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The British pound has recovered early losses against the U.S dollar, and is trading back at the weekly price open, after the GBPUSD pair fell towards to 1.2928, following weaker than expected UK PMI construction data.

Today's United Kingdom PMI construction figure for the month of August, came in at 51.1, which marked the weakest UK construction PMI reading in over twelve months.

The GBPUSD pair now awaits the return of the U.S markets tomorrow, from U.S Labour day, and crucial UK PMI Services data tomorrow, which is expected to show a decline from the previous months reading.

Key intraday technical resistance is found at the 50-day moving average, at 1.2980, and the monthly pivot point, at 1.2990. Above the 1.2990 level, the 1.3047 level offers strong intraday resistance.

Key intraday technical support is located at the current daily price low, at 1.2928, and the 100-day moving average, at 1.2920. Below 1.2920, the 1.2890 level offers strong support, as does the 1.2852 level.

The DAX index has started the week with small losses. In the Monday session, the DAX is currently trading at 12,123.50, down 0.17% on the day. On the release front, there are no major events on the schedule. Eurozone Sentix Investor Confidence climbed to 28.2, above the forecast of 27.4 points. Eurozone PPI continues to improve, coming in at 0.0%, short of the estimate of 0.1%.

The eurozone economy continues accelerate, as economic indicators point upwards in the second half of 2017. The Sentix Investor Confidence rose in September, as investors and analysts like what they see from the euro-area economy. Germany, the largest economy in the bloc, continues to look very strong, but other countries such as France and Italy have also posted better numbers in 2017. In August, the German and eurozone manufacturing sectors continued to show strong expansion, buoyed by domestic demand as well as a stronger global economy which has increased demand for German and European exports. A stronger economy has raised questions as to what monetary moves the ECB has planned – will it finally taper its ultra-accommodative monetary policy? The bank's asset purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi was mum on monetary policy at last week's meeting of central bankers at Jackson Hole, following the lead of Federal Reserve Chair Janet Yellen. However, the ECB head will not get another free pass this week, as the ECB holds its next policy meeting on Thursday. Any discussion about tapering the ECB's asset purchase program could have a strong effect on the euro's movement.

Global markets are keeping a close eye on key numbers in the US, as the guessing game continues with regard to a rate hike by the Federal Reserve. US employment numbers were unexpectedly soft on Friday, but the dollar shrugged off the weak numbers and managed to post gains against the euro. Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving over a softer nonfarm payroll report. Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. The lack of wage gains has impacted on inflation levels, which remain well below the Fed's inflation target of 2%. Soft inflation has dampened enthusiasm for a final rate hike in 2o17, with the odds of December increase pegged at just 37%.

AUDJPY is looking increasingly neutral in the short term as the pair continues to consolidate from its 1½-year high of 89.41 set in July. Prices have moved back inside the Ichimoku cloud after finding resistance at the top of the cloud, as well as from the 23.6% Fibonacci retracement level of the June-July upleg from 81.77 to 89.41.

The RSI has dipped back to the 50 neutral level after a brief climb to 59.75 on Friday. The MACD is just about positive with a slightly bullish tilt as it's above the red signal line. Should the pair attempt another upside push, the 23.6% Fibonacci level at 87.60 will likely again act as resistance. Friday's 3½-week high of 87.93 is the next resistance to watch, followed by the previous congestion area of around 88.20. A break above this level would open the way towards the July top of 89.41.

Alternatively, if prices turned lower, immediate support would come from the tenkan-sen line at 86.80. Further losses would bring into view the 38.2% and 50% Fibonacci levels at 86.50 and 85.60 respectively. A breach of the 50% Fibonacci level could accelerate the declines towards the 200-day moving average, currently at 85.38, and the 61.8% Fibonacci level at 84.70. It would also shift the bias to negative as it corresponds with the bottom of the cloud.

In the medium term, the outlook remains bullish given the positively aligned 50- and 200-day moving averages. However, without a successful challenge of July's 1½-year high, the positive outlook would be at risk of turning neutral.

