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Highlights:

• Housing starts unexpectedly rose to 222k in July from 213k in June. Markets expected a 205k reading in July
• A rise in multiple-unit starts in BC accounted for most of the month-over-month increase. Multiple-unit starts also rose sharply in Nova Scotia (up 2k, or 312%..., in the month).
• Overall, multiple-unit starts rose 9% to offset a 4% dip in single-unit starts.
• A separately released report from Statistics Canada showed building permits in June jumped to 235k from 219k in May.

Our Take:

New Canadian homebuilding remained very strong to kick off the second half of 2017. The 222k (annualized rate) housing starts in July was above the average 215k over the first half of the year which already was well-above most estimates of the underlying rate of household formation. Much of the recent strength has been concentrated in B.C. where starts have rebounded back close to record highs after slowing late last year. New building activity has also been trending modestly higher in the prairies, Quebec, and the Atlantic provinces though.

Housing starts tends to follow trends in home resales with a lag and home resales posted their largest decline nationally in Q2 since Q3-2012 as new regulations weighed on sales particularly in Toronto. A separate report this morning showed permit issuance in June jumped to 235k - suggesting that strong new building activity may yet have some room to run in the near-term. Nonetheless, our base case outlook continues to assume that that pullback in resale activity alongside gradually rising interest rates and stretched home affordability in some regions will ultimately prompt a further gradual slowdown in resales and, eventually, building activity later this year.

EURCHF is currently building a downtrend after a strong rally between July 25 and August 4, which drove the pair to a 2 ½ - year high of 1.1536. Since then, the pair has corrected lower despite making an effort to gain ground on August 4-8. The bias has turned bearish but a trend reversal is likely to emerge.

The short-term bias according to the technical indicators is bearish with a potential shift to the upside. The MACD has entered a negative territory below its signal line, while the RSI is currently located in oversold area, hinting that a trend reversal might occur. Additional evidence comes from the pair crossing below the 50-4-hour exponential moving average (EMA) and the Kijun-sen trending above the Tenkan-sen since August 8.

Should the pair head up, an immediate resistance could be provided by the 38.2% Fibonacci level of 1.1333 of the upleg from 1.1006 to 1.1536 (July 25- August 4). From here any further increases would meet the 23.6% Fibonacci of 1.1410, while steeper upside movements would target the 2 ½ -year top of 1.1536.

Alternatively, if the price moves down, support is likely to be found first at the 50% Fibonacci mark of 1.1271 which was also an intraday low. Next, the 61.8% Fibonacci of 1.1208 could stand a second barrier to downside movements, whereas if support at this level fails to hold, the price would likely meet the 78.6% Fibonacci of 1.1119.

Price plunged after the failure to reach the confluence area formed between the second warning line (wl2) of the minor ascending pitchfork with the third warning line (WL3) of the major ascending pitchfork. Was almost to reach the upper median line (uml) today, could still reach the confluence between the upper median line (uml) with the WL3, where he may find support again.

USD/JPY continues to move within a symmetrical triangle, but a breakdown is favored as the Nikkei stock index plunged aggressively today. JP225 reached the 19700 major static support and looks too heavy to be stopped, a valid breakdown below this level will signal that the Yen will dominate the currency market in the upcoming weeks.

Price approaches the downside line of the symmetrical triangle and the 50% retracement level, a breakdown will send the rate much below the first warning line (wl1).

The price registered little gains today as the USDX failed to resume the minor rebound. USD/CAD needs a bullish spark to be able to climb towards new highs. Technically the rate was somehow expected to increase further in the upcoming days, but the USDX has found temporary resistance right below the 93.81 static support, failing to reach the 94.00 psychological level.

USDX is still trapped below a strong dynamic resistance, will take out this obstacle only if the United States data will impress today.

The fundamental events will bring life on the USD/CAD later, the Canadian Building Permits could drop by 1.8% in June versus an 8.9% growth in May, while the Housing Starts are expected to decrease from 213K to 204K.

The US Prelim Nonfarm Productivity and the Prelim Unit Labor Costs could increase by 0.7%, respectively by 1.1% level. The Final Wholesale Inventories will be released as well and are expected to increase by 0.6%.

The US Crude Oil Inventories will be published and could help the Loonie if will drop much more than expected.

