Gold rises as safe haven after North Korea’s second missile test and the dollar increases its losses against the Japanese yen
The Yen and Swiss Franc jumped in volatile trade after North Korea tested a hydrogen bomb and fired another missile over Japan. South Korea confirmed that it had its own missile launch. US Defense Secretary Jim Mathis said that they will answer any North Korean threat with a “massive military response”. USD/JPY slumped 65 points in seconds following the news reports.
The Dollar Index (USD/DXY) gained 0.3% on Friday in after a weaker than forecast payrolls gain was seen as consistent to a Fed December rate hike. US manufacturing activity rose to a six year high.
UK August Manufacturing PMI: 56.9 against a forecast 55.0 and a previous 55.3
Spanish August Manufacturing PMI: 52.4 against a forecast 54.4 and a previous 54.0
Euro Zone Final Manufacturing PMI: 51.4 against a forecast 51.14 and previous 51.4
US August Non-Farms Payrolls: 156,000 against a forecast of 180,000. The previous two months gains were revised down a total of 41,000.
US Unemployment Rate: 4.4% against previous 4.3% and a forecast of 4.3%
US Average Hourly Wages: 0.1% against a forecast of 0.2% and a previous 0.3%
US August ISM Manufacturing PMI: 58.8 against a forecast of 56.5 and a previous 56.3
Wall Street Stocks closed higher Friday, futures slumped in early Asian trading. The US DOW finished 0.18% up at 21,981.50 .The Dow Futures slumped to 21,888 on the North Korean news before settling at 21, 922.
USD/DXY – closed on Friday at 92.849. up 0.3% from 92.633
USD/JPY – ended at 110.25 in New York, gapped down to 109.56 in early Asia
USD/CHF – slumped to 0.9585 in early Asia from 0.9645 New York close.
GBP/USD – finished slightly up at 1.2955 from 1.2930 Friday morning.
AUD/USD – closed at 0.7968 from 0.7947
Outlook: Friday’s reaction to the non-farms payrolls miss was all but forgotten this morning following the escalation of geopolitical tensions. The initial risk-off reaction has settled with the fall out in risk pretty much contained. However, any diplomatic solutions seem farther away with more escalation in the rhetoric possible. This will keep markets nervous and volatile.
On Friday, the miss in the US payrolls gain initially saw the Dollar slump. The Dollar’s slide was arrested as nearly all of the disappointment in US jobs was in the government sector. August is also traditionally a “weak” Jobs reporting month. US factory Jobs growth was the strongest in almost a decade.
US Ten Year Treasury yields initially slumped to 2.10% from 2.13% before jumping to finish higher at 2.17%.
Reports that the ECB is concerned about the strong Euro, saw a quick reversal in the EUR/USD.
The RBA, Bank of Canada, Riksbank and ECB all meet on interest rate policy later this week. The RBA kick-off tomorrow. The ECB meeting is the event of the week.
Today is light in terms of events and economic data. The US and Canada celebrate their Labour Day holiday today.
UK August Construction PMI (GMT 8.30 am, Sept 4/Local Time 6.30 pm, Sept 4) forecast: 52.1 from previous 51.9
Trading View: It’s difficult to form a strong view given the messiness of the markets this morning. Risk currencies like the Yen and Swiss Franc will rise and fall depending on the geopolitical developments. The Euro looks vulnerable to further downside correction given its huge reversal on Friday. The Australian Dollar normally edges lower in a risk-off environment and has once again failed just shy of 0.8 cents. However, metals like iron ore and copper remain strong. Australian speculative longs increased to their biggest total this year. The Canadian Dollar strengthened on Friday following Thursday’s strong Canadian GDP report.
EUR/USD – rallied initially to a high of 1.19796 immediately following the US Payrolls miss. The Euro slumped to back quickly to 1.1880 following reports of the ECB’s concern on the strong currency. The ECB is concerned about the Euro’s strength both against the US Dollar and on a Trade weighted basis. EUR/USD has immediate support at 1.1850 and 1.1835. Immediate resistance can be found at 1.1910 and 1.1930. Likely range today 1.1840-1.1910. Sell rallies
USD/JPY – This morning’s low has been 109.50. The subsequent bounce came to 109.90, settling currently at 109.80. There is immediate support at 109.50 and 109.20. Resistance can be found at 110.00 and 110.20. Pretty neutral here given the Yen’s risk status versus Japan’s proximity to the Korean peninsula. Likely range today 109.30-110.30.
AUD/USD – traded to an overnight high of 0.79945 Friday following the US jobs data miss. The Aussie then drifted lower to close at 0.7967. This morning, risk aversion saw a dip in the AUD/USD to 0.7946 low before climbing to settle at it’s current 0.7965. The RBA is not expected to change its policy at tomorrow’s meeting. A deterioration in risk sentiment will weigh on the Aussie and we could see immediate support at 0.7940 and then 0.7920 tested. There is good support at 0.7900 and a break of that could see the Aussie lower to 0.7880. There is resistance at 0.7980 and 0.8000. Look to sell rallies with today’s likely range 0.6920-0.6970.
GBP/USD – traded higher following stronger than forecast UK Manufacturing PMI on Friday. GBP/USD closed at 1.2955 from 1.2930 Friday. This morning, Sterling has been relatively sidelined, trading between 1.2943 and 1.2967. GBP/USD has immediate resistance at 1.2990/1.3000. There is good support found at 1.2930 and then at 1.2910.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making, but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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