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Daily Pivots: (S1) 0.9526; (P) 0.9552; (R1) 0.9577; More....

USD/CHF's fall extends to as low as 0.9490 so far. Intraday bias remains on the downside for retesting 0.9437 low. Note again that the pair is bounded in medium falling channel and limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783. Break of 0.9427 will extend the whole decline from 1.0342 and carries larger bearish implications. On the upside, above 0.9577 minor resistance will turn intraday bias neutral first.

In the bigger picture, we're slightly favoring the case that USD/CHF has successfully defended 0.9443 key support level. And long term range trading in 0.9443/1.0342 is extending with another rise. At this point, there is no sign of an up trend yet. Hence, while further rise is expected in USD/CHF, we'll start to be cautious on loss of momentum above 61.8% retracement of 1.0342 to 0.9437 at 0.9996. However, firm break of 0.9443 will carry larger bearish implication and would target next key support at 0.9072.

Daily Pivots: (S1) 109.04; (P) 109.23; (R1) 109.43; More...

USD/JPY's decline resumed by taking out 108.59 and reaches as low as 108.33 so far. Intraday bias is back on the downside for 108.12 low. Whole corrective decline from 118.65 is possibly resuming and break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, considering bullish convergence condition in 4 hour MACD, break of 109.83 will indicate short term bottoming and turn bias back to the upside for 110.94 resistance and above.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Yen surges broadly, together with Swiss Franc, on risk aversion as tension in the Koreas escalates again. North Korea fired a missile earlier today that flew over Japan and landed in the Pacific Ocean. South Korea military official said that the missile was fired around 5:57 a.m. local time, flew for about 2700 km and reached a maximum altitude of 550 km. US Pacific Command projected that the missile splashed down at around 6:29 a.m. local time. The news sent Yen higher as investors there repatriates their overseas investments on fear of market and exchange rate volatility. USD/JPY dives through 108.59 support to as low as 108.33 and recent selloff resumes. Commodity currencies are hit hardest while Euro is mixed. The news also sent gold sharply higher to 1330 after it takes out of 1300 handle firmly yesterday.

Japan PM Abe: Unprecedented, serious and significant threat

In Japan, public television programs were interrupted with warnings regarding the threat to the country. Several bullet train lines were halted. Similar scale of provocative act was not seen since after 2009. And, it's only the third projectile the fly over Japan since 1998. Japan Prime Minister Shinzo Abe condemned that "this reckless act of firing a missile over our nation is an unprecedented, serious and significant threat, one that seriously diminishes the peace and safety of the region, and as a result we have lodged a firm protest against North Korea." Abe also requests an emergency meeting of UN Security Council to see to "further strengthen pressure against North Korea."

US President Trump warned of pulling out from NAFTA

In the US, President Donald Trump stepped up his rhetorics on the relationships with Canada and Mexico. Trump tweeted that "we are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada". And he told reporters that "I believe that you will probably have to at least start the termination process before a fair deal can be arrived at. In our opinion, the core of NAFTA renegotiation is to narrow US' trade deficit. With US' trade deficit with Canada on the fall, it would put harder pressure on Mexico in the negotiations.

The market reaction towards NAFTA renegotiation has been muted, overshadowed by other events including North Korean peninsula tensions, US debt ceiling, and central banks' monetary policy outlook. Indeed, we do not expect to see material developments for the rest of the year. However, the parties, especially the US and Mexico, would be eager to complete a deal by mid-2018, ahead of and Mexican election in July and US mid-term election in November." More in Second Round of NAFTA Renegotiation to Begin...

EU Barnier urged UK to start "negotiating seriously"

As the third round of Brexit negotiation starts, EU's chief negotiator Michel Barnier urged UK to start Michel Barnier urged the UK to start "negotiating seriously" as "to be honest, I am concerned. Time passes quickly." He welcomed the papers published by the UK government's papers published before the meeting. But Barnier emphasized that "we need UK positions on all separation issues" to make "sufficient progress". He added that "we need UK papers that are clear in order to have constructive negotiations and the sooner we remove the ambiguity, the sooner we will be in a position to discuss the future relationship and the transitional period."

