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The DAX index has posted gains in the Tuesday session. Currently, the DAX is currently trading at 12,170.50, up 0.54% on the day. On the release front, German and Eurozone Services PMI were within expectations. Eurozone Retail Sales declined 0.2%, shy of the estimate of -0.3%. On Wednesday, Germany releases Factory Orders and the eurozone publishes Retail PMI.

The DAX has responded positively to services sector numbers, as German and Eurozone Services PMIs both pointed to slight expansion. Eurozone Services PMI slowed to 54.7, shy of the estimate of 54.9 points. However, German Services PMI improved to 53.5, edging above the forecast of 53.4 points. Retail Sales was not as positive, posting a decline of 0.3%, compared to a gain of 0.5% a month earlier. This marked the first decline since January. If upcoming consumer spending data is weak, investor risk appetite could weaken and send stock markets lower.

The ECB will hold a crucial policy meeting on Thursday, with the bank's quantitative easing program the main order of business. The ECB's current asset-purchase program terminates in December, and the bank will have to decide on a new scheme. However, analysts don't expect the details of the new program to be announced until October or possibly December. Still, every nuance from Mario Draghi's press conference will be analyzed, and any hints about changes in the ECB's monetary policy, such as withdrawing stimulus, is likely to have a sharp impact on the euro. The eurozone's strong performance in 2017 has raised speculation that the ECB will commence tapering in the near future, but the rejuvenated euro has complicated matters. The euro has gained some 13% against the dollar this year, with much of the appreciation due to speculation that the ECB will end its asset purchases. The stronger euro is equivalent to a raise in interest rates and has resulted in monetary tightening, so the ECB could decide on a slow exit from its asset purchase scheme. Aside from the headache of a stronger euro, ECB policymakers must wrestle with the dilemma of what monetary stance to take with a stronger eurozone economy that remains gripped by very low inflation. Will the ECB address these concerns at the Thursday meeting?

As we could see on my yesterday's Session Recap webinar, the GBP/USD has perfectly rejected from the POC zone I showed making a total of 60 pips that accounts for 90 % of its ATR(14). Today we can see that 2 POC(S) zones could be above the price as sellers might be waiting there. A slight miss in UK CPI could encourage fresh seller to kick in within 1.2990-1.3000 and possibly 1.3030. We can see how the price respects W L3- W H3 standard camarilla range (70 % of the time) so we might see another rejection towards the 1.2900 zone. However due to bullish SHS pattern (inverted head and shoulders) now moment buyers are exactly at the same spot where historical buyers where so we can see a buying interest within 1.2900-10 zone. The change of a trend is only possible if the price gets below 1.2900 with a strong momentum and 4h candle closes below 1.2870.

Notes/Observations

• Global markets relatively quiet despite renewed Korea tensions
• Major European PMI Services mainly revised lower but firmly remain in expansion territory (Beats: Germany; Misses: France, Euro Zone, UK, Italy and Spain)
• Swiss GDP misses while Inflation remains largely absent; SNB can keep its deposit rate at -0.75% for the foreseeable future

Overnight

Asia:

• North Korea seen moving ICBM towards west coast for a possible launch before Saturday
• China President Xi reiterated view that economic downward risks and uncertainties were rising; called for opposing protectionism
• China Aug Caixin PMI Services: 52.7 v 51.5 prior
• - Reserve Bank of Australia (RBA) left its Cash Rate Target unchanged at 1.50% (as expected). Reiterated view that recent rise in AUD currency weighing on outlook for output/employment,

Europe:

• EU Parliament Brexit coordinator Verhofstadt: UK PM May to make speech on Thursday, Sep 21st; will make case for continuous Brexit talks with view to inject urgency into negotiations and steer the direction towards trade. Association agreement with the UK is a way forward following Brexit
• UK said to be prepared to intensify Brexit talks with EU rather than stick with current one week a month schedule (**Note: in-line with comments last week following 3rd round of talks)
• UK Aug BRC Sales LFL Y/Y: 1.3% v 0.9% prior (fastest pace for 2017)

