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The DAX index continues to post gains this week. In the Tuesday session, the DAX is trading at 12,439.50, up 0.60% on the day. For a second straight day, there are no German or Eurozone events on the schedule. On Wednesday, Germany will release Final CPI and WPI, and the eurozone publishes employment change and industrial production.

European stock markets continue move higher, boosted by renewed investor appetite this week. The DAX has gained 3.7% in September, and is trading at its highest level since July 20.

With North Korea one of the world's geopolitical hot spots, there were concerns that tensions might rise again over the weekend, as the country celebrated the 69th year of its founding. Last year, North Korea marked last year's anniversary by exploding its fifth nuclear test. To the market's relief, there were no nuclear tests or missile launches over the weekend, although Pyongyang has reacted angrily to a UN Security C0uncil resolution which extended sanctions on North Korea. On the fundamental front, it's been a slow start to the week, and the markets are keeping on eye on German inflation numbers, which will be released on Wednesday.

The US dollar suffered broad losses last week, as tensions rose in the Korean peninsula after North Korea tested a hydrogen bomb. This weighed on risk appetite, and the euro jumped on the bandwagon, gaining 1.3 percent against the greenback. With North Korea celebrating its 69th anniversary of independence, there were concerns that Pyongyang would use the occasion to flex some muscle and test a nuclear bomb or missile. There were no incidents over the weekend, although the US, along with its allies Japan and South Korea, remain on alert for further provocations from the north. The dollar responded with gains on Monday, as EUR/USD dipped below the symbolic 1.20 level.

Dow Jones future contract for September delivery remains well supported and extends strong rally from Monday (up 0.90% for the day), approaching key barrier at 22131 (record high posted on 08 Aug).

The contract is about to complete corrective phase from 22131 to 21580 (08/21 Aug pullback) and resume broader uptrend.

Fresh bullish sentiment on fading concerns over North Korea and impact of Hurricane Irma on the US economy boosts the price strongly. Eventual break above 22131 pivot would commence fresh bullish phase and expose Fibo projections at 22261 (123.6%) and 22341 (138.2%). Initial support lies at 22054 session low, followed by round-figure 22000 support, also broken bear-trendline from 22131 peak.

Res: 22131; 22200; 22261; 22341
Sup: 22054; 22000; 21910; 21856

The euro has remained under selling pressure against the U.S dollar during much of the European session, with intraday upside attempts contained by the 1.1979 technical resistance level.

Presently, the EURUSD is moving lower, with price-action approaching the 1.1950 level, due to intraday U.S dollar strength, and an unwinding on long positions in the EURGBP cross-pair.

The EURUSD pair remains further intraday bearish, after price-action failed to close back above the key 1.1979 technical resistance level.

To the downside, EURUD technical support is located at 1.1940, 1.1906 and the crucial monthly time frame, 50-period moving average, at 1.1871.

To the upside, once above the current daily price high, at 1.1979, further intraday resistance for the EURUSD pair is found at the 1.1999, 1.2029 and 1.2039 levels.

The British pound has moved to new 2017 trading high against the U.S dollar, hitting 1.3288 during the European session, after much better than expected United Kingdom inflation data for the month of August.

Monthly inflation increased 0.6 percent in the UK, which was much better than analyst expectations, and a sharp rise from the previous months figure of –0.1 percent.

Price remains at elevated level, trading well above the former yearly price high, located at 1.3268.

Traders will now watch for a higher-time frame price close above the former yearly price high, at 1.3268, for further confirmation of continued upside on the GBPUSD pair.

Key technical resistance above the 1.3288 level, is located at 1.3300, and the September 13th, 2016 price high, at 1.3338. Further longer-term GBPUSD resistance is found at the 1.3395 level.

Any corrections to the downside, should find support from the recent pullback low, at 1.3248, with Fibonacci support coming at 1.3220.

Further GBPUSD support below the 1.3200 level comes from the 50-hour moving average, located at 1.3187.