On the other hand, UK's Brexit Secretary David Davis urged "flexibility and imagination on both sides". He reiterated that "our goal remains the same: we want to agree a deal that works in the best interests for both the European Union and the United Kingdom and people and businesses right across Europe. We're ready to roll up our sleeves and get back to work once more." Davis also depended UK's papers as "product of "hard work and detailed thinking that has been going on behind the scenes"

On the data front

Japan unemployment rate was unchanged at 2.8% in July, household spending dropped -0.2% yoy. UK nationwide house price, German Gfk consumer confidence and French GDP will be featured in European session. Canada IPPI and RMPI, US S&P Case-Shiller house price and consumer confidence will be released later in the day.

USD/JPY Daily Outlook

Daily Pivots: (S1) 109.04; (P) 109.23; (R1) 109.43; More...

USD/JPY's decline resumed by taking out 108.59 and reaches as low as 108.33 so far. Intraday bias is back on the downside for 108.12 low. Whole corrective decline from 118.65 is possibly resuming and break of 108.12 will target 61.8% retracement of 98.97 to 118.65 at 106.48. Nonetheless, considering bullish convergence condition in 4 hour MACD, break of 109.83 will indicate short term bottoming and turn bias back to the upside for 110.94 resistance and above.

In the bigger picture, the corrective structure of the fall from 118.65 suggests that rise from 98.97 is not completed yet. Break of 118.65 will target a test on 125.85 high. At this point, it's uncertain whether rise from 98.97 is resuming the long term up trend from 75.56, or it's a leg in the consolidation from 125.85. Hence, we'll be cautious on topping as it approaches 125.85. If fall from 118.65 extends lower, downside should be contained by 61.8% retracement of 98.97 to 118.65 at 106.48 and bring rebound.

Economic Indicators Update

STOCKS

Dow (21808.40, -0.02%) remained stable below 21900 and has equal chances of moving either towards 21950 or 21700 in the next couple of sessions. Dax (12123.47, -0.37%) on the other hand may remain sideways ranged within 11940-12350 zone as mentioned yesterday.

Nikkei (19334.90, -0.59%) has moved lower and could test our initial target of 19200 on the downside in the next few sessions. A short corrective bounce is possible from 19200 before testing lower levels of 19000 in the longer term. Near to medium term looks bearish.

Shanghai (3364.44, +0.05%) continues to trade higher and we wait to see a break above 3375/80 to ensure bullishness to continue in the near term. Else a short dip is possible from 3380. Overall near term looks bullish just now.

Nifty (9912.80, +0.57%) could possibly test 9950 on the upside today. We need to watch price action closely; in case the index manages to sustain above 9950, it could move up afresh towards 10000-10050 levels again. Else a rejection from 9950 could bring it back towards 9800. For now we give equal chances of movement happening on either side and would like to wait for more clarity. However the weekly charts are indicative of an upmove.

COMMODITIES

Gold (1323) has been stable just above its crucial support of 1300 . The next possible resistance could be 1350. Yesterday, we had clearly mentioned that the current stability in the price is an indication of a base building before a sharp rise, as the bulls are getting stronger to shoot up above 1300 in the near term. The only concern is the near term overbought condition in Gold thus a short term price correction is needed towards 1300 before the next upside rally towards 1350

Silver (17.40) is also testing its resistance of 17.40. The immediate trading range could be 16.70-17.40 .

Copper (3.07) has moved up in line with our expectation. Immediate resistance is poised at 3.12 regions. Copper is highly overbought in near term time frame thus We might see a dip towards 3.00 levels to gather fresh buying momentum.

Brent (52.04) and WTI (47.40) are both trading sideways. While Brent may come off towards 50 while below 53.80, WTI could trade within 50.00-46.50 levels for some more time.