It is pressuring the 1.2678 static resistance and only a valid breakout will confirm a further increase on the short term. Was somehow expected to resume the bullish movement after the breakout above the median line (ml) of the minor descending pitchfork, has retested this level and now could climb higher. I want to remind you that a disappointment coming from the US will send the rate towards the near term support from the fourth warning line (wl4).

You should know that the next major upside target will be at the median line (ML) of the major descending pitchfork, we have some important confluence area that could attract the rate higher. The minor rebound was natural after the failure to reach the lower median line (lml) and the LML.

Any optimism that the South African Rand (ZAR) would continue its attempt to strengthen against the USD, appears to have gone out the window - following the news that Jacob Zuma survived another no-confidence vote. The Rand was previously showing signs of strengthening on indications that President Zuma would be ousted, but the ZAR quickly lost all gains following the news that he had survived a 'no confidence' vote for the 8th time.

With traders showing signs of positioning themselves beforehand for a potential Zuma loss, the decision to keep him in power, has increased the risk of eliminating Rand buyers from the market. At the time of writing, USDZAR has advanced 1.6% since Monday, with the Rand declining against all G-10 currencies, including an overwhelming majority of additional currencies across the global markets.

Following the news that Parliament has once again voted to offer President Zuma a lifeline, the risks on the Rand are pointing towards further downward pressure. This is due to the likelihood that ongoing political risk will continue to dominate the South African headlines. Political turmoil has plagued the nation since the surprise removal of the respected Finance Minister, Pravin Gordhan, back in March. When one combines ongoing political risk, a technical recession and emerging concerns over potential political interference in the hallowed ground of monetary policy, it creates a picture that sellers will remain in control of the South African Rand.

Gold and Yen gain on Trump warning

Both Gold and the Japanese Yen have shown signs of safe-haven buying from investors, following the overnight warning from US President Trump to North Korea. Donald Trump has been quoted throughout the global media as warning the North Korean regime, that any threat to the United States would be met with "fire and fury". The South Korean Won has also declined by over 0.8% - on the signs of another escalation of political tensions between North Korea and the United States.

The reaction to Trump's overnight comments, clearly shows that all it takes is one "off the cuff" remark to wake markets up, even during the summer season of light market volatility.

Time to buy the Chinese Yuan?

This one has slipped under the radar somewhat, with most of the spotlight today being focused on the escalating tensions between President Trump and North Korea. The Yuan has continued to advance, after reaching a 10-month high against the Dollar on Tuesday.

It's been clear in recent weeks, that the People's Bank of China (PBoC) is protecting the currency from further downside. However, even with China's fundamentals improving, the Yuan has only advanced approximately 3% against the Dollar this year, whereas some major currencies like the Euro and Australian Dollar, have moved around 10%.

I think the momentum of the Yuan is sending a clear signal that the currency will strengthen further over the coming months, and there is room for the Yuan to advance another 2-3% before the end of 2017.

Limited reaction to OPEC meeting

The lack of reaction to the OPEC meeting in Abu Dhabi, is thought to be linked to the fact that the meetings' focus was to discuss compliance, rather than deeper production cuts - a message that investors want to hear before they reload purchasing positions in Oil. If the theme of the OPEC meeting in the United Arab Emirates (UAE) had been geared towards measures to reduce continued oversupply in the market, rather than compliance, investors would have watched the meeting in Abu Dhabi more closely.

The theme of "compliance" is likely to be used to show that the cartel are united in their efforts to stabilize the oil market, in terms of the current production cuts that are taking place. I expect to hear more messages from OPEC in this vein in the coming weeks.

US Q2 productivity rose 0.9% from 0.1%, beating expectations of a 0.7% rise, while unit laour costs slowed to 0.6% from 5.4%. Yesterday, a secondary jobs indicator gave the US dollar a second wind to build on gains from Friday's non-farm payrolls report. The Swiss franc is the highest perfomer of the day, followed closely by the yen, while metals are on top of all instruments, led by silver. A new USD trade has been posted to Premium members.

It's not often that the JOLTS report is a major market mover but the perfect storm of a quiet market and net US dollar shorts in a crowded position led to a sizeable move. The report showed a record 6163K job openings in June compared to 5700K expected. At first, the market had its usual 10-pip reaction to the report but momentum quickly began to build as cable fell below 1.3000 and the euro slipped below 1.18. The lows were 1.2950 and 1.1714, respectively.

In order to truly kick higher, the US dollar needs an uptick in inflation or hard growth data but the latest jobs data underscored that it may only be a matter of time.