Price retested the 53.03 static resistance and failed once again to close above it. Is trading in the red and seems poised to drop towards fresh new lows in the upcoming period. Is moving sideways on the short term, so remains to see if we’ll have a valid breakdown from the minor ascending channel. Could move in range till will reach the WL1, the next major downside target will be at the 50% retracement level.

Price goes down after the false breakout above the 38.2% retracement level and should reach the 23.6% retracement level and the first warning line (WL1) of the ascending pitchfork. Could be attracted by the confluence area formed at the intersection between the WL1 with the upper median line (uml) of the descending pitchfork.

USD/JPY opened with a gap down and seems like that the sellers are very strong on the short term. Price hovers right above a very strong static support, only a valid breakdown will confirm a larger drop in the upcoming period.

The Yen increased significantly today as the Nikkei stock index has plunged. JP225 opened with a gap down today, signaling that the bears have taken full control. The index failed once again to stabilize above the 19700 static resistance, this situation could bring a broader drop in the upcoming period.

Technically, the Nikkei was expected to drop towards the 18936 level on the short term, this scenario is still on the table as long as is trading below the 19700 resistance.

The Yen received support also from the Monetary Base indicator, which was reported at 16.3%, higher versus the 15.6% estimate. You should know that the United States banks will be closed today in observance of the Labor Day.

USD/JPY continues to move in range on the Daily chart, but looks too overbought to resume the minor rebound. Has found strong resistance right above the warning line (wl1) of the ascending pitchfork. A valid breakdown below the 50% retracement level will open the door for a significant drop.

The downside targets are at the 61.8% retracement level, at the long term 38.2% retracement level, could be attracted also by the warning line (WL2).

EUR/USD has started the new trading week with gains. Currently, the pair is trading at 1.1912, up 0.44% on the day. With US banks closed for Labor Day, traders can expect an uneventful day from EUR/USD. On the release front, there are no major events in the eurozone. Eurozone Sentix Investor Confidence climbed to 28.2, above the forecast of 27.4 points. Eurozone PPI continues to improve, coming in at 0.0%, still shy of the estimate of 0.1%.

The eurozone economy continues to pick up speed, as economic indicators point upwards. The Sentix Investor Confidence rose in September, as investors and analysts like what they see from the euro-area economy. Germany, the largest economy in the bloc, continues to look very strong, but other countries such as France and Italy have also posted better numbers in 2017. In August, the German and eurozone manufacturing sectors continued to show strong expansion, buoyed by domestic demand as well as a stronger global economy which has increased demand for German and European exports. The stronger economy has raised speculation that the ECB will finally taper its ultra-accommodative monetary policy. The bank's asset purchases program is scheduled to end in December, and analysts expect the ECB to withdraw stimulus in early 2018. Still, the ECB has not provided much guidance as to its plans. ECB President Mario Draghi was mum on monetary policy at last week's meeting of central bankers at Jackson Hole, following the lead of Federal Reserve Chair Janet Yellen. However, the ECB head will not get another free pass this week, as the ECB holds its next policy meeting on Thursday. Any discussion about tapering the ECB's asset purchase program could have a strong effect on the euro's movement.

US employment numbers were unexpectedly soft on Friday, but the dollar shrugged off the weak numbers and managed to post gains against the euro. Nonfarm employment change slowed to 156 thousand, well below the estimate of 180 thousand. This marked a 3-month low. However, with the US labor market still close to capacity (the unemployment rate is just 4.4%), the markets can be forgiving about a softer nonfarm payroll report. Wage growth, or the lack of it, is a more pressing concern. Average Hourly Earnings posted a small gain of 0.1%, missing the estimate of 0.2%. This was down from 0.3% in the previous report, and matched the weakest gain seen in 2017. The lack of wage gains has impacted on inflation levels, which remain well below the Fed's inflation target of 2%. Soft inflation has dampened enthusiasm for a final rate hike in 2o17, with the odds of December increase pegged at just 37%.