FOREX

Yen (USDJPY = 108.80) has strengthened, with North Korea coming back on the market's radar, and it seems the Low has been near 108.33. A Day Close below 108.60 and Week Close below 108.00 could be severely bearish. The Euro-Yen (130.19) is stable near yesterday's levels. But, as mentioned yesterday, a rise past 131.40 is needed to bring in more confidence.

The Euro (1.1967) has risen further since yesterday, seeing a High of 1.1986 in the US session yesterday. Support moves up to 1.18 now and a rise past 1.20 is more likely than not.

Some more strength in the Pound (1.2935) from yesterday, rising past earlier resistance at 1.2915. Might reach up to 1.30 also. The rise from 1.2775 over the last three days makes us reassess our earlier bearishness.

The Aussie (0.7925) has decent Support at 0.7900 and seems to be gearing up for a test of and rise past 0.80, along with a possible rise towards 1350 in Gold.

The Chinese Yuan (USDCNY = 6.6071) has fallen sharply over the last several days, but may have Support at 6.59. A bounce is possible from there. Dollar-Rupee trades near 63.90/95 on the NDF and is expected to have Support in the 63.80-70 region.

INTEREST RATES

Muted price action had been seen in German-US 2 Yr Spread (-2.08%) and the German-US 10Yr Spread (-1.76%) . The recent bounce in German-US 10Yr Spread had helped Euro to moved up in line with our expectation.

We had told that US 10Yr Yield could move lower while it is trading below 2.18 regions and today it is at 2.13.This could be a result of the renewed geopolitical tension between US and North Korea. The US 5Yr has good Support at 1.7%, while the 10Yr has good Support at 2.095%.. We have to monitor the US Security Council meeting on Tuesday.

The Japanese 5Yr JGB (-0.131%) and the 30Yr JGB (+0.83%) are hovering around their respective supports, suggesting a possible bounce.

We are also expecting bounce in UK 5Yr and 30Yr Gilt Yields as they are also testing Supports near current levels (5Yr 0.46% and 30Yr 1.60%).But the 10Yr is trading below its area of support and might moved lower towards 1.00 regions

Gold registered an amazing rally and managed to climb much above the $1310 per ounce. The bulls are in full control and should lead the rate towards the first warning line (WL1) of the major descending pitchfork, where he could find temporary resistance again.

Price rallied today and extends the upside movement, remains to see if will have enough directional energy to stabilize above the fourth warning line (WL4) of the descending pitchfork. Has managed to jump much above the minor red downtrend line, signaling that the bulls are in control.

The upside movement is a natural one after the retest of the upper median line (uml) of the minor ascending pitchfork.

AUD/USD edges higher and resumes the minor rebound. Technically should climb much higher as the rate is located in the green zone. USD lost more ground versus the Aussie as the dollar index has plunged since Friday's session.

Price reached an important dynamic resistance, but is somehow expected to take this out and to resume the upside movement because the USDX could drop much deeper in the upcoming days. The dollar index is trading much below the 92.49 critical support, a retest of this level will confirm a further drop on the short term and a USD's depreciation versus all its rivals.

Personally, I believe that only some impressive US data could save the greenback from the downside, the US CB Consumer Confidence will be released in the afternoon and is expected to decrease from 121.1 to 120.3 points.

AUD/USD resumed the last week’s rally, but has found temporary resistance at the upper median line (uml) of the descending pitchfork. You can see on the daily chart that has failed to retest the median line (ml) of the minor ascending pitchfork, but could still hit this in the upcoming hours.

Is expected to climb much higher after the false breakdown below the median line (ML) of the major ascending pitchfork. We’ll have an important upside target at the 50% Fibonacci line (ascending dotted line), could approach also the 0.8065 horizontal resistance.

Well, I use the word good in the loosest sense of the word after North Korea launched a ballistic missile this morning that flew over the northern Japanese island of Hokkaido.