Americas:

• Multiple Republican aides note that they are looking to President Trump for leadership on supporting a clean debt ceiling raise, and averting a government shutdown with a short-term spending bill

Economic data

• (IE) Ireland Aug Services PMI: 58.4 v 58.3 prior, Composite PMI: 58.2 v 57.0 prior
• (IN) India Aug PMI Services: 47.5 v 45.9 prior (2nd straight contraction), PMI Composite: 49.0 v 46.0 prior
• (CH) Swiss Q2 GDP Q/Q: 0.3% v 0.5%e; Y/Y: 0.3% v 1.0%e
• (RU) Russia Aug PMI Services: 54.2 v 53.9e (19th month of expansion), PMI Composite: 54.2 v 53.4 prior
• (SE) Sweden Aug PMI Services: 55.4 v 58.9 prior
• (TR) Turkey Aug CPI M/M: 0.5% v 0.2%e; Y/Y: 10.7% v 10.2%e; CPI Core Index Y/Y: 10.2% v 9.8%e
• (CH) Swiss Aug CPI M/M: 0.0% v 0.0%e; Y/Y: 0.5% v 0.5%e
• (CH) Swiss Aug CPI EU Harmonized M/M: -0.1% v +0.1% prior; Y/Y: 0.5% v 0.6% prior
• (ES) Spain Aug Services PMI: 56.0 v 57.0e, Composite PMI: 55.3 v 56.0e
• (ZA) South Africa Aug PMI (Whole Economy): 49.8 v 50.1 prior
• (IT) Italy Aug Services PMI: 55.1 v 55.5e (15th month of expansion), Composite PMI: 55.8 v 55.8e
• (FR) France Aug Final Services PMI: 54.9 v 55.5e (confirms 14th month of expansion), Composite PMI: 55.2 v 55.6e
• (DE) Germany Aug Final Services PMI: 53.5 v 53.4e (confirms 49th month of expansion), Composite PMI: 55.8 v 55.7e
• (TW) Taiwan Aug CPI Y/Y: 1.1% v 1.2%e; WPI Y/Y: +1.0% v -0.7% prior
• (EU) Euro Zone Aug Final Services PMI: 54.7 v 54.9e (confirms 50th month of expansion, Composite PMI: 55.7 v 55.8 prelim
• (UK) Aug Services PMI: 53.2 v 53.5e (13th month of expansion),Composite PMI: 54.0 v 54.0e
• (UK) Aug Official Reserves Changes: $1.6B v $1.3B prior
• (EU) Euro Zone July Retail Sales M/M: -0.3% v -0.3%e; Y/Y: 2.6% v 2.6%e

Fixed Income Issuance:

• (ID) Indonesia sold total IDR17.0T in 3-month and 12-month Bills; 5-year, 10-year and 15-year bonds
• (AT) Austria Debt Agency (AFFA) sold total €1.38B vs. €1.38B indicated in 2027 and 2037 RAGB bonds
• (UK) DMO opened its book to sell Feb 5% 2065 gilts via syndicate; guidance seen +0.5-0.75bps to UK Treasuries

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.4% at 375.6, FTSE +0.2% at 7429, DAX +0.9% at 12206, CAC-40 +0.4% at 5122, IBEX-35 +0.2% at 10257, FTSE MIB +0.4% at 21877, SMI +0.6% at 8917, S&P 500 Futures -0.2%]

Market Focal Points/Key Themes:

European Indices trade higher across the board rebounding from yesterday's falls, led by the Dax which trade over 0.8% higher. The rises come despite mostly lowered PMI figures in Europe, while geopolitical tensions continue to exist in the far east. Aveva outperforms rising sharply after agreeing to combine with Schneider Electric Software business, while Cellectis trades over 25% lower after reporting a clinical hold of UCart123 study. On the earnings front SAS, Halfords and BKW are in focus, while in the US United Technologies agreed to acquire Rockwell Collins in a $30B mega deal.

