Monday Market Action

What Happened on Friday > Top 3?

• US Inflation data missed expectations causing USD Softness
• EUR jumps as divergence between German CPI (As expected) Versus US CPI (miss)
• Geopolitical tensions still holding down the Risk Sentiment

Outlook

• Markets are now pricing a December US rate hike at only 28%
• US Dollar slips across the board dragged lower by Treasury yields
• Markets are still nervous about this week’s North Korean Missile moves

Data & Event Risk Today?

• (AUD) China Industrial Production – 12pm Sydney

USDX: 93.04

The USD was dragged lower on Friday as the risk off theme was coupled with softer than expected US inflation data.

Globally, inflation is hard to come by, so the Fed is likely to point to other data points in the Labour market for example if they are to spur the markets to believe that their next move is hawkish.

USDJPY: 109.40

I love the USDJPY to slide lower amid risk-off FX flow this week. The USDJPOY has jumped back up into the Sell zone.

With Donald Trump talking of “Fire & Fury like the world has never seen” in relation to the response to North Korea directly threatening the US island of Guam, there is only one way to play this, Sell USDJPY.

As per last week’s comments: “I think the tick back higher will be capped around 109.50, and the downslide (downside) looks more like 108 will prevail. In my experience USDJPY moved in bug runs when it takes off, so watch this pair closely.”

EURUSD: 1.1820

Euro jumped to life on Friday as the USD fell off on CPI data missing expectations.

The key commentary from my Reuters terminal today reads a very interesting Bullish bias for the EURO against the USD:

“ECB’s Draghi noting tapering discussions possibly being held this fall and one would think EUR/USD would be breaking to new highs. Net-long EUR positions and key resistance near 1.2000 likely has something to do with no new high but the market might be doubting Draghi now.”

GBPUSD: 1.3005

Sterling popped higher on Friday as did all the majors against the USD, but upside seems capped at 1.3000. Until tomorrow.

Please note that tomorrow on the London market open we see the headline UK Inflation data release, so look for sharp moves (likely higher) for GBPUSD.

The lower Sterling level lately will flow through to stronger data points so the CPI should propel us towards 1.3100. That is my Trade of the week, and it might be nice to hit a target early and look for more opportunities.

AUDUSD: 0.7910

The Aussie dollar benefitted greatly from the US data missing expectations on Friday, moving back above the 7900 handle.

The Asian dealing open today has seen the Aussie hold onto those gains but be aware that China Industrial production data is out at 12 noon today with likely moves to 7930 / 7950 extending on last Fridays gain.

I am looking to sell after this blip higher for a risk off move to follow back to 7850.

NZDUSD: 0.7315

NZDUSD was bouncy last week and ended strongly in what can only be seen as a USD driven move.

I love the NZD short from here, particularly against the USD back towards 7250.

Not much else to say, except to be patient as we have FOMC meeting minutes late on Wednesday (Early Thursday) which my spur USD directional momentum.

USDCAD: 1.2740

USDCAD was a lovely BUY trade last week, nailing higher to hit the 1.2750 target that I called on Monday, before doing a U-turn on soft US data.

The end of this coming week sees CPI data for Canada, but a lot can happen before that hits the news wires.

Don’t underestimate the ability for USDCAD to recover back towards 1.2800.

VIX: 15.51

The Fear index should be in for a boost this week as the geopolitical landscape with North Korea lifts tensions. I have been saying for a month that Volatility will spike, last week it really took off, jumping 44% on Thursday.

It has held gains and is 15 ½ with more Volatility to come I feel.

GOLD: $1,287.15

Gold rallied enormously last week in the biggest moves reacting to Risk-off market themes dominated by North Korean headlines.

This pair will slide through and above 1300 very soon, and interestingly today it has seen some minor profit taking in early Asian dealing, pulling back beautifully into the BUY zone.

I like a longer-range target around 1357 but be patient, that level won’t happen overnight!

Oil (WTI): $48.80

Oil battled with the $50 handle quite hard, so I like to favour a continued pullback.

Last week the OPEC compliance (Complying with planned production cuts) dropped down to 75% so that meant that Oil had a pullback to 48.

The $46/$48 range should maintain for now.

Macro Themes in Play

• Safe-Haven Assets Bid very strongly, namely GOLD
• Markets cautious about North Korea’s next chess move
• Traders are nimble in USD positioning after softer CPI data