The typical risk-off trade did come into play
It would be a mistake to undermine the geopolitical tensions
The sterling-dollar pair is in no mood in giving up its gains from yesterday
North Korea took no time to show its reaction to the new sanctions imposed on the country by the U.N. It was largely expected that North Korea would take that path. And here you are again, North Korea fired a missile which passed over northern Japan and fell in the sea. The typical risk-off trade did come into play but traders are getting more used to these sorts of provocations. Although, I would argue that these threats should not be taken light-heartedly. They can get out of hand much quicker than anyone can anticipate, and if appropriate risk measures are not in place, the situation would look immensely vile.
President Trump has demanded a direct action from China. The Japanese prime minister has made it clear that the "fire and fury" statement only isn’t going to resolve the situation. Therefore, it would be a mistake in our opinion to undermine the geopolitical tensions. This situation is like an elastic band which is being stretched on both ends and if it continues like this, it would be only a matter of time before it breaks.
European markets and US futures are trading lower but noiseless during the early hours of trading. This quietness in the market could change rapidly if we have any serious action by Russia or China (which President Trump has requested). However, the chances of that taking place are minuscule.
For Sterling, the message was clear, tightening is coming and the market is underestimating this fact. But we have heard this song over and over again. However, something has changed and the market has started to price that in. The BOE seems serious this time and it is likely that it would tighten the belt. The sterling-dollar pair is in no mood in giving up its gains from yesterday, in fact, it is building on them and broke the 1.34 resistance today. Only a bad string of economic data could dial back the interest rate hike or some sort of other monetary policy action. The MPC member Vlieghe will be speaking later today and his comments could bring some swing for the currency and the possibility of a tailspin move cannot be ignored
Bitcoin is extending its losses after finding some peace. The cryptocurrency is suffering its longest streak of losses in a year thanks to the Chinese regulator’s news. The gap from the 7th August is very much a target now and we do think it is highly likely, that the price fills up that gap first before any possible meaningful bounce. The next support is between 3000 and 2877.
