Yen Surges on Spain Terrorist Attack and Trump Turmoil

The Japanese Yen takes the driving seat on risk aversion again. The global financial markets are rocked by the deadly terrorist attack in Barcelona and extended turmoil in the US White House. DOW closed down -274.14 points or -1.24% at 21750.73, taken out near term support at 21842.74. Same picture is seen in S&P 500 as it lost -38.1% or -1.54% to close at 2430.01, also taken out near term support at 2437.75. Nikkei follow in Asian session and slumps to 3-month low, and is trading down -1.1% at the time of writing. In other markets, gold is firm above 1290 but yet to find follow through buying for 1300 handle. WTI crude oil is trying to regain 47 after extending recent decline to as low as 46.46.

The terrorist attack in Barcelona, Spain is seen as the most violent one in recent years. It’s reported that at least 13 people were killed and 100 more injured after a van plowed through the crowds in the popular tourist spot of Las Ramblas. ISIS took credits for the attack with its media wing, Amaq, describing the attackers as "soldiers of the Islamic State". But ISIS they didn’t claim responsibility explicitly.

Trump ends plan for infrastructure council

Following Donald Trump’s decision to disband business councils after resignation of a number of CEOs, he is ending plans for an advisory council on his USD 1T infrastructure project. There were also rumors that Gary Cohn, a key force behind Trump’s tax reform program, might be resigning as the director of the US National Economic Council. It was reported that Cohn was "upset" and "disgusted" with Trump’s response to the "alt right" Charlottesville, Virginia rally over the weekend. Trump equated neo-Nazi and counter protestors and noted that "both sides" were to blame for the incident. Although it later revealed that Cohn would stay in the role, Trump’s leadership is in doubt and his political agenda might be delaying implementation of any meaningful policies to boost growth.

Dallas Fed Kaplan "patient" on another hike

Dallas Fed President Robert Kaplan he would like to see more progress in inflation "before I consider another rate increase". And he added that "I’m being patient in terms of another rate increase". He clarified that "I don’t need to see that we’re going to meet that target in the near-term. I just want to see evidence, or belief, that we’re going to meet that target in the medium term." Meanwhile, Kaplan also noted that yield curve is getting "flatter and inverted", and "that is a sign of economic trouble".

ECB accounts show concerns on Euro strength

At revealed in the July ECB minutes, policymakers were increasingly concerned over euro’s appreciation, warning of "a possible overshooting in the repricing by financial markets, notably the foreign exchange markets, in the future". They emphasized that "the still favourable financing conditions could not be taken for granted and relied to a considerable extent on a continued high degree of monetary policy support". Indeed, the strength in the single currency might affect the central bank’s plan to taper asset purchases.

The minutes indicated that the members discussed making "incremental" changes to the forward guidance. They worried that "postponing an adjustment for too long could give rise to a misalignment between the Governing Council’s communication and its assessment of the state of the economy" and could "trigger more pronounced volatility in financial markets when communication eventually had to shift". President Draghi noted at the post meeting press conference that the discussion of tapering might begin in the fall.

More in ECB Warned of Euro Appreciation, Asset Purchase Reference to be Changed Soon

On the data front

German PPI and Eurozone current account are the main features in European session. Canada CPI is the main focus later in the day and U of Michigan confidence will be featured.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 140.51; (P) 141.28; (R1) 141.73; More

GBP/JPY’s decline resumed by taking out 141.24 and reaches as low as 140.60 so far. Intraday bias is back on the downside. Fall from 147.76 is still in progress and would extend through 138.65 support. Nonetheless, GBP/JPY is seen as staying in consolidation pattern from 148.42, we’d expect strong support from 135.58 to contain downside. Break of 143.18 resistance is needed to indicate short term bottoming. Otherwise, outlook stays bearish in case of recovery.

In the bigger picture, the sideway pattern from 148.42 is extending with another leg. But we’d expect strong support from 135.58 and 50% retracement of 122.36 to 148.42 at 135.39 to contain downside. Medium term rise from 122.36 is still expected to resume later. And break of 38.2% retracement of 196.85 to 122.36 at 150.43 will carry long term bullish implications. However, firm break of 135.58/39 will dampen the bullish view and turn focus back to 122.36 low.

Economic Indicators Update