EURUSD - With the pair seen closing lower on correction on Monday and following through on Tuesday, more decline is envisaged in the days ahead. Resistance comes in at 1.2000 level with a cut through here opening the door for more upside towards the 1.2050 level. Further up, resistance lies at the 1.2100 level where a break will expose the 1.2150 level. Its daily RSI is bearish and pointing lower suggesting further downside pressure. Conversely, support lies at the 1.1900 level where a violation will aim at the 1.1850 level. A break of here will aim at the 1.1800 level. Below here will open the door for more weakness towards the 1.1750. All in all, EURUSD faces further downside on correction.

Crude oil bounce from 47.00 yesterday and it turning slightly bullish now which means that USDCAD will likely stay in downtrend. From an Elliott Wave perspective we see bearish impulse in progress, currently with sub-wave 4 underway that will ideally make test of 1.2238 resistance before prices attacks 1.2000 with fifth wave down.

USDCAD, 1H

NZDUSD is also on our radar screen this week as we think that rally from Aug 31 can be corrective. Reason is of-course slow and overlaping price action which is personality of a corrective movement. That said, upside can be limited, but after seven legs as correction is going complex. It's a double zigzag with final wave c in play within wave Y that may look for a reversal at 0.7350-0.7380.

NZDUSD, 1H

Notes/Observations

Risk-on sentiment remains intact as concerns over Hurricane Irma and North Korea subside

UK Parliament cleared its 1st hurdle of the Brexit process where the House voted against opposition labor party attempt to block EU withdrawal; avoided any potential 'chaotic' EU exit for the time being.

UK Aug CPI at highest level since Jun 2013 (2.9% v 2.8%e) ahead of Thursday’s BOE rate decision

Overnight

Asia:

UN Security Council voted unanimous in favor of increasing sanctions against North Korea. Sanctions now impact more than 90% of all reported exports

China Premier Li: Global economy showing positive signs but still looks fragile. Countries cannot rely on QE to support growth and should implement structural reforms. Countries should maintain free trade and reiterates view that China would not boost exports though yuan depreciation and not resort to competitive currency devaluation

China PBOC fixed yuan weaker at 6.5277 per USD (snapping 11-day streak of firmer fixings)

Europe:

UK Parliament voted against opposition labor party attempt to block EU withdrawal bill; passes first parliamentary hurdle

EU's Juncker said to set out plans for more thorough vetting of foreign investments in his State of the Union speech to the European Parliament on Wed, Sept 13th

Norway right-wing govt projected to win re-election in general election with majority; PM Solberg wins second term

Energy:

OPEC Sec Gen Barkindo: Reiterates view that clearly the oil market rebalance is in progress; output growth is now slightly decelerating. OECD commercial oil stocks were 195M bbl above the 5 year average in July

Economic data

(RO) Romania Aug CPI M/M: -0.2% v 0.0%e; Y/Y: 1.2% v 1.5%e

(SE) Sweden Aug CPI M/M: -0.2% v -0.3%e; Y/Y: 2.1% v 2.2%e

(SE) Sweden Aug CPI CPIF M/M: -0.1% v -0.2%e; Y/Y: 2.3% v 2.2%e

(NO) Norway Aug Region Survey; Output Past 3 Months: 1.23 v 1.11 prior, Output Next 6 Months: 1.11 v 1.29 prior

(IT) Italy Q2 Unemployment Rate Q/Q: 11.2% v 11.3%e (lowest quarterly reading since 2012)

(UK) Aug CPI M/M: 0.6% v 0.5%e; Y/Y: 2.9% v 2.8%e; CPI Core Y/Y: 2.7% v 2.5%e (9th straight month annual inflation above BOE target and highest level since Jun 2013)

(UK) Aug RPI M/M: 0.7% v 0.6%e; Y/Y: 3.9% v 3.8%e, RPI-X (ex-mortgage interest payment) Y/Y: 4.1% v 4.0%e