Equities

• Consumer discretionary [Ryanair [RYA.UK] +1.1% (Aug metrics), Halfords [HFD.UK] +4.0% (Earnings), SAS [SAS.SE] +6.9% (Earnings)]
• Technology: [ Aveva [AVV.UK] +25% (Combination with Schneider Electric)]
• Healthcare: [Cellectis [ALCLS.FR] -26% (Reports Clinical Hold of UCART123 Studies)]
• Energy: [Petrofac [PFC.UK] +2% (Contract), BKW [BKW.CH] -1% (Earnings)]

Speakers

• German Chancellor Merkel annual address to Parliament noted that her govt had shown that fiscal discipline and growth could be combined. Europe needed to avoid divisions on future ties with Turkey; and was willing to discuss ending EU-Turkey membership talks. Govt would do everything to prevent bans on diesel engines
• Italy Stats Agency (Istat) Monthly Economic Note: reiterated that it saw positive signal for domestic growth
• - Czech Central Bank Gov Rusnok: Would prefer to wait for next staff projections before any additional monetary tightening; information is not complete at this time. CZK currency (Koruna) to remain a major factor for rate debate but fast wage growth was not an automatic trigger for hikes. Central bank acted autonomously but could not ignore ECB policy steps
• Russia President Putin: North Korea will not drop its nuclear program unless it feels secure; diplomacy is only path to solving crisis. Tighter sanctions on NK would not change its behavior. Made no sense to accuse Russia of violating North Korea sanctions and them ask for its support on additional ones. ussia to propose UN peace keepers for Eastern Ukraine
• Russia Energy Min Novak: Confirms that Russia discussed extending oil production cuts beyond Q1 with Saudi Arabia
• China Foreign Ministry: Sanctions alone are no way out for North Korea issue
• Japan LDP policy chief Kishida: as planned, Japan should raise sales tax to 10%
• RBA Gov Lowe: Stimulatory policy continues to be appropriate

Currencies

• Despite the increasing tensions between the US and North Korean overall market reactions the past 48 hours had been relatively muted.
• The JPY currency (Yen) has been the main beneficiary of the Korean Peninsula situation. USD/JPY lower by 0.2% but well above the late Aug low of 108.30
• USD/CHF was fractionally higher by 0.3% hovering around the 0.96 level. Swiss Q2 GDP missed expectations while Aug inflation remained largely absent. The SNB very likely to leave its deposit rate at -0.75% for the foreseeable future (**Note: next meeting on Sept 14th).
• EUR/USD holding below the 1.19 level ahead of Thursday ECB meeting where analysts will try to gauge when and how ECB would begin its tapering process from extraordinary measures.One of the key points this week will be how ECB chief Draghi addresses the pace of EUR appreciation.

Fixed Income

• - Bund futures trades at 161.99 down 17 ticks, as futures show topside exhaustion. Downside targets 160.50 followed by 160.29. To the upside the 163.75 to 165.00 remains key resistance.
• Gilt futures trades at 127.94 down 12 ticks as overnight risk-off moves pare from European open and impending supply weighs on bund futures. A resumption to the upside could eye 128.71 then 130.10. A move back below 126.51 targets 125.04
• - Tuesday's liquidity report showed Monday's excess liquidity rose to €1.776T from €1.769T and use of the marginal lending facility fell to €106M from €196M.
• Corporate issuance issuers are focusing on geopolitics and some are not as confident as they have been for the last couple of weeks.

