Canadian Dollar Higher after Retail Sales, Sterling Back Under Pressure

Trading in the forex markets remain rather subdued today. Nonetheless, fresh selling is seen in Sterling in early US session. EUR/GBP is extending recent rally while GBP/USD also breaks 1.2830 minor support. At the same time, Canadian Dollar is given a boost from retail sales data. EUR/USD turns soft as Dollar recovers, after the pair failed to break out 1.1846 minor resistance. But overall, the markets are awaiting new trading theme and would probably need to wait till Jackson Hole Symposium on Thursday and Friday.

CAD lifted by 0.7% growth in ex-auto sales

Released from Canada, headline retail sales rose 0.1% mom in July, below expectation of 0.3%. But ex-auto sales posted a strong upside surprise by rising 0.7% mom, versus expectation of 0.3% mom. AUD/CAD’s sharp decline after the release suggests that the cross is finally moving away from 55 day EMA. And, the rebound from 0.9735 should be completed at 1.0073. Deeper fall should be seen back to 0.9735 support. Break there will target 0.9591.

North Korean warned US of "merciless revenge"

In response to the joint annual military drills of US and South Korea, North Korea warned that US will face "merciless revenge". And North Korea the state-run Korean Central News Agency said, said it’s wrong to assume they will "sit comfortably without doing anything." US Pacific Command chief Harry Harris said today that "we hope for a diplomatic solution to the challenge presented by Kim Jong Un." And, Harris emphasized that "a strong diplomatic effort backed by a strong military effort is key because credible combat power should be a support to diplomacy and not the other way round." Japan’s Foreign Minister Taro Kono urged that "it’s time to exert pressure" on North Korea, not the time to discuss six-party talks between Koreas, US, Russia, China and Japan

German ZEW hit 10-month low

Germany ZEW economic sentiment dropped sharply to 10 in August, down fro 17.5 and missed expectation of 15. That’s also the lowest level since October 2016. Current situation gauge rose slightly to 86.7, up from 86.4 and beat expectation of 85.5. Eurozone ZEW economic sentiment also dropped sharply to 29.3, down from 35.6, below expectation of 34.2. ZEW President Achim Wambach said that "the significant decrease of the ZEW economic sentiment indicator reflects the high degree of nervousness over the future path of growth in Germany." And, "both weaker than expected German exports as well as the widening scandal in the German automobile sector in particular have helped contribute to this situation". Nonetheless, Wambach also noted that "overall, the economic outlook still remains relatively stable at a fairly high level."

Also released in European session, UK public sector net borrowing dropped -GBP -0.8b in July, CBI trends total orders rose to 13 in August. Swiss trade surplus widened to CHF 3.51b in July.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2859; (P) 1.2887; (R1) 1.2925; More…

GBP/USD’s decline resumed after brief consolidation and reaches as low as 1.2810 so far. Intraday bias is back on the downside for 1.2588 key near term support. . As noted before, we’re favoring the case that correction from 1.1946 is completed at 1.3267. Decisive break of 1.2588 will confirm our view and target a test on 1.1946 low. On the upside, break of 1.3030 resistance is needed to indicate completion of the fall from 1.3267. Otherwise, outlook will stay cautiously bearish in case of recovery.

In the bigger picture, overall, price actions from 1.1946 medium term low are seen as a corrective pattern. While further rise cannot be ruled out, larger outlook remains bearish as long as 1.3444 key resistance holds. Down trend from 1.7190 (2014 high) is expected to resume later after the correction completes. And break of 1.2588 will indicate that such down trend is resuming.

Economic Indicators Update