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While the financial markets are staying in risk averse mode generally, two development helped stabilized sentiments mildly. Firstly, Qatar offered to inject investments in Turkey as an act of "friendship". The news helped lifted DOW from day low of 24965.77 to close at 25162.41, just down -0.54%. Secondly, China and US are going to resume trade talks. The MOFCOM's announce also lifted Asian indices mildly higher from session low. Nonetheless, Asian indices remain in red at the time of writing. Nikkei is down -0.17%, Hong Kong HSI is down -0.61%, China Shanghai SSE is down -0.87% and breached 2700 handle, Singapore Strait Times is down -0.52%.

In the currency markets, Yen trades broadly lower today, as the weakest one. That's most likely due to recent rally being exhausted. It should be noted that both EUR/JPY and GBP/JPY are in downside deceleration, ahead of 124.61 and and 139.29 key support levels. Recovery in both crosses also helped lifted EUR/USD and GBP/USD mildly. And Dollar is trading as the second weakest one for today. On the other hand, mild stabilization in markets is helping Australian Dollar, Euro and New Zealand Dollar recover.

Over the week, Swiss Franc is so far the strongest one, followed by Yen and Canadian Dollar. Resistance of the Loonie is worth a note. WTI crude oil dived sharply overnight following larger than expected increase in US oil inventory. WTI breached 65 handle and is struggling around there. But the Loonie isn't too bothered after initial selling. Meanwhile. Australian Dollar is still the weakest one for the week despite today's recovery. Sterling follows as the second weakest.

US-China to resume low level trade talks

China's Ministry of Commerce said in a statement that accepting invitation by the US to resume trade discussions. Chinese Vice Commerce Minister Wang Shouwen will meet with US Secretary for International Affairs David Malpass in late August.

In the statement, China reiterated that "it opposes unilateralism and trade protectionism and does not accept any unilateral trade restrictions". And, "China welcomes dialogue and communication on the basis of reciprocity, equality and integrity."

The news is certainly a positive. But such low level meeting shouldn't carry much significance in the near term. The trade war is on and the meeting is more gestures than anything with substance.

Nonetheless, the news does give the Chinese Yuan a lift. USD/CNH (offshore Yuan) is now back below 6.9 after hitting as high as 6.9586 overnight. But there is no clear indication of reversal yet. USD/CNH is still more likely to hit 7 handle than not.

Australia employment dropped -3.9k, but details solid

Australian job market contracted -3.9k in July, worse than expectation of 15.3k growth. Nonetheless, that's primarily due to -23.2k contraction in part time jobs. There was an impressive 19.3k growth in full-time jobs.

Unemployment rate also dropped -0.1% to 5.3% while participation rate also dropped -0.1% to 65.5%. Monthly hours worked rose 0.2%. Overall, the set of data is rather solid despite the headline miss.

Also from Australia, consumer inflation expectation rose to 4.0% in August, up from 3.9%.

Turkey not asking for IMF aid, Qatar to inject $15B, USD/TRY drops through 6.0

IMF said there is no indication that Turkey is considering to seek its financial assistance. But it urged in a statement that "in light of recent market volatility, the new administration will need to demonstrate a commitment to sound economic policies to promote macroeconomic stability and reduce imbalances."

Instead, Qatar has pledged USD 15B of direct investment in Turkey to help strengthen the Lira. President Recep Tayyip Erdogan's spokesman Ibrahim Kalin tweeted: "Turkish-Qatari relations are based on solid foundations of true friendship and solidarity."

Turkish Lira's rebound extended overnight and with USD/TRY hit as low as 5.8578. While downside momentum is diminishing mildly, it seems USD/TRY could now start to stabilize below 6.0 handle.

South Korea to increase fiscal spending amid weakened job growth and economic polarization

South Korea  Finance Minister Kim Dong-yeon said today that the government is going to raise fiscal spending to counter the weakening of the job market and economic polarization. 2019 budget spending will increase far more than the original plan of 5.7%. The spending will be on supporting research and development of  advance artificial intelligence, big data and hydrogen vehicles.

Kim described that the job market is "the worst since financial crisis". And "the government's big challenge is how to support the job market through fiscal policies." Additionally. "Polarization issue is very perplexing", and "economic growth and innovation would be difficult to sustain without addressing the issue".