Looking Ahead

• (UK) House of Commons reconvenes after summer recess
• (GR) Greece Fin Min Tsakalotos with EU's Moscovici in Brussels
• (UK) Brexit Min Davis to address Parliament
• 05:30 (ZA) South Africa Q2 GDP Annualized Q/Q: +2.3%e v -0.7% prior; Y/Y: 0.5%e v 1.0% prior
• 05.30 (UK) Weekly John Lewis LFL sales data
• 05:30 (HU) Hungary Debt Agency (AKK) to sell in 3-month Bills
• 05:30 (EU) ECB allotment in 7-day Main Financing Tender (MRO)
• 05:30 (BE) Belgium Debt Agency (BDA) to sell €1.8B in 3-Month and 6-Month Bills
• 06:00 (IE) Ireland Aug Unemployment Rate: No est v 6.4% prior
• 06:00 (IE) Ireland July Industrial Production M/M: No est v -7.5% prior; Y/Y: No est v -7.5% prior
• 06:30 (EU) ESM to sell €1.5B in 3-Month Bills
• 06:45 (US) Daily Libor Fixing
• 07:30 (CL) Chile July Economic Activity (Monthly GDP) M/M: 0.6%e v 0.5% prior; Y/Y: 2.2%e v 1.4% prior
• 07:30 (US) Fed's Barinard (voter, dove) in NY
• 07:45 (US) Weekly Goldman Economist Chain Store Sales
• 08:00 (BR) Brazil July Industrial Production M/M: 0.3%e v 0.0% prior; Y/Y: 1.5%e v 0.5% prior
• 08:05 (UK) Baltic Dry Bulk Index
• 08:30 (SI) Slovenia Debt Agency to sell 6-month and 12-month Bills
• 09:00 (RU) Russia Aug CPI M/M: -0.2%e v +0.1% prior; Y/Y: 3.7%e v 3.9% prior; CPI YTD: 2.2%e v 2.4% prior
• 09:00 (RU) Russia Aug CPI Core M/M: 0.1%e v 0.1% prior; Y/Y: 3.1%e v 3.3% prior
• 09:00 (MX) Mexico Aug Consumer Confidence: 87.6e v 88.7 prior
• 09:00 (MX) Mexico Jun Gross Fixed Investment: -0.5%e v +2.3% prior
• 09:00 (BR) Brazil Aug PMI Services: No est v 48.8 prior, Composite PMI: No est v 49.4 prior
• 09:00 (EU) Weekly ECB Forex Reserves
• 09:00 (RU) Russia announces weekly OFZ bond auction
• 09:30 (NZ) Fonterra Dairy Auction
• 09:50 (UK) BOE to buy £1.125B in in APF Gilt purchase operation (over 15 years)
• 10:00 (US) July Factory Orders: -3.3%e v +3.0% prior, Factory Orders (ex Transportation): No est v 0.1% prior
• 10:00 (US) July Final Durable Goods Orders: +1.0%e v -6.8% prelim; Durables Ex Transportation: No est v 0.5% prelim; Capital Goods Orders (Non-defense/ex-aircraft): No est v 0.4% prelim; Capital Goods Shipment (Non-defense/ex-aircraft): No est v 1.0% prelim; Durables Ex-Defense: No est v -7.8% prelim
• 10:00 (MX) Mexico weekly International Reserves
• 11:00 (BR) Brazil to sell I/L 2022, 2026, 2035 and 2055 Bonds
• 11:30 (US) Treasury to sell 4-Week Bills
• 11:30 (US) Treasury to sell 3-Month and 6-Month Bills
• 13:10 (US) Fed's Kashkari (dove, voter) holds Townhall Event in Minneapolis
• 13:30 (DE) German Chancellor Merkel in Stuttgart
• 15:00 (MX) Mexico Citibanamex Survey of Economists
• 16:00 (US) Weekly Crop Progress Report

Spot Gold is consolidating under fresh high at $1339 on Tuesday after Monday's action ended in Doji candle, signaling indecision and possible stall of broader uptrend.

The price also failed to close above cracked barrier at $1337 (FE 123.6%) of current wave C (part of five-wave cycle from $1204).

Broken upper boundary of larger bull-channel from $1204, so far contained dips, keeping immediate focus at the upside, however, overbought daily studies warn of deeper correction.

If the situation over North Korea doesn't deteriorate, corrective pullback could be seen as likely scenario in coming sessions.

