Daily Report

Yen Surges Further as Trump Stepped Up His Verbal Combat With North Korea

Typography

Risk aversion continues to dominate the global financial markets. DOW dropped -204.69 pts, or -0.93% overnight to close at 21844.01, comparing to intra-week high at 22179.11. S&P 500 also lost -35.81 pts, or -1.45% to close at 2438.21. Selloff in equities extends in Asian session. While Japan is on holiday, but Hong Kong HSI is trading down -1.8%, Korean KOSPI down -1.7% and Australia ASX 200 down -1.3%. In the currency markets, Japanese yen remains the strongest currency, followed by Swiss Franc and commodity currencies are all under pressure. Gold is staying firm above 1290 and is still on course for 1300 handle. WTI crude oil, however, is heading back to 48 after breaching 50 briefly.

Trump: They should be very nervous

Selloff in stocks and rally in Yen picked up steam again after US President Donald Trump stepped up his verbal combat with North Korea. Trump warned that "they should be very nervous, because things will happen to them like they never thought possible, OK?" And he said North Korea Kim Jong UN "has been pushing the world around for a long time". And, Trump stood by his "fire and fury" threat on North Korean and went further to say that the statement maybe "wasn't tough enough".

New York Fed Dudley: Take time to recent weak inflation readings to drop out

New York Fed President William Dudley said that inflation will "start to move higher in the medium term". However, he also noted inflation "probably not get all the way back to sort of 2% on a year-on-year basis". He noted that there have been "very weak inflation readings for a number of months in a row". And it will "take some time" for them to "drop out of" the annual readings. The economy will have a "continued moderate growth trend". However, the "comparatively modest" wage growth argues that "productivity growth has been sluggish compared to historical experience."

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."

On the data front

New Zealand business NZ manufacturing index dropped to 55.4 in July. Germany will release CPI final in European session. US will release July CPI later in the day.

GBP/JPY Daily Outlook

Daily Pivots: (S1) 141.12; (P) 142.22; (R1) 142.82; More

GBP/JPY reaches as low as 141.37 so far as decline from 147.76 continues. Intraday bias stays on the downside for deeper fall. Sustained trading below trend line support will pave the way to 135.58/138.65 support zone. As GBP/JPY is seen as staying in consolidation pattern from 148.42, we'd expect strong support from 135.58 to contain downside. On the upside, above 142.25 minor resistance will turn intraday bias neutral first. But near term outlook will remain bearish as long as 144.01 support turned resistance holds.

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 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.

GBP/JPY 4 Hours Chart

GBP/JPY Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 NZD Business NZ Manufacturing Index Jul 55.4 56.2 56
6:00 EUR German CPI M/M Jul F 0.40% 0.40%
6:00 EUR German CPI Y/Y Jul F 1.70% 1.70%
12:30 USD CPI M/M Jul 0.20% 0.00%
12:30 USD CPI Y/Y Jul 1.80% 1.60%
12:30 USD CPI Core M/M Jul 0.20% 0.10%
12:30 USD CPI Core Y/Y Jul 1.70% 1.70%