing starts and building permits data series at 12:30 GMT. Building permits, which are a proxy for future construction plans, likely rose 1.4% to a seasonally adjusted 1.31 million units.

Separately, the US Department of Labor will release its weekly jobless claims report at 12:30 GMT. The number of Americans filing for first-time unemployment benefits likely rose to 215,000 in the week ended 7 August.

Also, at 12:30 GMT, the Philadelphia Fed will release the August edition of its manufacturing survey.

AUD/USD

The AUD/USD exchange rate rose on Thursday, as traders shrugged off mixed Australian employment numbers. The economy shed nearly 4,000 jobs in July, as workforce participation fell. This, in turn, drove unemployment slightly lower to 5.3%. AUD/USD rose 0.3% to 0.7263, as the market continued to rebound from 18-month lows earlier in the week.

EUR/USD

Europe's common currency rebounded from 13-month lows on Thursday, though downside pressure continued to grip the market in the wake of the lira crash. The EUR/USD exchange rate is up 0.3% in Asia to trade at 1.1373. The long-term technical outlook remains overwhelmingly bearish as the US dollar continues to assert control over the currency market. With the latest breakdown, the EUR/USD could be targeting the upper 1.1100 range as the next major support.

GBP/USD

Cable opened Thursday's session modestly higher although the long-term picture remains firmly tilted to the downside. At press time, GBP/USD was trading at 1.2709, having gained 0.1% from the previous close. Cable faces immediate support at 1.2660, the recent one-year low.

Gold (XAU/USD) showed a strong bearish breakout below the contracting triangle chart pattern. The price action is showing bearish impulsive price action which seems to be extending the bearish wave 3 (blue).

Gold is now falling towards the Fibonacci targets of wave 5. Price can extend the bearish impulse towards deeper Fib targets but eventually price is expected to build a wave 4 correction pattern

Day

XAU/USD is showing strong bearish momentum which seems to be part of a wave 3 (blue). A bullish pullback could be limited as price could respect and bounce at the Fibonacci retracement and resistance levels of wave 4 vs 3. A new low could finally complete wave 5 (blue) of wave C (purple).

Week

Despite the bearishness on the lower time frames, XAU/USD could soon be reaching a key support zone. If the wave pattern is correct, price is expected to show a bullish bounce at the support zone (green lines) because price could be completing a larger wave 1-2 (light purple) pattern.

Market movers today

The key event on the calendar will be the Norges Bank meeting. We think Norges Bank is unlikely to react to distorted summer data and global risks. Hence, we do not expect any new signals today and st ill pencil in a September rate hike

Brexit negotiations between the UK and EU resume in Brussels. Brexit day draws closer, but while the EU is signalling that it wants September to be a decisive month in the divorce negotiations, the UK's Theresa May prefers a lat e-autumn deadline.

We will also get UK retail sales for July, which markets tend to keep an eye on, despite it being quite volatile and a poor predictor of private consumption as measured in GDP.

US housing starts and building permits for June are due out and we will look out for a rebound in July from the drop in June, given the volatile nature of the numbers and elevated business sentiment .

Selected market news

The MSCI Emerging Markets Index tumbled, falling into bear territory due to a combination of currency turmoil, commodity price declines and disappointing results from one of China's technology giants Tencent. US equity markets fared little better despite a strong July retails sales print and solid manufacturing product ion data. The S&P 500 fell for the fifth time in a row and US Treasury yields extended declines. Oil prices continued to slip, approaching USD70/bbl , after the EIA reported a surprise US stockpile build.

USD/TRY continued its decline after local retail accounts took advantage of the respite and sold USD, while thin liquidity has also been adding momentum to the Turkish lira. However, the geopolitical stand-off with the US remains unresolved and the picture became even murkier after Turkey increased tariffs on several US imports, including passenger cars, rice and coal. Qatar is reported to have pledged some USD15bn worth of direct investment to the count ry to help avert a financial crisis.

China's Vice Commerce Minister will lead a delegation to the US in late August , in a sign that trade talks might continue. However, we still do not see much scope for a deal between the two countries this side of the mid-term elections in November.