Risk aversion was the name of the game on Monday, after North Korea's latest nuclear weapons test dented global risk appetite.

Most Asian shares were under pressure during early trading, as geopolitical tensions weighed on sentiment, with the lack of appetite for risk punishing European equity markets. Although Wall Street is closed today for the Labour Day holiday, jitters fueled by the North Korea developments are likely to roll over into Tuesday's trading session, consequently exposing American stocks to downside risks. With market players on the defense amid the geopolitical risk and uncertainty accelerating the flight to safety, world stocks could have it rough this week.

Gold shines amid geopolitical tensions

Gold sprinted to a fresh 12-month high above $1339.50 during Monday's trading session, as escalating geopolitical tensions between the US and North Korea prompted investors to rush to safe-haven assets. The disappointing US employment data released on Friday has also complimented the metal's upside, with investors now reevaluating whether the Federal Reserve will raise rates a third time this year.

Gold remains supported by geopolitical risk, with further upside on the cards as uncertainty encourages bulls to install fresh rounds of buying. From a technical standpoint, the yellow metal is bullish on the daily charts, as there have been consistently higher highs and higher lows. A decisive breakout and daily close above $1340, should encourage a further appreciation higher towards $1350.

Dollar Index under pressure

The Greenback struggled to gain ground against a basket of currencies on Monday, as Friday's disappointing US employment data continued to weigh on the prospects of higher US interest rates. Dollar bears seem to be rubbing their hands and planning how to drag the Greenback lower, after the US economy added 156,000 jobs in August, which was below the 180,000 market forecast. With recent US employment data compounding with concerns over subdued inflation and political drama in Washington, further downside is on the cards. From a technical standpoint, the Dollar Index remains heavily pressured on the daily charts. Sustained weakness below 92.00 should encourage a further depreciation towards 90.00.

Currency spotlight – GBPUSD

The erratic price action on Sterling continues to suggest that the currency is waiting for a catalyst to break above the 1.3000 resistance, or below the 1.2850 support. Although Brexit uncertainty continues to weaken the Pound, political risk in the US and fading rate hike expectations, have also punished the US Dollar.

Investors will be closely observing how prices trade within the 150-pip range, with a breakout/down potentially determining the next direction for the GBPUSD. From a technical standpoint, a solid break above 1.3000 should encourage a further appreciation towards 1.3060. In an alternative scenario, weakness below 1.2900 should encourage a decline towards 1.2850 and 1.2775 respectively.

Notes/Observations

Geopolitical risks fuels risk aversion following North Korea's latest nuclear test over the weekend

Focus on ECB policy decision on Thursday as Draghi try's to balance a smooth QE exit

Overnight/weekend

Korean Peninsula situation

North Korea confirmed its 6th nuclear test with the release of a hydrogen bomb (had a magnitude of equivalent to a 6.3 earthquake and speculated to be 4-5x the power of bomb dropped on Nagasaki). Before the test Leader Kim Jong Un inspected a hydrogen bomb that would be loaded on a new intercontinental ballistic missile

Reaction:

US Defense Min Mattis: Any threat to the US and allies will be met with ‘massive, overwhelming' military response. He also said officials laid out military options to President Trump at a National Security Meeting

US President Trump tweeted that the US is considering stopping all trade with any country doing business with North Korea

US Treasury Sec Mnuchin said preparing new economic sanctions against North Korea

Japan PM Abe: agreed with Trump that pressure must be raised on NK

China President Xi and Russia's leader Putin agreed to stick to the goal of the denuclearization of the Korean Peninsula, have close communication and coordination and properly respond' to the test

China Foreign Ministry: Resolutely opposed and strongly condemned North Korea nuclear test. Strongly urged NK to stop wrong actions that worsen situation and would unswerving protect peace and stability of Korean peninsula. To comprehensively implement UN Security Council resolutions on NK; denuclearization of Korean peninsula

South Korea President Moon: Called from "strongest punitive measures" in response to North Korea nuclear test