We will also watch today's close which would complete Evening Doji Star reversal pattern on stronger bearish close (minimum below $1330, broken channel upper trendline) and generate stronger bearish signal. Daily Tenkan / Kijun-sen lines turned sideways and reinforce negative signals.

Stronger bearish acceleration could extend towards $1321 (broken FE 100%) and $1316 (Friday's low).

Conversely, scenario of narrow consolidation and fresh upside action would look for target at $1347 (FE 138.2%) on sustained break above $1339 high.

Res: 1337, 1339, 1343, 1347
Sup: 1329, 1325, 1321, 1316

CRUDE OIL - The commodity has extended its bull pressure as it looks to build up on it further. On the downside, support resides at the 47.50 level where a break will expose the 47.00 level. A cut through here will set the stage for a run at the 46.50 level. Further down, support resides at the 46.00 level. Its daily RSI is bullish and pointing higher suggesting further strength. On the upside, resistance resides at the 48.50 level. Further out, resistance comes in at the 49.00 level. A break above here will aim at the 49.50 level and then the 50.00 level followed by the 50.50 level. All in all, CRUDE OIL remains biased to the upside nearer term on corrective recovery.

• Risk appetite improving but caution remains;
• EUR and GBP steady after services PMIs;
• Draghi looking for help from Fed policy makers today.

Risk appetite is gradually returning in financial markets but underlying caution remains, with investors not expecting tensions between the US and North Korea to subside any time soon.

The expectation that a diplomatic solution will not be found in the near-term is likely to result in underlying caution remaining for now. With more flare ups likely, I expect we'll see repeated episodes of safe haven flows, which should mean Gold, the Swiss franc and the yen (barring any attack on Japan) remain well supported. As far as today is concerned, we are seeing a slight unwinding of some of these while the yen remains well bid.

Economic data from across Europe this morning has done little to stimulate the euro or the pound, both of which are trading modestly higher on the day against the dollar. Services PMIs from across the region were broadly in line with expectations, if not a little on the weaker side, but this hasn't discouraged traders as in each case, they remain in very positive territory.

2017 has been very kind to the euro, if not the ECB which is clearly very uncomfortable with the strength of the currency. With 1.20 showing itself to be a notable resistance zone and a level at which the central bank is not comfortable with – as the timing of the ECB sources comment on tapering demonstrated on Friday – I wonder whether a correction is in store for the pair. Today's PMI numbers may not have triggered this but another failure to break 1.20 may see some bulls start to abandon ship. Alternatively, a dovish Draghi may do the trick, should he choose to go down that path.

That's assuming Federal Reserve policy makers don't do the ECB a favour later today, which I doubt they will. Three policy makers are scheduled to appear today including Lael Brainard, Robert Kaplan and Neel Kashkari – all three of whom are voting members on the FOMC. They also represent an interesting mix with Kashkari being arguably the most dovish member of the policy committee, Kaplan falling somewhere in the centre and currently unconvinced about another hike this year and Brainard also a dove. Under the circumstances, it seems unlikely that any will be doing Draghi any favours.

Tuesday September 5: Five things the markets are talking about

With North America returning from its labor holiday weekend, capital markets are beginning to shift their focus a tad, away from North Korea geopolitical issues to a week packed with central-bank decisions (RBA, BoC and ECB), Fed speakers and economic data.

The market will look to Fed speakers from today to shed light on the U.S policy outlook. On Thursday ECB's Draghi is expected to provide more clarity on paring back the ECB's bond-buying program in his press conference after the rate decision. A few outsiders think that the Bank of Canada (BoC) could surprise tomorrow in their rate announcement, but Canadian futures market does not support that theory.

Expect U.S data on durable-goods orders, the trade balance, and unemployment claims, as well as the release of the Fed's Beige Book (Wednesday 2 pm EDT) to add to the mix.