(UK) Aug PPI Input M/M: 1.6% v 1.3%e; Y/Y: 7.6% v 7.3%e

(UK) Aug PPI Output M/M: 0.4% v 0.1%e; Y/Y: 3.4% v 3.1%e

(UK) Aug PPI Output Core M/M: 0.2% v 0.1%e; Y/Y: 2.5% v 2.3%e

Fixed Income Issuance:

(FI) Finland opened its book to sell $1.0B in 3-year notes; guidance seen -6bps to mid-swaps

(AT) Austria Debt Agency (AFFA) opened its book to sell EUR-denominated 5-year and 100-year RAGB bonds

(NL) Netherlands Debt Agency (DSTA) sold €2.2B vs. €2.0-3.0B indicated range in 0.75% 2027 DST Bonds; Avg Yield: 0.475% v 0.474% prior

(ES) Spain Debt Agency (Tesoro) sold total €5.09B vs. €4.5-5.5B indicated range in 6-month and 12-month Bills

(ID) Indonesia sold total IDR7.0T in 6-month Islamic Bills and 2-year, 4-year, -year and 15-year Project-based Sukuk (PBS)

(IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month Bills; Avg yield: -0.326% v -0.337% prior; Bid-to-cover: 1.86x v 1.63x prior

(ZA) South Africa sold total ZAR2.65B vs. ZAR2.65B indicated in 2030, 2040 and 2044 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.5% at 381.5, FTSE -0.1% at 7405, DAX +0.5% at 12539, CAC-40 +0.5% at 5204, IBEX-35 +0.3% at 10355, FTSE MIB +0.2% at 22169, SMI +0.6% at 9034, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes:

European Indices continue their advance with the exception of the FTSE100 which has turned negative after stronger CPI readings and subsequently stronger Sterling. In Switzerland, Dorma+Kaba and Partner Group reported strong results with shares rising sharply while in the UK strong results from Sports retail JD Sports, as well as Ashtead Group sees shares higher. Redrow trades sharply lower following the sale of 25.9M shares by the Chairman and Founder and AA Plc trades higher after confirming talks with Hastings. Auto are in focus this morning with various commentary out from the Frankfurt Autoshow, with VW pledging to invest over €20B on 80 new electric vehicles by 2025.

Equities

Consumer discretionary [Ashtead Group [AHT.UK] +8.2% (Earnings), JD sports [JD.COM] +3.3% (Earnings), AA [AA.UK] +1.4% (Confirms media speculation on potential tie up with Hasting Group), Goals Soccer Centres [GOAL.UK] -6% (Earnings)]

Industrials: [Dorma+Kaba [DOKA.CH] +10% (Earnings)]

Financials: [Partners Group [PGHN.CH] +5.8% (Earnings)]

Energy: [Premier Oil {PMO.UK] +2.6% (Sells interests in Licences PL089 and P534)]

Real Estate: [Redrow [RDW.UK] - 8.4% (Placing)]

Speakers

France Fin Min Le Maire reiterated pledge to meet 3% budget deficit to GDP target

EU Brexit Negotiator Verhofstadt: UK PM May should addres the full EU parliament

South Korea Fin Min Kim: No changes to government's position on property ownership. Not considering raising home ownership tax. Monitoring effects of recent real estate measures while considering various additional policy means and not just loan regulations

Currencies

The risk-on sentiment remained intact for a 2nd straight day as concerns over Hurricane Irma and North Korea subsided. US Treasury yields have bounced back from their lows and this is aiding the USD. The question is whether any USD rebound could be sustained?

USD/JPY was higher by 0.3% to test 109.70 area. EUR/USD was steady at 1.1965 area.

GBP was firmer in the session after the UK Parliament cleared its 1st hurdle of the Brexit process where the House voted against opposition labor party attempt to block EU withdrawal. Passage paves the way for greater powers to handed to ministers through the first major piece of Brexit legislation and avoided any potential 'chaotic' EU exit for the time being. Cable extended its gains after Aug CPI data beat expectations and saw its 9th straight month annual inflation above BOE target and highest level since Jun 2013). GBP/USD at 1.3280 ahead of the NY morning.