Will push for further steps to isolate NK including new sanctions

Asia:

China President Xi reiterated view that domestic economy faced uncertainty, trade protectionism was rising. BRICS nations should offer solutions to boost free trade and that China would give CNY500M for BRICS economic and technology cooperation plan

Former PBoC Adviser Yu Yongding urged achieving free float of yuan currency rate as soon as possible. Improving economic situation provides opportunity to complete yuan exchange rate reform

Europe:

EU Commissioner Moscovici (France): Current euro level not threatening European corporate performance. Currency's strength also depended on monetary policy, trusted the leadership and vision of ECB President Draghi.

Italy Fin Min Padoan: A strong euro will have very little economic impact on Italy

Italy 5-Star Party official Di Maio: Austerity policies have not worked, on monetary policy; Party has raised the issue of a referendum on the euro, as a bargaining tool, as a last resort and a way out if not listened to

Next Bank of Italy Gov will be named in Sept (2-months ahead of schedule) to help reassure markets ahead of 2018 budget presentation. Current BOI Gov Visco term expires in November and likely to be given another mandate

Germany Chancellor Merkel and center left candidate Schulz held only televised debate on Sunday, Sept 3rd. Various polls conducted during the first half of the debate, Merkel was viewed as more credible by a 33% to 17% margin.

Moody's raises Portugal's sovereign outlook to Positive from Stable; affirms Ba1 rating

Fitch affirms Germany sovereign rating at AAA; outlook Stable

Americas:

Treasury Sec Mnuchin reiterated Administration view that Hurricane Harvey funding should be tied to a move on the debt ceiling

Energy:

Colonial Pipeline: On Monday, to restart the Texas sections of its main distillate and gasoline lines

US Dept of the Interior's Bureau of Safety and Environmental Enforcement: ~5.5% of current US Gulf of Mexico oil production is offline due to Tropical Strorm Harvey; ~10.5% of Gulf Nat Gas production remains offline

Russia Deputy PM Dvorkovich reiterated likely to support further extension of OPEC agreement to cut production

Economic data

(ES) Spain Aug Net Unemployment M/M: +46.4K v +12.0Ke

(EU) Euro Zone Sept Sentix Investor Confidence: 28.2 v 27.0e

(UK) Aug Construction PMI: 51.1 v 52.0e (12th month of expansion and lowest since Aug 2016)

(EU) Euro Zone July PPI M/M: 0.0% v 0.1%e; Y/Y: 2.0% v 2.1%e

Fixed Income Issuance:

(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 6-month Bills; Avg Yield: 0.37% v 0.39% prior; Bid-to-cover: 3.45x v 2.44x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.6% at 373.9, FTSE -0.1% at 7428, DAX -0.5% at 12080, CAC-40 -0.5% at 5098, IBEX-35 -0.8% at 10243, FTSE MIB -0.4% at 21771, SMI -0.9% at 8863, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European Indices trade lower across the board with geopolitical tensions once again at the forefront. Corporate news has been thin, with Acacia Mining under pressure after announcing reduction in operation at Bulyanhulu, and as a result cutting its full year outlook. Elsewhere Fiat Chrysler shares trades lower after noting it intends to move forward with the spin off of parts unit, following the absence of any major offer. Looking ahead corporate flow is expected to remain light with the closure of US markets in observance of Labor day.

Equities

Consumer discretionary [Samse [SAMS] +1.7% (Earnings), Johnson Service Grp [JSG.UK] +1% (Earnings), WizzAir [WIZZ.UK] -1.3% (Aug Metrics), Fiat Chrysler [FCA.IT] -1% (Plans to move forward with parts spinoff after no deal emerges)]

Materials: [Acacia mining [ACA.UK] -6% (To reduce operations at Bulyanhulu, cuts productions outlook)]

Industrials: [Victrex [VCT.UK] +5.9% (Trading update, CEO designate)