Earlier, the government cut job growth forecast to 180k this year, down from 320k prior estimate.

Looking ahead

UK retail sales and Eurozone trade balance will be featured in European session. Later in the day, US will release housing starts and building permits, Philly Fed survey and jobless claims. Canada will release manufacturing sales.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3068; (P) 1.3122; (R1) 1.3194; More...

Despite breaching 1.3170 minor resistance, there was no follow through buying in USD/CAD. And it quickly retreats. Intraday bias stays neutral first. Still, as long as 1.3049 minor support holds, we're favoring the bullish case. That is, correction from 1.3385 should have completed with three waves down to 1.2961. On the upside, firm break of 1.3170 will target 3289 resistance first. Break there will likely resume larger rise from 1.2061 through 1.3385 high. On the downside, though, break of 1.3049 minor support will dampen this bullish view and turn focus back to 1.2961 low instead.

In the bigger picture, as long as channel support (now at 1.2950) 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 and will bring deeper fall to 1.2526 support to confirm.

Economic Indicators Update

Australian job market contracted -3.9k in July, worse than expectation of 15.3k growth. Nonetheless, that's primarily due to -23.2k contraction in part time jobs. There was an impressive 19.3k growth in full-time jobs. Unemployment rate also dropped -0.1% to 5.3% while participation rate also dropped -0.1% to 65.5%. Monthly hours worked rose 0.2%. Overall, the set of data is rather solid despite the headline miss.

Also from Australia, consumer inflation expectation rose to 4.0% in August, up from 3.9%.

STOCKS

Dow (25162.41, -0.54%) tested 25000 before bouncing back to close at higher levels. The channel on the 3-day chart is holding well and indicates some more room on the downside for Dow in the coming sessions. Near to medium term looks bearish for now.

Dax (12163.01, -1.58%) fell sharply breaking below support at 12300. While the index trades below 12300, there could be chances of a further fall towards 11800-11600 in the near term.

Nikkei (22228.51, +0.11%) is trading above 21800 just now which could be a decent support. But the 3-day chart suggests some more room on the downside towards 21600-21200 levels in the medium term. A fall below 21800 this week would open up chances of a fall towards 21600 or lower but while the index remains above 21800, a short bounce could be expected.

Shanghai (2720.02, -0.12%) came down to levels below 2700 with a gap down opening today. Although currently the index has bounced back to levels above 2700, a risk of testing 2650 remains on the cards. Near term looks weak.

Nifty (11435.10, +0.70%) is trading at an important juncture where if the index faces rejection from 11500, it could come off in the next week with a short corrective fall while a break above 11500, if seen would be continuation of the current rally towards 11600-11800 in the near term. For now we may respect the resistance at 11500 and prefer a fall towards 11300-11200 in the next few sessions.

COMMODITIES

Almost all major commodities have fallen sharply and are trading low. Near term view is bearish with little hope of stability.

Nymex WTI (64.96) has fallen sharply and looks bearish in the near term towards 62-60 levels. Brent (71.00) has immediate support near 71-70 and while that holds, downside could be limited just now. However, if the WTI falls sharply, it could drag down Brent prices to levels below 70.

Gold (1180.30) has almost reached to our expected 1175 levels on the downside. It would be important to see if the support near 1175 holds in the near term or takes the price to much lower levels in the medium term. A bounce from 1175 is preferred just now; else the current fall could continue towards 1150 or even lower in the coming sessions.

Copper (2.5940) fell sharply on a plunge in the Chinese stock index. While copper prices follow the Chinese markets closely, the weakness in the Yuan and Shanghai composite stock index may take copper prices low in the near to medium term. 2.48-2.50 seems to be a decent support just now and if it holds, there could be a short bounce in the copper prices in the next 2-3 sessions.

FOREX

There is some consolidation in Dollar strength currently underway. The Turkish Lira (5.976) has strengthened rapidly after Turkey secured a $15 bn loan from Qatar. Emerging market currencies are also seeing some strengthening. There is also some anticipation regarding Trump intervening (through Twitter) to stop the Dollar's rise.

Euro (1.1375): Euro did break below the 200 weeks MA near 1.136 yesterday to a low of 1.1316. However, currently, it is again trading above 1.136 and could see a rise towards 1.14 this week and then towards 1.145 by next week.