The SEK currency (Krouna) was firmer as Swedish Aug CPIF inflation (Riksbank new gauge) came in higher than expected. EUR/SEK was lower by 0.4% to test the lower end of the 9.53 range.

Fixed Income

Bund futures trade at 162.42 down 32 ticks trading lower as markets await ECB VP Vitor Constancio’s speech in Frankfurt. Continued downside targets 161.42 while upside resistance stands initially at 163.27.

Gilt futures trade at 127.89 down 39 ticks extending their decline following data that showed UK core inflation rose more than expected. Continued downside eyeing 127.25, then 126.88. Upside targets 128.90 then 129.24.

Tuesday's liquidity report showed Monday’s excess liquidity fell to €1.766T from €1.778T and use of the marginal lending facility rose to €275M from €142M.

Corporate issuance saw $11.1B last week via13 issuers headlined BOC Aviation $1B 2-part senior unsecured note offering and General Dynamics $1B in a 2part senior unsecured note offering

Looking Ahead

(IL) Israel Central Bank (BOI) Aug Minutes

(PT) Bank of Portugal Reports Aug ECB financing to Portuguese Banks: No est v €23.5B 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 (DE) Germany to sell €500M in Apr 2046 I/L bonds (Bundei)

05:30 (BE) Belgium Debt Agency (BDA) to sell €2.1-2.5B in 3-Month and 12-Month Bills

06:00 (US) Aug NFIB Small Business Optimism: 104.8e v 105.2 prior

06:00 (PT) Portugal Aug CPI M/M: No est v -0.7% prior; Y/Y: No est v 0.9% prior

06:00 (PT) Portugal Aug CPI EU Harmonized M/M: No est v -0.6% prior; Y/Y: No est v 1.0% prior

06:00 (IE) Ireland July Property Prices M/M: No est v 1.4% prior; Y/Y: No est v 11.6% prior

06:00 (TR) Turkey to sell 2022 and 2027 Bonds

06:45 (US) Daily Libor Fixing

06:30 OPEC Sept Monthly Report

07:00 (BR) Brazil Central Bank COPOM Sept Minutes

07:30 (CL) Chile Central Bank Economist Survey

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:00 (BR) Brazil CONAB Crop Report

08:00 (PL) Poland Aug CPI Core M/M: -0.1%e v -0.1% prior; Y/Y: 0.8%e v 0.8% prior

08:00 (IN) India Aug CPI Y/Y: 3.2%e v 2.4% prior

08:00 (IN) India July Industrial Production Y/Y: +1.6%e v -0.1% prior

08:00 (BR) Brazil July Retail Sales M/M: 0.1%e v 1.2% prior; Y/Y: 3.2%e v 3.0% prior

08:00 (BR) Brazil July Broad Retail Sales M/M: -1.0%e v +2.5% prior; Y/Y: 3.9%e v 4.4% prior

08:05 (UK) Baltic Dry Bulk Index

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves

09:00 (RU) Russia announces weekly OFZ bond auction

09:50 (UK) BOE to buy £1.125B in in APF Gilt purchase operation (over 15 years)

10:00 (US) July JOLTS Job Openings: 6.00Me v 6.163M prior

10:00 (MX) Mexico weekly International Reserves

10:35 (UK) Chancellor of Exchequer Hammond (Fin Min) questioned by Lords Committee

11:00 (UR) Ukraine to Sell Bonds

11:30 (US) Treasury to sell 4-Week and 52-Week Bills

12:00 (US) DOE Short-Term Crude Outlook

12:00 (US) USDA World Agricultural Supply and Demand Estimate (WASDE) Crop Estimate

13:00 (US) Treasury to sell 10-Year Notes Reopening

15:00 (AR) Argentina Aug National CPI M/M: 1.6%e v 1.7% prior

16:30 (US) Weekly API Oil Inventories

Sterling bulls were out of control on Tuesday, after official figures showed that inflation in Britain jumped to its highest level for more than five years in August.