Note: The Fed's Lael Brainard is speaking this morning (8am EDT) on the U.S economic outlook and monetary policy – this may set the tone for the Fed's Sept. 20 policy decision. Among other Fed speakers this week are NY's Dudley and Dallas Fed Kaplan.

1. Stocks mixed results

In Japan, the Nikkei share average (down -0.6%) traded atop of its one-week lows in quiet trade overnight as tensions on the Korean peninsula sapped risk appetite. A stronger yen (¥109.34) has also being weighing on shares. The broader Topix fell -0.8%.

Down-under, Australia's S&P/ASX 200 Index rallied +0.1% after the RBA left their monetary policy unchanged, while South Korea's Kospi index lost -0.1% on renewed North Korean tensions.

In Hong Kong, shares finished little changed, with investors remaining in a defensive mood on geopolitical concerns. The Hang Seng index was unchanged, while the China Enterprises Index gained +0.1%.

In China, shares rallied for a third consecutive session overnight as investors bet economic data in coming weeks will remain largely robust despite higher financing costs. China's blue-chip CSI300 index rose +0.4%, while the Shanghai Composite Index gained +0.2%.

In Europe, regional bourses are trading higher across the board rebounding from yesterday's falls, led by the DAX. The rally comes despite mostly lowered PMI figures in Europe (see below), while geopolitical tensions continue to exist.

U.S stocks are set to open in the red (-0.2%).

Indices: Stoxx600 +0.4% at 375.6, FTSE +0.2% at 7429, DAX +0.9% at 12206, CAC-40 +0.4% at 5122, IBEX-35 +0.2% at 10257, FTSE MIB +0.4% at 21877, SMI +0.6% at 8917, S&P 500 Futures -0.2%

2. U.S crude rises; gas slumps to pre-Harvey levels, gold higher

Ahead of the U.S open, oil prices are better bid as the gradual restart of refineries in the Gulf of Mexico that were shut by Hurricane Harvey raises demand for crude.

The return of refineries is also putting an end to a spike in gas prices stateside.

Brent crude futures are up +3c to +$52.31 a barrel, while U.S West Texas Intermediate (WTI) crude futures are at +$47.55 barrel, up +26c, or +0.55% from their last settlement.

Note: Gas futures have fallen -4% from their last close, to +$1.68 per gallon, down from +$2.17 a gallon on Aug. 31 and back to levels last seen before Hurricane Harvey hit the U.S. Gulf coast.

U.S Dept. of Energy said that eight oil refineries with a total of +2.1m bpd, or +11.4% of total U.S refining capacity, were still shut.

Gold prices edged up overnight, hovering atop of their 12-month highs, as North Korea's most powerful nuclear test to date supported haven demand. Spot gold is up +0.1% at +$1,335.36 per ounce.

3. Yields little changed despite geo political issues

In Japan, government bond prices edged lower overnight with an auction for 10-year JGB's drawing lukewarm demand from investors.

The 10-year JGB yield backed up +0.5 bps to -0.005% – yields had declined below zero over the past week for the first time since mid-November as tensions in the Korean Peninsula generated sovereign safe-haven bids.

Note: Losses for safe-haven JGB's are expected to be limited because of geopolitical tensions.

Elsewhere, the yield on U.S 10-year Treasuries fell -2 bps to +2.14%, while Germany's 10-year Bund yield increased +1 bps to +0.38%. In the U.K, 10-year Gilt yield has gained +2 bps to +1.057%.

4. Dollar's muted moves despite N. Korean concerns

Despite the increase in tensions between the U.S and North Korean, the 'mighty' dollars reactions over the past two trading sessions has been relatively muted.

Both the JPY (¥109.34) and CHF ($0.9596) have been the main beneficiaries of the Korean Peninsula situation. However, ahead of the U.S open, the currency pairs have managed to give up some of their recent strength. Also putting some pressure on CHF is Swiss Q2 GDP missing expectations while last month's inflation numbers remained largely absent.

