Dollar Soldoff after Weak CPI Readings, Trump Tweets Military Solutions Locked and Loaded

Dollar suffers selloff against most major currencies except Sterling after slightly weaker than expected CPI data. But it’s Euro that really shines in early US session, extending recent rally against Sterling and is trying to rebound against Yen and Swiss Franc. That could be technical driven as both EUR/JPY and EUR/CHF are close to near term fibonacci support. Still, for the week as a whole, Yen and Swiss Franc are still trading as the strongest currencies. Commodity currencies and Sterling will likely end as the weakest on risk aversion.

Trump Tweets: Military solutions are now fully in place, locked and loaded

US-North Korea tension remain the main focus of the markets and traders are getting more cautious ahead of the weekend. US President Donald Trump continues his verbal combat and tweets today that "military solutions are now fully in place, locked and loaded, should North Korea act unwisely. Hopefully Kim Jong Un will find another path!" Trump warned yesterday that "they should be very nervous, because things will happen to them like they never thought possible, OK?"

China issues formal statement: Hopes that all relevant parties will be cautious on their words and actions

On the other hand, China Foreign Ministry spokesman Geng Shuang said in a formal statement. "The current situation on the Korean Peninsula is complicated and sensitive." And "China hopes that all relevant parties will be cautious on their words and actions, and do things that help to alleviate tensions and enhance mutual trust, rather than walk on the old pathway of taking turns in shows of strength, and upgrading the tensions."

RBA Lowe: Next move will be up rather than down

RBA Governor Philip Lowe told the parliament today that the next move in interest rate will be "up rather than down", but that is "quite some time away". He referred to market pricing that "implies greater probability of a rate rise than a rate reduction". Also, another implication is that "the next move in interest rates is a long way out". Lowe said they’re "both reasonable assumptions". Meanwhile, he also pointed to the high exchange rate as having negative impact on the outlook. He noted that "further appreciation, all else constant, would cause a slower pick-up in inflation and slower progress in reducing unemployment."

US CPI disappointing

US headline CPI rose merely 0.1% mom in July, below expectation of 0.2% mom. On annual basis, headline CPI climbed to 1.7% yoy, up from 1.6% yoy but missed expectation of 1.8% yoy. Core CPI rose 0.1% mom, below expectation of 0.2%. On annual basis, core CPI was unchanged at 1.7% yoy, in line with consensus.

Released earlier today, German CPI was finalized at 0.4% mom, 1.7% yoy in July. New Zealand business NZ manufacturing index dropped to 55.4 in July.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 128.01; (P) 128.78; (R1) 129.33; More…

EUR/JPY formed a temporary low at 128.04 and recovered. The cross is drawing support from 38.2% retracement of 122.39 to 131.39 at 127.95 as we expected. Intraday bias is turned neutral first. On the upside, break of 129.54 minor resistance will argue that pull back from 131.39 is completed. In such case, intraday bias will be turned back to the upside for retesting 131.39. However, sustained break of 127.95 will bring deeper decline to 125.80 cluster support (61.8% retracement at 125.82) before completing the correction.

In the bigger picture, the down trend from 149.76 (2014 high) is completed at 109.03 (2016 low). Current rally from 109.03 should be at the same degree as the fall from 149.76 to 109.03. Further rise is expected to 61.8% retracement of 149.76 to 109.03 at 134.20. Sustained break there will pave the way to key long term resistance zone at 141.04/149.76. Medium term outlook will remain bullish as long as 124.08 resistance turned support holds.

Economic Indicators Update