New York Forex Report: Geo Politics In Focus Into End of Summer Holiday Session

New York Forex Report: Geo Politics In Focus Into End of Summer Holiday Session

New York Forex Report: Geopolitical risk escalated again over the weekend, with North Korea apparently testing a hydrogen bomb. Initial market reaction has been a risk-off tone, but prices have stabilised. With the US markets out for Labour Day today, liquidity will be a little thinner. Otherwise, we have little data today, ahead of a relatively busy week. Three central banks meet, including the Reserve Bank of Australia, the Bank of Canada and probably the most anticipated the European Central Bank. The market is looking at if/when they will start tapering their QE programme and an understanding of where currency risks lie after the last ECB minutes suggested some members were wary of the EUR appreciation overshooting. Overnight the British Retail Consortium’s retail sales for August are released. These figures precede the official numbers and will attract interest, given the slowdown in consumer spending growth in the first half of the year. Available survey evidence for the consumer has been mixed. Consumer confidence improved in August for the first time in three months, according to the GfK survey, although the CBI retail survey was rather weak for the same month. Also overnight the RBA are expected to leave their policy unchanged at 1.5%. Inflation dropped to 1.9% last month, below their target range, so rhetoric will be interesting as industrial metals continue to drive higher (up ~25% YTD). They are likely to reference the strength of the AUDUSD and that a weaker currency would support their economic goals.

USD August jobs data surprised on the downside as the US economy added 156,000 jobs in August, below Bloomberg forecast of 180,000 and well below this week’s ADP which was a robust 237,000. Meanwhile July & Jun 2017 NFP on aggregate were revised lower markedly by 41,000. (According to the Bureau of Labour Statistics, Hurricane Harvey had no discernible effect as the data was collected before the storm). Unemployment rate edged higher to 4.4% in Aug (up from 4.3% in Jul, and Bloomberg forecast of 4.3%). The increase came about even as US labour force participation rate stayed steady at 62.9%. Wage growth added to the disappointment as it increased at a slower 0.1%m/m in Aug, missing forecast of +0.2% and made worse by the downward revision for July to +0.1%m/m (from prelim increase of +0.3%). This translated to hourly earnings growth increasing at 2.5%YoY in Aug, (unchanged from 2.5%YoY in Jul, and lower than the Bloomberg forecast of 2.6%YoY).

EUR Reuters reported Friday that some ECB policy makers were worried about EUR strength but Govenor Nowotny commented that the EUR rise should not be “over dramatized”, allowing spot to push back to the low 1.19s. Note the EUR is currently trading close to its twenty year and lifetime average. This week’s Governing Council meeting will be worthy of attention. While no policy changes are expected, the focus will centre on the meeting statement and President Draghi’s press conference. At its previous meeting in July, it was clear that the ECB was allowing itself flexibility as it assesses its move away from an easing bias towards a more neutral policy stance. President Draghi did state that the ECB would be having a discussion in the autumn on QE. However, he seemed to indicate that any decision may not be forthcoming until the October meeting. Therefore the market will be looking for signs that the ECB may make an announcement on QE tapering next month. Another point of interest will be whether any reference is made to recent euro strength. The ‘account’ of the July meeting showed some concern within the ECB on this issue. However, President Draghi did not address this at Jackson Hole. This month’s meeting also features updated staff macro projections. Meanwhile, in terms of data releases, the Eurozone diary over the coming days is short on highlights. The third estimate of Q2 GDP, German and French industrial production (both July) and the reading of the August PMI’s are the main releases of note.

GBP UK August manufacturing PMI rose to 56.9 (Friday), the highest in four months and well above market expectations for a modest drop (to 55); July’s data was revised slightly higher also (55.3). The data provided little support for the GBP, however, and GBP remains stuck around the low 1.29 area and investors remain concerned by the apparent lack of progress in Brexit talks.

JPY Japan’s manufacturing PMI was finalised at 52.2 for August, down slightly from 52.8 in July. Yields on 10Y JGB’s fell 1.5bps Friday, turning negative for the first time since November as investors continued to purchases safer bonds amid focus on North Korea’s missile tests. Only Switzerland and Japan’s 10Y bonds currently offer negative returns among developed market Fixed Income at the moment.

EURUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Breach of 1.1920 opens the anticipated move back 1.1865 as 1.1960/80 caps upside attempts 1.1760 is the next downside objective. Over 1.20 opens the way to to 1.2070 and 1.2130

1-3 Week View – 1.1876 achieved focus shifts to 1.20 . Weekly close below 1.14 neutralises bullish objectives below 1.1910 opens move back to test support at 1.1850
Retail Sentiment: Neutral
Trading Take-away: Neutral

GBPUSD
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Near term resistance is sited at 1.2910 removed opening a test of 1.3030 a close over 1.3060 reestablishes a more bullish tone, however, failure below 1.2910 opens a move back to 1.2850

1-3 Week View – The weekly close above 1.3045 targets the broader symmetry swing objective sited at 1.3263 only a close back below 1.28 would jeopardise the bullish advance
Retail Sentiment: Neutral
Trading Take-away: Neutral

USDJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Breach of near term resistance levels stabilises the pair over 110.35 opens pivotal 110.95 near term support sited at 109.30, below 109 suggest short squeeze exhaustion and refocuses players on downside objectives

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

EURJPY
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Daily breach of 128.80 stabilised the pair as anticipated and resets attention on upside objectives at 133 near term support is sited at 130.40/20, only below 129.50 concerns near term bullish bias

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, 129.44 upside objective achieves as 128 supports bulls look for a move to test 133.36 as the broader upside objective.
Retail Sentiment: Bearish
Trading Take-away: Long