Note: Swiss National Bank (SNB) is expected to leave its deposit rate at -0.75% for the foreseeable future. Policy makers next meet on Sept 14.

EUR/USD (€1.1900) is straddling the psychological €1.19 level ahead of Thursday ECB meeting where the market will try to gauge “when and how” the ECB would begin its tapering process from extraordinary measures. One of the key points this week will be how ECB chief Draghi addresses the pace of EUR appreciation.

5. Eurozone growth seen easing slightly

The summer months have seen eurozone economic growth 'moderate' a tad from the rapid pace seen in the spring.

Data this morning from IHS Markit said its composite PMI for the eurozone was unchanged at 55.7 in August. That was below the preliminary estimate of 55.8, and the average reading for Q2.

Other data showed that figures on retail sales for July also point to a moderation of growth. Sales were down -0.3% from June, having risen in each month since the start of the year.

Note: The ECB's is expected to raise their growth forecasts for the year Thursday, having already increased their projections twice this year. They currently expect to see growth of +1.9% this year.

EUR/USD is showing little movement this week, as the pair hovers close to the 1.19 level. Currently, the pair is trading at 1.1904, up 0.07% on the day. In economic news, German and Eurozone Services PMI were within expectations. Eurozone Retail Sales came declined 0.2%, shy of the estimate of -0.3%. In the US, today’s major event is Factory Orders, with the markets braced for a sharp decline of 3.3%. We’ll also hear from three Federal Reserve FOMC members – Lael Brainard, Neel Kashkari and Neel Kashkari. On Wednesday, the US releases ISM Non-Manufacturing PMI, with an estimate of 55.5 points.

There were no surprises in the eurozone services sector, as German and Eurozone PMIs both pointed to slight expansion. Eurozone Services PMI slowed to 54.7, shy of the estimate of 54.9 points. However, German Services PMI improved to 53.5, edging above the forecast of 53.4 points. Retail Sales in July disappointed with a decline of 0.3%, compared to a gain of 0.5% a month earlier. This marked the first decline since January.

The markets are keeping a close eye on the ECB, which will hold a policy meeting on Thursday. The ECB’s current asset-purchase program terminates in December, and the bank will have to decide on a new scheme. However, analysts don’t expect the details of the new program to be announced until October or possibly December. Still, every nuance from Mario Draghi’s press conference will be analyzed, and any hints about changes in the ECB’s monetary policy, such as withdrawing stimulus, is likely to have a sharp impact on the euro. The eurozone’s strong performance in 2017 has raised speculation that the ECB will commence taper,ing in the near future, but the rejuvenated euro has complicated matters. The euro has gained some 13% against the dollar this year, with much of the appreciation due to speculation that the ECB will end its asset purchases. The stronger euro is equivalent to a raise in interest rates and has resulted in monetary tightening, so the ECB could decide on a slow exit from its asset purchase scheme. Aside from the headache of a stronger euro, ECB policymakers must wrestle with the dilemma of what monetary stance to take with a stronger eurozone economy that remains gripped by very low inflation. Will the ECB address these concerns at the Thursday meeting?

The RBA kept its policy unchanged today, as was widely anticipated. The statement accompanying the decision was little changed from the previous one, with the Bank remaining content with strong employment growth, but maintaining its view that the weakness in wages is likely to continue for a while yet. As for the all-important AUD, officials repeated that the higher exchange rate is expected to contribute to subdued price pressures, and that it is weighing on the outlook for output and employment.

AUD/USD traded somewhat lower on the decision, after it hit resistance slightly below the psychological barrier of 0.8000 (R1). The rate remains within the sideways range it’s been trading since the beginning of August, between that hurdle and the key support zone of 0.7800, and thus we maintain the view that the short-term outlook is flat for now. A decisive close above 0.8000 (R1) is needed to change the short-term bias to cautiously positive. Such a break may set the stage for extensions towards our next resistance of 0.8070 (R2), defined by the peak of the 27th of July. On the downside, a dip below 0.7940 (S1) could confirm the recent rejection from near the key obstacle of 0.8000, and may trigger further declines within the aforementioned range, perhaps towards our next support of 0.7880 (S1).

