No Weekend Missile Launch Has The US Dollar Making Ground In Asia

Originally published by AxiTrader

Welcome to the Forex Today column.

In it, I'll be trying to add a bit more colour and a lot more charts than I do in my broader overnight Market Wrap I do first thing every morning to set myself and my trading up for each day and each week.

RECAP

Forex traders have opened up the week in trading in a slightly better mood after North Korean leader Kim Jong-un chose to have a party for his scientists rather than another missile launch.

That's seen US dollar gain around 0.4% to 108.26, USD/CHF rise 0.3% to 0.9471 while gold is down $9 an ounce at $1,336.

Elsewhere the euro is a little weaker at 1.2019, GBP/USD is largely unchanged at 1.3192, the Canadian dollar is still strong with USD/CAD at 1.2144 while the kiwi is off 0.15% at 0.7252. The Aussie is largely unchanged at 0.8053 after being chased back from above 81 cents Friday.

Traders may be more upbeat so far but the Hermit Kingdom has already threatened the US over its pursuit of fresh sanctions at the UN. The vote is expected to be held tonight.

HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS

Just quickly on Korea. As noted above Kim Jong-un held a party not a missile launch to celebrate the DPRK’s foundation day over the weekend. That's a good sign.

But this morning the Korean News service KCNA has warned the US about any new UN sanctions that might be put in place.

State run news agency KCNA reported this morning, "In case the US eventually does rig up the illegal and unlawful ‘resolution’ on harsher sanctions, the DPRK shall make absolutely sure that the US pays due price,” adding "the world will witness how the DPRK tames the U.S. gangsters by taking a series of actions tougher than they have ever envisaged".

So we wait.

But the fact that Yonhap is reporting a UN panel says North Korea has been working with the Syrian's on chemical and missile weapons just shows this is a table stakes game Kim Jong-un is playing with implications for the entire globe.

And it suggests the US, and the world, can't really back down. Thoughts would surely be going towards the implications if the DPRK's technology found its way into terrorist's hands.

So new sanctions seem likely and traders will have to await the DPRK's response.

Now to actual price action.

The US dollar ended the week on the back foot as USD/JPY broke to new lows for 2017 and the euro made fresh highs for the year.

The US dollar is a little better bid this morning with the US Dollar Index at 91.45 off a Friday low around 90.99. But what the catalyst might be for a sustainable reversal of the dollar’s decline is hard to know right now given the rally in 10 year bonds and flattening of the bond curve back to levels not seen since before President Trump was elected speak to a clear downgrade of the US economic outlook.

This week's PPI and CPI releases in the US are going to be crucial for Forex traders and their views on the Fed.

Likewise, comments from New York Fed president Dudley Friday that the two Hurricanes – Harvey and Irma – complicate the outlook for rates and that it is too early to know when the next rate rise will come was an important departure from what’s been his usually hawkish bent.

It’s another indication that things have become a little more complicated for the Fed as it seeks to normalise rates. It is still however expected to begin the operation to wind down – taper – its balance sheet – after this month’s meeting. The dot plots will certainly garner a lot of attention.

USD/JPY is at 108.26 but needs to climb back above 108.80/109.00 to signal that a low might be in place.

Elsewhere the euro is at 1.2019 with Friday's bar looking like a short term top in an overall uptrend, within a broader uptrend (you'll see on the chart). Support is 1.1945 with resistance at Friday's high of 1.209095.

GBP/USD is at 1.3185 after a really solid week of rallies. That's despite the looming BoE meeting and decision on interest rates this week. Perhaps it's Tuesday's inflation data, its still likely to print high, which has traders focus right now.

Price wise GBP/USD is a little extended outside the top of the Bolly Band which is usually a signal for some sort of pause.

The Canadian dollar ended the week strongly and is at 1.2147 this morning after Canadian wage growth was higher in August pointing +1.7% for from a year earlier. That's still low but accelerating and along with the bigger than expected 22,000 new jobs during the month puts another BoC hike on the table.

Like sterling, the Canadian dollar is outside the Bolly BAnd and might be in for a pause in the USD/CAD selling.

I've written my usual daily AUD/USD piece, which you can find here.

Have a great day's trading.