It also appears to be only a matter of time until North Korea builds a nuclear weapon capable of hitting the United States. The timeline moved up after a US intelligence report cited by the Washington Post said they may have already miniaturized a warhead. That set off some risk aversion that was compounded by Trump saying that if North Korea escalated the threat, the US would release fire and fury. The President has previously said the US would never allow Kim Jong-Un to possess a weapon capable of hitting the US but it may be too late. With the recent sanctions, there is a risk that this story escalates quickly.

Later on this evening is RBNZ decision, widely expected to hold rates unchanged, but will the usual jawboning serve to keep the kiwi under pressure.

EURUSD: The pair continues to hold on to its downside pressure closing lower on Tuesday and set to extend further decline. Resistance comes in at 1.1800 level with a cut through here opening the door for more upside towards the 1.1850 level. Further up, resistance lies at the 1.1900 level where a break will expose the 1.1950 level. Conversely, support lies at the 1.1700 level where a violation will aim at the 1.1650 level. A break of here will aim at the 1.1600 level. Its daily RSI is bearish and pointing lower suggesting more weakness. All in all, EURUSD faces further corrective downside pressure.

The Canadian dollar continues to have an uneventful week. In the North American session, USD/CAD is trading at the 1.27 line, up 0.17% on the day. On the release front, the focus is on Canadian housing numbers. Housing Starts jumped to 222 thousand, well above the estimate of 204 thousand. This marked a 4-month high. Building Permits surprised with a 2.5% gain, crushing the estimate of -1.8%. In the US, Preliminary Nonfarm Productivity came in at 0.9% and Preliminary Unit Labor Costs gained 0.6%, as both indicators missed expectations.

The war of words between North Korea and the US has escalated, and the rising political tensions have sent global stock markets lower. Pyongyang has reacted furiously to new sanctions imposed by Washington, and has threatened to attack Guam, which is a major US military base. President Donald Trump is taking a tough line on North Korea, and has promised that any aggression from North Korea will be met with "fire and fury." With Trump and North Korean President Kim Jong-un on a possible collision course, risk appetite has decreased, as nervous investors have snapped up gold, a traditional safe-haven asset. If the crisis worsens, minor currencies like the Canadian dollar could lose ground.

In contrast to the uncertainty over the Fed's monetary plans, the Bank of Canada is leaning towards further tightening, possibly before the end of 2017. The bank raised interest rates in July and the odds of a rate increase in October are at 78 percent. In May, annualized GDP was up 4.6%, and the labor market continues to produce jobs. The increase in oil prices has revived the economy has also pushed the Canadian dollar higher. Like its southern neighbor, inflation remains subdued, despite a stronger economy and improving labor market. The lack of inflation could cause the Federal Reserve to abandon plans for another rate hike this year, and this could also lead to the BoC deciding to delay a rate hike until inflation moves higher.

Will the US dollar pull out of its slump? Paralysis in Washington is weighing on the greenback, as Donald Trump's antics and inability to pass healthcare legislation has increased political risk in the US. As well, the Federal Reserve's monetary policy remains unclear. Earlier this year the Federal Reserve strongly hinted that it planned to raise rates three times in 2017, but has only pressed the rate trigger twice. In June, Fed Chair Janet Yellen shrugged off low inflation, saying that it was due to "transient" factors, leaving the impression that the Fed still planned one final hike. However, inflation has not improved and the Fed has changed its tune. Last week, St. Louis Federal Reserve President James Bullard said he opposed further Fed hikes, warning that another hike would actually delay inflation from hitting the Fed's target of 2%. The markets have become more skeptical about a rate hike in December, as the odds have fallen to 34%, compared to 43% a week ago.

Daily Pivots: (S1) 0.9708; (P) 0.9741; (R1) 0.9772; More...

USD/CHF dropped to as low as 0.9611 so far. It's staying above 0.9594 support and intraday bias remains neutral first. But outlook is turned a bit mixed as the pair is bounded inside medium term falling channel. The pair was also limited below 38.2% retracement of 1.0342 to 0.9437 at 0.9783. Firm break of 0.9594 will dampen our bullish view and turn bias back to the downside for 0.9437. This could also extend the fall through 1.0342 through 0.9437/43 key support level. On the upside, above 0.9772 will revive the bullish case and turn bias back to the upside.

In the bigger picture, current development argues 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.