Dollar Index (96.52): Dollar Index rose slightly above resistance on daily candles yesterday to see a high near 97 and is now consolidating for a bit. It could dip a bit more towards 96 and then again rise from there towards 97 next week. The 97-98 zone is an important resistance zone, which might just hold in the weeks ahead.

Dollar Yen (110.85): Dollar Yen has crucial resistance near 111 - trendline resistance on 3 day candles and 21 days MA (111.20) on daily line chart. While below 111.20, Dollar Yen is looking bearish towards 110.0-109.5 by next week.

Euro Yen (126.13): Euro Yen hasnt been able to move below its earlier low (May '18) of 124.62. If Euro rises towards 1.145 by next week (as per our forecast above), Euro Yen could continue staying above 124.62. However, after that, a gradual downtrend towards crucial support near 123.75-123.00 is likely.

Pound (1.2718): Pound is looking bearish in the next 1-2 weeks towards 1.25-1.24

Dollar Rupee (69.90): Could trade in the 69.60-70.30 region in the next 3-4 sessions. A dip to 69.60 is possible before a rise to 70.30 is seen.

INTEREST RATES

Some consolidation in emerging market currencies after the recent crash might pause the fall in bond yields in US, Germany and Japan. However this could just be temporary - there is decent likelihood of some more volatility ahead, which could thereby keep bond yields in the lower end of their range. Moreover, US-China trade tensions look like they could only intensify moving forward – which could thereby enhance the ‘risk off’ sentiment.

US 10 year yield (2.87%), 30 Year (3.04%), 5 Year (2.75%), 2 Year (2.62%):

Repeating Tuesday's comments: The US 10 year yield is trading above crucial support near 2.82-85%. It wasn't able to break below this support in Jun-Jul ’18 either. Few more sessions of trading above 2.82% could imply that the support is still strong and that, another rise beyond 2.9% could happen anytime soon. While below 2.9%, a break below 2.82% and a test of support near 2.75%-2.70% could still take place.

Look out for important support on medium term chart near 0.3% for the German 10 year yield (0.30%) . A break below this support would make it bearish towards lower support near 0.18%-0.19%. The downside might well be restricted till 0.18% in the medium term.

The front-month WTI crude oil contract slumped over 3% to settle at the lowest level in 2 months. This was the driven by the risk-off sentiment amidst Turkish crisis and the surprising increase in US inventory. The report from the US Energy Information Administration (EIA) shows that total crude oil and petroleum products stocks soared +17.44 mmb to 1227.31 mmb in the week ended August 11. Crude oil inventory jumped +6.81 mmb (consensus: -2.5 mmb) to 414.19 mmb. Inventories increased in ALL 5 PADDs. Cushing stock added +1.64 mmb to 22.45 mmb. Utilization rate gained +1.55% to 98.1%. Meanwhile, crude production added +0.93% to 10.9M bpd for the week.

Concerning refined oil product inventories, gasoline inventory slipped -0.32 mmb to 233.13 mmb as demand increased +1.78% to 9.51M bpd. The market had anticipated a -0.58 mmb decrease in stockpile. Production gained +3.24% to 10.23M bpd while imports declined -29.09% to 0.66M bpd during the week.

Distillate inventory rose +3.57 mmb to 128.99 mmb as demand decreased -1.07% to 3.96M bpd. The market had anticipated a +0.96 mmb gain in inventory. Production added +1.91% to 5.34M bpd while imports gained +2.96% to 0.17M bpd during the week.

Released after market close on Wednesday, the industry- sponsored API estimated that crude oil inventory rose +3.66 mmb during the week. For refined oil products, gasoline stockpile dropped -1.56 mmb while distillate was up +1.94 mmb.

South Korea Finance Minister Kim Dong-yeon said today that the government is going to raise fiscal spending to counter the weakening of the job market and economic polarization. 2019 budget spending will increase far more than the original plan of 5.7%. The spending will be on supporting research and development of advance artificial intelligence, big data and hydrogen vehicles.

Kim described that the job market is "the worst since financial crisis". And "the government's big challenge is how to support the job market through fiscal policies." Additionally. "Polarization issue is very perplexing", and "economic growth and innovation would be difficult to sustain without addressing the issue".