With markets just starting to ignore the current NK regime, they certainly took notice again today with Japan forced to issue take cover notices to their citizens in what is being described as the most brazen provocation under Kim Jong Un's five-year-long rule.

Trump talked the talk and it looks like Un has essentially tried to call his bluff. Where we go from here, I'm not sure but markets aren't just taking this as routine, as you can see by the price of Gold going gangbusters on the charts below.

First up, let's take a look at the significant weekly level that is now into the rear-view mirror:

XAU/USD Weekly:

Taking a step down into the daily charts, if you remember from last week, we were watching gold hugging a daily trend line that you can see in that link. I've removed the line because price didn't break down and now all that matters is the fact that it's above this horizontal level:

XAU/USD Daily:

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Renewed dollar selling and a North Korean missile test supercharge gold and dragging silver higher.

Gold

Gold powers higher in early Asia, leaping from 1310 to 1325 at one stage as North Korea conducted a missile test that flew over Japan. Gold has pulled back since as USD/JPY, and the Nikkei regained some of their losses but still sits AT 1318.00, up 0.60% on the day. Risk aversion following this morning’s missile test should see gold bid on any dip from these levels.

The events of this morning have somewhat overshadowed gold’s performance in the New York session where gold proceeded directly to go and put in a monster 20 dollar rally from its opening 1290.00 level. Trump’s negative comments on the NAFTA renegotiation and no tightening signals from Jackson Hole see U.S. dollar selling renew with vigour in New York.

Gold broke the previous monthly high at 1301.00 with ease which will now become an intraday pivot level. The momentum of the rally is impressive although we note that the daily relative strength index is entering an overbought territory which may slow gold’s ascent temporarily in the absence of any more geopolitical tensions.

Nevertheless, with the U.S. dollar and stock markets under pressure, today gold should find support at 1310.00, and its initial target around 1337.00 is now well and truly in sight, perhaps sooner rather than later.

Silver

Silver also enjoyed an excellent overnight session, moving higher in a straight line from its 200-day moving average and daily support at 17.0400, some 40 cents to 17.4400. In the process taking out the top of its ascending triangle and initial resistance at 17.3900, now intra-day support, to close at 17.4500.

Silver’s next target now becomes the May high at 17.7600 with a daily close above here implying a technical move above 18.0000 is possible. Silver has had a more muted start in Asia than gold, trading slightly higher to 17.4800 in early trading.

Contrasting fortunes for oil with Brent supported by OPEC, and Hurricane Harvey is washing WTI away.

WTI Spot

WTI fell by some 2.60% overnight as while gasoline futures rose by 3.50% in a somewhat counterintuitive price action. What the street is clearly pricing in as the effects of Hurricane Harvey’s flooding become apparent, is that the United States has plenty of crude oil, the difficulty will be refining it into usable products and then moving it to where it is needed. This may well prove a boon to Asian refiners, who have the immediately available refining capacity, should capacity in Texas and Louisiana be taken offline for a long time. With refiners in Asia suddenly needing to fulfill orders for gasoline and jet fuel for shipment to the U.S.

At this stage, it is still unclear what the final disruption will be, but there is no denying that WTI crude has suffered a very bearish technical development overnight, breaking out of the lower boundary of its recent triangle pattern. WTI spot touched 46.00 overnight becoming initial support, before recovering to 46.70 in early Asia trading. The next support is seen at the 45.00 regions with initial resistance the base of the triangle, today at 47.20.

Brent Spot

The story is very different with Brent spot, which continues to trade constructively, dropping only 0.50% overnight. The near month futures are in backwardation, and the premium over WTI widened to multi-year highs. It has also been bolstered by news that Saudi Arabia and Russia are apparently lobbying the OPEC/Non-OPEC grouping to extend the production cut deal by three months to June 2018.

Brent spot trades midrange at 51.75 this morning with support at 51.20 followed by 50.00. Resistance appears at 52.50 initially and then 52.70 as it continues to consolidate its recent gains supported by more sound fundamentals.