General Trend:

• MSCI Emerging Markets equity index trades into bear market territory, later pared decline
• Tencent declines post earnings
• Australian telecom Telstra rises over 5%, FY18 profits above ests
• South Korean chipmakers track declines in US semiconductor companies
• Australia July labor data mixed , unemployment rate unexpectedly declined
• China PBoC conducts first daily open market operation in 20 sessions
• Japan reports unexpected adj trade deficit in July, exports to the US again decline

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.3%
• ASX 200 Resources index -2.1%, Energy -1.7%; Telecom +5.1%, Financials +0.2%
• (AU) AUSTRALIA JULY EMPLOYMENT CHANGE: -3.9K V +15.0KE; UNEMPLOYMENT RATE: 5.3% V 5.4%E (close to 6-year low)
• (AU) Australia Aug Consumer Inflation Expectation: 4.0% v 3.9% prior
• (NZ) New Zealand sells NZ$150M v NZ$150M in April 2037 bonds, bid to cover: 2.47x, avg yield: 2.8887%

China/Hong Kong

• Shanghai Composite opened -1.2%, Hang Seng -1.7%
• Hang Seng Info Tech index -2.3%, Energy -1%, Industrial Goods -0.7%, Financials -0.5%; Telecom +1.2%, Consumer Goods +1%, Services +1%, Property/Construction index +0.9%
• (CN) Shanghai Composite trades below 2,681 (lowest level in ~2.5 years)
• (CN) China Commerce Ministry (MOFCOM): China Vice Commerce Min to visit the US for trade talks in late Aug, to meet with US Treasury Undersecretary Malpass
• (CN) China PBoC Open Market Operation (OMO): To inject CNY40B in 7-day reverse repos; Net: CNY40B injection
• (CN) CHINA PBOC SETS YUAN REFERENCE RATE: 6.8946 V 6.8856 PRIOR
• (CN) China NDRC: Reiterates China consumer prices to be reasonable range; Bankruptcy filings by Chinese companies are rising in 2018
• (CN) China should be cautious about the rapid rise in mortgages – Chinese Press
• (CN) China faces risk in the rising exposures of banks to the property market - Chinese Press
• (CN) China said to tell bad debt managers to resolve P2P risks - financial press
• HSBC: Said to lower HKD and Yuan deposit rates in Hong Kong - HK Press

Japan

• Nikkei 225 opened -1%
• TOPIX Retail Trade index -1.2%, Iron & Steel -1.2%, Marine Transportation -1%, Electric Appliances -1%, Info & Communication -1%, Real Estate -0.9%; Securities +0.2%
• (JP) JAPAN JUL TRADE BALANCE: -¥231.2B V -¥41.2BE; ADJ TRADE BALANCE: -¥45.6B V +¥20.7BE
• (JP) Japan MOF sells ¥2.0T v ¥2.0T indicated in 0.10% 5-yr JGB: avg yield: -0.0760% v -0.107% prior, bid to cover: 3.95x x v 4.87x prior

Korea

• Kospi opened -1.1%
• (KR) Bank of Korea (BoK) sells 2-year monetary stabilization bonds (MSBs); yield 2.000%

Other

• (TW) Taiwan FSC to begin stress tests on commercial banks - Local Press

North America

• US equity markets ended lower: Dow -0.5%, S&P500 -0.8%, Nasdaq -1.2%, Russell 2000 -1.3%
• S&P500 Energy -3.5%, Materials -1.6%
• (US) DOE CRUDE: +6.8M V -2.5ME;

Europe

• (TR) IMF Official: Has not received any indication from Turkey authorities that they are considering a request for IMF financial assistance

Levels as of 01:30ET

• Nikkei 225, -0.1%, ASX 200 -0.1%, Hang Seng -0.4%; Shanghai Composite flat; Kospi -0.9%
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.4%, Dax +0.4%; FTSE100 +0.3%
• EUR 1.1391-1.1335 ; JPY 110.95-110.46 ; AUD 0.7276-0.7214 ;NZD 0.6586-0.6555
• Aug Gold -0.5% at $1,179/oz; Sept Crude Oil flat at $65.03/brl; Sept Copper +0.3% at $2.591 /lb