Earlier, the government cut job growth forecast to 180k this year, down from 320k prior estimate.

IMF said there is no indication that Turkey is considering to seek its financial assistance. But it urged in a statement that "in light of recent market volatility, the new administration will need to demonstrate a commitment to sound economic policies to promote macroeconomic stability and reduce imbalances."

Instead, Qatar has pledged USD 15B of direct investment in Turkey to help strengthen the Lira. President Recep Tayyip Erdogan's spokesman Ibrahim Kalin tweeted: "Turkish-Qatari relations are based on solid foundations of true friendship and solidarity."

Turkish Lira's rebound extended overnight and with USD/TRY hit as low as 5.8578. While downside momentum is diminishing mildly, it seems USD/TRY could now start to stabilize below 6.0 handle.

Key Highlights

• The British Pound declined heavily and broke the 142.40 support against the Japanese Yen.
• There is a major bearish trend line formed with resistance at 141.70 on the 4-hours chart of GBP/JPY.
• The pair remains at a risk of a break below the 140.20 and 140.00 support levels.
• Today, the UK Retail Sales figure for July 2018 will be released, which is forecasted to rise 0.2% (MoM).

GBPJPY Technical Analysis

The British Pound started a major downside move from well above 145.00 against the Japanese Yen. The GBP/JPY pair tumbled and broke the 144.00, 143.50, 142.40 and 141.00 support levels.

Looking at the 4-hours chart, the pair traded close to the 140.00 level and formed a low at 140.24. Later, there was an upside correction and the pair moved above the 141.50 level. It even moved above the 50% Fib retracement level of the last drop from the 143.49 high to 140.24 low.

However, the upside move was capped by the previous support at 142.40. Besides, the 61.8% Fib retracement level of the last drop from the 143.49 high to 140.24 low also acted as a resistance.

More importantly, there is a major bearish trend line formed with resistance at 141.70. Therefore, as long as the pair is below the 141.70 and 142.40 levels, it remains in a downtrend. Above 142.40, it could move into a positive zone with the next resistance near 144.00.

On the other hand, if the pair fails to stay above the 140.24 low, it could break the 140.00 support and decline further towards 139.20 in the near term.

Recently, GBP/USD also came under a lot of pressure and declined below the 1.2800 support area. Furthermore, EUR/USD also dropped sharply below the 1.1380 support area.

Economic Releases to Watch Today

• UK Retail Sales for July 2018 (MoM) – Forecast +0.2%, versus -0.5% previous.
• UK Retail Sales ex-fuel or July 2018 (MoM) – Forecast +0.1% versus -0.6% previous.
• Euro Zone Trade Balance June 2018 – Forecast €17.0B versus €16.9B previous.
• US Initial Jobless Claims – Forecast 215K, versus 213K previous.
• US Housing Starts July 2018 (MoM) – Forecast 1.260M, versus 1.173M previous.
• US Building Permits July 2018 (MoM) – Forecast 1.310M, versus 1.273M previous.

Headline not as bad as first glance

Despite the fact that Australia lost a net 3,900 jobs in July, the news was not all bad since the details show 19,300 full-time jobs were added with the loss of 23,200 part-time ones. This is a more positive development and adds on to the 41,200 full-time jobs added in June.

More good news in the unemployment rate which dipped to 5.3% in the month, its lowest since November 2012, though could partly be explained by the drop in the participation rate to 65.5% from 65.7%. AUD/USD squeezed up to a high of 0.7271, defying the bearish bias that had driven prices over the last five sessions. The pair is now trading at 0.7260 with the 100-hour moving aveage at 0.7268.

NOTE: A$730m worth of AUD/USD options expire today at strike 0.7300

Risk appetite turns on news of trade talks later this month

A more positive mood permeated through Asian markets following a statement by China’s Ministry of Commerce that it would send a delegation to the United States for trade talks in late August. The talks are at the invitation of the US and will be held with Under Secretary of Treasury for International Affairs David Malpass, the commerce ministry said.

Asian equity markets traded contrary to the steep losses on Wall Street after the dismal Tencent report, with the Nikkei225 up 0.55%, Australia200 rising 0.48% and the ChinaA50 gaining 050%. The Japanese yen gave back some of its safe haven gains made yesterday with USD/JPY rising 0.07% to 110.83.