Healthcare: [Stada Arzneimittal [SAZ.DE] +2.0% (Nidda agrees to support domination and/or profit and loss transfer agreement)]

Speakers

ECB's Mersch (Luxembourg): Trust in ECB is only gradually returning

PM May set to approve a politically explosive Brexit bill of up to £50B after the Conservative Party conference in October. Britain would pay £7-17B per year to Brussels for three years after Brexit before ending sizable direct payments into EU coffers in time for the 2022 general election. Aimed to kick start trade talks with the EU under current plans being drawn up

UK Brexit Min Davis refuted the Sunday Times report on Brexit bill; called its "nonsense"

North Korea said to be preparing another ICBM missile launch; launch expected around Sept 9th

South Korea said to be in talks on deployment of US carrier group and strategic bombers

China Foreign Ministry reiterated view that using force to resolve North Korea was NOT an option. North Korea was clear about China's opposition to its nuclear tests. Called President Trump's trade threat was unacceptable and unfair (**Note: Referred to US President Trump tweet that the US was considering stopping all trade with any country doing business with North Korea)

Russian Foreign Ministry: Working in tight cooperation with China on North Korea. Might react to US missile defense in South Korea

S&P analyst: Not considering any sovereign rating change for South Korea at this time but downward pressure was rising (**Note: Currently at AA; outlook stable)

Currencies

Geopolitical risks fuels risk aversion following North Korea's latest nuclear test over the weekend. The traditional safe-haven currencies (and gold) outperformed. Dealers still placed a low probability of any full-scale conflict breaking out.

Focus on ECB policy decision on Thursday as Draghi try's to balance a smooth QE exit. Analysts foresaw a gradual expiration of bond purchases but that decision might not come until Oct or even as late as Dec.

EUR/USD higher by 0.5% at 1.1920; USD/JPY at 109.50 and USD/CHF at 0.9565.

Spot gold higher by 0.8% at $1,335/oz

Fixed Income

Bund futures trade higher by 22 ticks at 165.08 on risk off flows following the tensions with North Korea in the far east. Continued upside targets 165.21 initially followed by 165.69, with initial downside support at 164.52 then 164.36.

Monday's liquidity report showed Friday's excess liquidity rose to €1.769T up €38B from €1.731T prior. Use of the marginal lending facility fell to €196M from €250M prior.

Corporate issuance saw Euro denominated issuance rise above €25B for the first time in 9 weeks . Thursday saw the bulk of the issuance with over €10B coming to market.

Looking Ahead

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €1.0-2.0B in 6-month Bills

06:45 (US) Daily Libor Fixing

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:00 (BR) Brazil Aug FGV Inflation IGP-DI M/M: +0.2%e v -0.3% prior; Y/Y: -1.7%e v -1.4% prior

07:25 (BR) Brazil Central Bank Weekly Economists Survey

08:00 (UK) Baltic Dry Bulk Index

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week

09:00 (MX) Mexico July Leading Indicator M/M: No est v 0.21 prior

09:00 (SG) Singapore Aug Purchasing Managers Index (PMI): 51.2e v 51.0 prior

09:00 (FR) France Debt Agency (AFT) to sell combined €4.4-5.6B in 3-month, 6-month and 12-month Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

09:50 (UK) BOE to buy £1.125B in APF Gilt purchase operation (3-7 years)

10:00 (DK) Denmark Aug Foreign Reserves (DKK): No est v 463.9 prior

11:00 (CO) Colombia July Exports: $2.9Be v $2.8B prior

12:00 (IS) Iceland Q2 Current Account (ISK): No est v 11B prior

15:00 (CO) Colombia Aug Total PPI M/M: No est v 1.7% prior; Domestic PPI M/M: No est v 0.5% prior

Crude oil is showing some buying interest near key support at 45.46. Strong resistance can be found at 50.41 (31/07/2017). Hourly support is given at 45.40 (17/08/2017 high). Expected to show continued short-term bearish move.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness are very likely. Strong support lies at 35.24 (05/04/2016) while resistance can now be fo