Markets are cautious in light of the political situation and gold continues to rise
The Dollar was mostly lower against its Rivals as tensions between North Korea and the US remained elevated. Following up on his “fire and fury” threat, Donald Trump said that it wasn’t severe enough.
The Japanese Yen jumped to an 8 week high as risk aversion persisted. Global stocks slumped while bond yields tumbled. The Dollar Index (USD/DXY) slipped on generally poorer US economic data.
US July Headline PPI: -0.1% vs forecast 0.1% and previous 0.1%
US July Core PPI: -0.1% vs forecast 0.2% and previous 0.1%
US Weekly Jobless Claims: 244,000 vs forecast 240,000 and previous 240,000
UK July Manufacturing Production: 0.0% vs forecast0.0% and previous 0.1%
UK Goods Trade Balance: -GBP 12.7 billion vs forecast -GBP 11.0 billion
French Industrial Production: -1.1% vs forecast -0.6% and previous 1.9%
US S&P 500 closed 1.55% lower while the DOW was off 0.93% at the finish.
USD/JPY – closed down at 109.20 from 110.03 yesterday.
EUR/USD – finished slightly up at 1.1772 from 1.1757.
GBP/USD – ended a touch lower at 1.2975 (1.30 07 yesterday).
AUD/USD – closed down a touch to 0.7875 from 0.7890 yesterday. Most resource currencies were lower.
NZD/USD – slumped 1 % to close at 0.7275 after climbing initially to 0.7355post RBNZ. Graeme Wheeler said the central bank would like to see a lower currency. John McDermott, RBNZ Assistant Governor said that FX intervention is always open.
Outlook: Trading was choppy yesterday with risk aversion dominating the markets. The yield on the Ten Year US Treasury fell to 2.20%. This will weigh on the Greenback until the release of US CPI data later today.
Events and data today:
Today is a Japanese banking holiday
RBA Governor Philip Lowe is due to testify to the House of Representatives Standing Committee on Economics in Melbourne (GMT 11.30 pm, Aug 10/Local Time 9.30 am, Aug 11)
China Foreign Direct Investment – Year to Date: (GMT 2 am, Aug 11/Local Time 12 pm, Aug 11): The previous data was -0.1%.
German July Final CPI (GMT 6 am, Aug 11/Local Time 4 pm, Aug 11): forecast 0.4% from previous 0.4%
French Annual July CPI (GMT 6.45 am, Aug 11/Local Time 4.45 pm, Aug 11): forecast 0.8% from previous 0.8%
US July Headline and Core CPI (GMT 12.30 pm, Aug 11/Local Time 10.30 pm, Aug 11) –
Monthly Headline CPI: forecast 0.2% from previous 0.0%. The Annual Headline CPI is forecast at 1.8% from the previous 1.6%
Monthly Core CPI: forecast 0.2% from 0.1%. The Annual Core CPI is forecast at 1.7% from the previous 1.7%.
Trading View: Trading conditions will remain choppy today with risk-off dominating markets. Traders will keep their radar on news wires searching for any response from Pyongyang. The Japanese banking holiday will keep the Yen volatile while risk currencies like the Aussie and Kiwi will stay pressurised. Asian currencies like the Singapore Dollar should weaken.
USD/JPY – today it will be Japan’s proximity to the Korean peninsula against risk aversion. The yield on the Ten year US bond fell to 2.20%. The Japanese Ten year JGB yield was unchanged at 0.05%. Market positioning has also been short of JPY. In the latest CFTC/Reuters report net speculative JPY shorts totalled -JPY 112,200 contracts. A lot of this move has been those shorts covering their positions. The Dollar closed at an 8 week low at 109.20. Immediate support can be found at 109.10, this morning’s low. Immediate support lies at 108.70/80, and then at 108.50 which was the low in April. USD/JPY has resistance at 109.70 and then at 110.00. Since April, USD/JPY has traded broadly between 108.50 and 114.50 this year. There is no reason to see that range breaking just yet. Likely range today 108.90-109.90.
EUR/USD – closed slightly higher at 1.1775 from 1.1755 yesterday after testing 1.17042 (overnight low). The Euro was mainly sidelined but trading was choppy. The German Ten Year Bund yield fell 1 basis point to 0.41% (vs the US ten year yield fall of 5 basis points). Yesterday French Industrial production data had a big miss which was ignored by the markets given the ongoing risk aversion. European economic data has started to weaken from the first part of this year. German and French CPI data are due out later. The focus will be on the US CPI. Immediate resistance lies at 1.1785 (last night’s high). There is short term support at 1.1755. Further support can be found at 1.1720 and 1.1700. Likely range today 1.1720-1.1790.
GBP/USD – closed slightly lower at 1.2975 from 1.3005 yesterday. UK Manufacturing Production came out at 0.0% in July which was the same as forecast but weaker than June’s 0.1%. Like the Euro, Sterling was mainly sidelined. Immediate resistance lies at 1.3010. GBP/USD has support at 1.2950 (overnight low 1.2952). Likely range 1.2960-1.3010.
AUD/USD – continued its slide lower, finishing at 0.7875 in New York. AUD/USD lead most resource currencies lower. The Australian Dollar is often used as a proxy to trade Dollar Asia due to its deeper liquidity and depth of market. Risk aversion will keep the Aussie under pressure. There is immediate support at 0.7865 (overnight low 0.78665). Immediate resistance can be found at 0.7900. Trading in the Aussie today will be volatile. The Sydney Morning Herald has just reported the Australian PM Malcolm Turnbull said that Australia will join the conflict if North Korea attacks the US. He is the first leader to speak out support for the US. This will encourage other world leaders to do the same. This will keep the pressure on Kim Jong Un. But who knows how he will react. Likely range today 0.7840-0.7900.
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Dow Jones – Back below the 22,000 since the first time it broke through the level in August. The Futures of the Dow Jones show high levels of volatility as the VIX has reached higher after the geopolitical tensions.