In emerging currencies, USD/TRY consolidated the two-day drop with a mild rally to 6.0517 but is now at 5.9912. The lira has benefited from news that Qatar has promised to invest $15 billion in the country. The funds will be channeled into banks and financial markets, sources in the Turkish government said, according to Reuters. USD/MXN traded higher to 19.2116, still holding below the 55-day moving average at 19.4543, which has held since July 3. USD/SGD fell for the first time in six days, easing off 0.27% to 1.3765.

Copper slumps on China outlook

Copper is attempting a mild rebound from 14-month lows touched yesterday but risks being merely a dead-cat bounce. Signs of a potential slowdown in the Chinese economy, as growth in fixed asset investment slumped to a record low of 5.5% in the January to July period, continues to keep prices under pressure as the demand outlook gets more cloudy. The commodity is currently trading at 2.5835.

Oil prices slid 3.6% from high to low yesterday after weekly inventory readings showed rising crude stockpiles and a jump in US production. Data from EIA showed stocks rising by 6.805 million barrels in the week to August 10, a complete opposite to the 2.5 million draw-down expected by analysts. WTI touched 64.60 this morning, the lowest since June 19, before turning and heading into positive territory on the day, now at 65.12.

Did UK retail sales get a boost from the FIFA World Cup?

Today's release of retail sales data from the UK will disclose the impact England's run in the World Cup finals in the early part of July had on consumer spending. Forecasts suggest sales grew 3.0% y/y and 0.2% m/m after June's slump of 0.5% m/m in June. Other data points include the Euro-zone trade balance for June with the surplus not expected to yet show too much impact of the tariff wars, given the first tariffs weren't imposed until July. The surplus is expected to widen mildly to 17.0 billion Euros from 16.9 billion Euros in May.

The Turkish lira continued to rebound Wednesday as the 6.00 level gave way but the South African rand led a slide in other emerging market currencies as the US dollar climbed and commodity prices sank. Japanese trade balance and Australian employment are due up next. The Premium trade shorting DAX30 was closed for 300-pt gain at 12120. A trading note was issued, indicating the next course of action.

Poor earnings at Chinese giant Tencent set off a wave of worries about emerging markets even as Turkey's currency was lifted by a timely $15 billion direct investment from ally Qatar.

Argentina's central bank sold more than $1 billion set of a fresh round of jitters about emerging markets. Chinese markets fell 2% and other markets were battered. The trouble led to a flight to the yen and a bruising day for commodities that saw copper down 4%, crude oil down 3.2% and gold down another $20 to $1174. The S&P 500 fell 21 points.

Today's US data releases were robust. EM moves overshadowed some top-tier US economic data. US July retail sales rose 0.5% compared to 0.1% expected. The headline showed surprisingly robust vehicle and parts sales despite a poor month for automakers but that was balanced by some other quirks that placed the control group at expectations. The Empire Fed was strong at 25.6 compared to 20.0 expected in another positive sign of the US but industrial production was a tad soft at +0.1% versus the +0.3% consensus.

The news will continue at a fast pace in the day ahead starting with the 2350 GMT release of Japanese trade balance for July. Exports are forecast up 6.3% y/y and imports up 14.2%, leading to a rare deficit at 41B yen.

The highlight of the Asia-Pacific day comes at 0130 GMT when July Australian unemployment numbers are due. The consensus is for no change to the 5.4% unemployment rate as the economy adds 15.0K jobs.

Asian equities open broadly lower today following US markets, but reversed losses on news that US and China are going to resume trade talks.

China's Ministry of Commerce said in a statement that accepting invitation by the US to resume trade discussions. Chinese Vice Commerce Minister Wang Shouwen will meet with US Secretary for International Affairs David Malpass in late August.

In the statement, China reiterated that "it opposes unilateralism and trade protectionism and does not accept any unilateral trade restrictions". And, "China welcomes dialogue and communication on the basis of reciprocity, equality and integrity."

Hong Kong HSI dipped sharply to as low as 26871.11 in initial trading by then rebounded to 27405.25 on the news. But it's now back below 27200, down -0.5%. The news is certainly a positive. But such low level meeting shouldn't carry much significance in the near term. The trade war is on and the meeting is more gestures than anything with substance.