The Consumer Price Index rose to 2.9% in August, up from 2.6% in July, thanks to rising prices for clothing and petrol. With UK inflation rates finding comfort well above the Bank of England’s 2% target, as the Brexit-fueled Pound weakness boosts import costs, BoE hawks may make an appearance during Thursday’s policy meeting. While rising inflation is likely to support expectations over the Bank of England raising UK interest rates, it still unclear as to when and how this will occur.

It should be kept in mind that elevated inflation levels have pressured households this year, and this will continue to negatively impact the outlook of the economy. With wage growth still struggling to keep up with inflation, concerns are mounting over the sustainability of the UK’s consumer-driven economic growth. BoE policy makers are under fresh pressure to take action, and Wednesday’s UK labour market data, which will be in sharp focus, could act as a catalyst for an unexpected surprise this year.

The big question is, will the jump in UK consumer prices prompt the BoE to raise rates quicker than anticipated? While there is an argument for higher rates taming inflation, this could end up impacting business confidence and may punish the fragile UK economy.

From a technical standpoint, the GBPUSD is turning increasingly bullish on the daily charts. The breakout above the 1.3250 resistance should encourage a further appreciation towards 1.3300 and 1.3370, respectively.

The euro is almost unchanged in the Tuesday session, after recording considerable losses on Monday. Currently, the pair is trading at 1.1962, up 0.06% on the day. On the release front, it’s a data-light day, with no eurozone events. In the US, today’s key event is JOLT Jobs Openings, which is expected to slow to 5.96 million. On Wednesday, the US releases PPI, with an estimate of 0.3%.

The US dollar suffered broad losses last week, as tensions rose in the Korean peninsula after North Korea tested a hydrogen bomb. This weighed on risk appetite, and the euro jumped on the bandwagon, gaining 1.3 percent against the greenback. With North Korea celebrating its 69th anniversary of independence, there were concerns that Pyongyang would use the occasion to flex some muscle and test a nuclear bomb or missile. North Korea marked last year’s anniversary by exploding its fifth nuclear test. There were no incidents over the weekend, although the US, along with its allies Japan and South Korea, remain on alert for further provocations from the north. The dollar responded with gains on Monday, as EUR/USD dipped below the symbolic 1.20 level.

The US economy has been performing well in the second quarter. Preliminary GDP came in at a sizzling 3.0%, and the labor market remains close to capacity. Still, the Achilles heel of the economy remains stubbornly low inflation levels. Wage pressure has been limited, despite the fact that many businesses cannot fill job openings. Weak inflation has hampered the Fed’s plans to raise interest rates a third time this year, and the odds of a December hike have dipped to just 31%, as the markets are increasingly doubtful that the Fed will make a move before next year. Will the inflation picture improve? We could see better numbers this week for August inflation – PPI is expected to improve to 0.3% on Tuesday, and the same gain is forecast for CPI on Wednesday. Both estimates are higher than the July readings.

WTI oil price shows initial signs of stall as bulls were so far unable to extend above top of thickening daily cloud (48.07).

Oil is failing to capitalize from bullish signal on Monday’s rally which closed above daily cloud top / Kijun-sen ($47.89), suggesting that further consolidation is needed before renewed attempts higher.

Bullish setup of daily studies supports scenario, with dips being so far contained by rising 10SMA and allowed down to 20SMA ($47.62) ahead of fresh rally.

Bullish scenario requires sustained break above daily cloud to open way towards double-Fibonacci barriers at $48.48/56 (Fibo 61.8% of $49.40/$46.99 and Fibo 61.8% of $50.41/$45.57 descend) which marks next pivotal barrier.

Otherwise, loss of these supports would increase downside pressure towards pivotal support at $47.48 (daily Tenkan-sen) and risk extension towards Monday’s low at $46.99 on break.

Res: 47.89, 48.11, 48.56, 48.83
Sup: 47.62, 47.48, 47.26, 46.99