As for the bigger picture, although the Bank continues t to express its discomfort with regards to Aussie’s strength over recent months, we stick to our guns that the broader outlook remains somewhat positive. The rate continues to trade above 0.7800, the upper bound of the long-term wide sideways range that had been containing the price action since the 2nd of March 2016. However, as we already noted, we would like to see a strong break above 0.8000 (R1) before we get confident on larger bullish extensions. Focus for Aussie traders now turns to Australia’s GDP data for Q2 due out during the Asia morning Wednesday. Expectations are for the nation’s growth rate to have risen notably, something that may be the catalyst for the aforementioned break.

Yen gains further on fresh North Korea headlines

The yen came under renewed buying interest overnight, following reports that North Korea has been seen moving a ballistic missile towards its west coast, where the nation’s missile launch facilities are. The reports come on the heels of Sunday’s nuclear test, and also suggest that there is high likelihood North Korea will fire a missile as soon as September 9th, when the country celebrates its foundation day.

As we noted yesterday, the situation seems to be escalating, but we still believe that investors are not anticipating a military conflict yet. If this was the case, the magnitude of the market’s risk-off reactions would be much larger in our view. In any case, we will continue to monitor related headlines, as developments that increase concerns over the situation may lead to more risk-averse responses.

USD/JPY tumbled on the fresh North Korea headlines, falling below the support (now turned into resistance) barrier of 109.40 (R1). The pair continues to trade within the sideways range that’s been in place since the 28th of July, between the key support of 108.70 (S2) and the resistance of 111.00. Thus, although the pair may continue lower for a while, we consider the short-term outlook to still be neutral. We would like to see a decisive close below 108.70 (S2) before we arrive the conclusion that the picture has turned somewhat negative.

As for today’s events:

We start the day with the final services and composite PMIs for August from several European nations and the Eurozone as a whole. As usual the final prints are expected to confirm the preliminary estimates. Eurozone’s retail sales for July are also coming out and expectations are for sales to have declined fractionally after rising somewhat the previous month.

We get services PMI data for August from the UK as well. Expectations are for the index to have declined somewhat, but to remain decently above the critical 50 barrier that separates expansion from contraction. In any case, we don’t expect this piece of data to affect the BoE’s policy plans. Back in June Governor Carney made it clear that any near-term hike would likely depend on a pickup in wages and business investment. Given that wage growth has shown little signs of firming, and that the latest investment prints for Q2 were stagnant in both quarterly and yearly terms, we doubt that any rate hike is looming.

In the US, factory orders for July are coming out and expectations are for a notable slide after a decent increase in the previous month.

As for the speakers, besides delivering the RBA statement, Governor Philip Lowe is scheduled to speak during the European morning, where he may elaborate on the Bank’s outlook. Minneapolis Fed President Neel Kashkari and Fed Board Governor Lael Brainard will also speak.

AUD/USD

Support: 0.7940 (S1), 0.7880 (S2), 0.7850 (S3)

Resistance: 0.8000 (R1), 0.8070 (R2), 0.8160 (R3)

USD/JPY

Support: 109.00 (S1),108.70 (S2), 108.30 (S3)

Resistance: 109.40 (R1), 109.85 (R2), 110.20 (R3)

EUR/USD

Current level - 1.1900

Still in the consolidation pattern above 1.1830 and there is a chance for one more upswing towards 1.1980 before breaking lower, towards 1.1660.

USD/JPY

Current level - 109.40

The downtrend is intact, heading for a tight test of 109.00 support area. Crucial on the upside is 109.80 peak and a violation of that high will signal a reversal of the slide form 110.60.

GBP/USD

Current level - 1.2928

Despite the bearish intraday bias, my outlook is counter-trend, for a reversal above 1.2880, towards 1.3050 hurdle. Trigger on the upside lies at 1.2960.