Europe Roundup: Sterling hits 3-week lows, dollar near 8-week trough against yen on escalating U.S.-North Korea tensions, markets eye U.S. CPI figures and FOMC speeches – Friday, August 11th, 2017

Market Roundup

  • EUR/USD -0.12%, USD/JPY -0.13%, GBP/USD -0.11%, EUR/GBP -0.02%
  • DXY +0.08%, DAX -0.34%, FTSE -1.06%, Brent -0.58%, Gold +0.12%
  • EUR 2.5 billion vanilla option expiries 1.1750-65 today
  • Germany Jul final CPI y/y, 1.7% vs forecast 1.7%, previous 1.7%
  • Germany Jul HICP final y/y, 1.5% vs forecast 1.5%, previous 1.5%
  • China should be neutral if N. Korea fires first on U.S. – Global Times
  • China's July fiscal spending pace slows, but revenues rise
  • China's money rates slightly up on central bank-led cash drain
  • Oil drops as IEA sees slow market rebalancing

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. consumer price index likely increased 0.2 percent in July after staying flat in June, while in the 12 months through July, the CPI is expected to have risen 1.8 percent from previous 1.6 percent.  Excluding food and energy, the core CPI probably rose 0.2 percent after a 0.1 percent gain in June.
  • (0900 ET/1300 GMT) Mexico will release its industrial output data for the month of June. The economy's industrial production is expected to rise 0.35 percent after having remained flat in May.

Key Events Ahead

  • (0940 ET/1340 GMT) Federal Reserve Bank of Dallas President Robert Kaplan speaks before the University of Texas at Arlington Accounting Department CPE Day 2017, in Arlington, Texas.
  • (1130 ET/1530 GMT) Federal Reserve Bank of Minneapolis President Neel Kashkari participates in a moderated question-and-answer session at the Independent Community Bankers of Minnesota Annual Convention.
  • (1145 ET/1545 GMT) FedTrade operation 15-year Fannie Mae / Freddie Mac (max $475 mn)

FX Beat

DXY: The dollar steadied across the board as investors awaited the U.S. CPI figures and Fed official Kaplan and Kashkari's speeches for further cues on the strength of the economy. The greenback against a basket of currencies traded flat at 93.41, having touched a high of 93.89 on Wednesday, it’s highest since July 28. FxWirePro's Hourly Dollar Strength Index stood at 93.92 (Slightly Bullish) by 1000 GMT.

EUR/USD: The euro declined, reversing most of its previous session gains as investors await the U.S. headline consumer prices, which are expected to have advanced 1.8 percent YoY, while prices stripping food and energy costs are likely to rise at an annualized rate of 1.7 percent. The European currency traded 0.1 percent down at 1.1758, having touched a low of 1.1688 on Wednesday, its lowest since Jul. 28. FxWirePro's Hourly Euro Strength Index stood at 35.37 (Neutral) by 1000 GMT. Technically, upside remains capped by 200- H MA at 1.1800 and any break above will take the pair till 1.18320/ 1.1860/ 1.1900. On the lower side, trend line support is around 1.1700 and any break below will drag it down till 1.16500/1.15984 (23.6% fibo).

USD/JPY: The dollar slumped, extending losses for the fourth consecutive session, as mounting geopolitical tensions between the U.S. and N. Korea and weaker sentiments around the European equities benefited the Japanese yen. The major was trading 0.1 percent down at 109.09, having hit a low of 108.90 earlier, its lowest since Jun 14. FxWirePro's Hourly Yen Strength Index stood at 73.70 (Bullish) by 1000 GMT. On the lower side, any break below 108.80 will take it till 108.12. The upside remains capped by daily Tenken-Sen at 110.10 and any break above will take the pair till 111.32 (100- day MA).

GBP/USD: Sterling tumbled to a fresh 3-week low as investors grew wary about the outlook of the British economy in wake of last week's perceived dovish BoE quarterly inflation report and persistent Brexit uncertainties. The major traded 0.2 percent down at 1.2956, having hit a low of 1.2951 earlier, its lowest since July 20. FxWirePro's Hourly Sterling Strength Index stood at -53.99 (Bearish) by 1000 GMT. On the higher side, 1.30280 (23.6% retracement of 1.2680 and 1.29527) will be acting as near term resistance and any break above will take the pair slightly till 1.3042 (21- day EMA)/1.30750/1.310 (10- day MA). The near term support is around 1.2949 (55- day EMA) and any break below will drag it till 1.2845 (61.8% fibo)/1.28120. Against the euro, the pound was trading flat at 90.77 pence, having hit a 10-month low of 90.87 on Tuesday.

USD/CHF: The Swiss franc rallied to a fresh 2-week high as investors continued to stay away from risky assets amid escalating geopolitical tensions. The major trades 0.1 percent down at 0.9614, having touched a low of 0.9589 earlier, it’s lowest since Jul. 27. FxWirePro's Hourly Swiss Franc Strength Index stood at 47.52 (Neutral) by 1000 GMT. The pair is facing support near 0.9600 (50% retracement of 0.94385 and 0.97728) and any break below will drag the pair till 0.9550/0.9500 in the short term. On the higher side, near-term major resistance is around 0.9685 (55- day EMA) and any break above will take it till 0.9739 (89- day EMA)/0.9783 (38.2% retracement of 1.03432 and 0.94385).

AUD/USD: The Australian dollar eased to 3-week lows as the RBA Governor Phillip Lowe’s comments indicated the central banks' readiness to intervene in the FX markets. The Aussie trades 0.2 percent down at 0.7852, having hit a low of 0.7839 earlier, it’s weakest since July 18. FxWirePro's Hourly Aussie Strength Index stood at -150.18 (Highly Bearish) by 1000 GMT. On the lower side, near term support is around 0.7800 and any break below will drag the pair till 0.7760 (61.8% fibo)/0.7688 (89- day EMA). The near term resistance is around 0.8070 and any break above targets 0.8100/0.8150.

Equities Recap

European shares slumped following a sell-off among heavyweight basic resources stocks, while the greenback steadied versus a basket of currencies ahead of U.S. CPI figures and FOMC officials' speeches.

The pan-European STOXX 600 index fell 0.9 percent to 372.48 points, while the FTSEurofirst 300 index shed 0.9 percent to 1,464.17 points.

Britain's FTSE 100 trades 1.1 percent down at 7,305.60 points, while mid-cap FTSE 250 declined 1.2 percent to 19,464.65 points.

Germany's DAX eased 0.4 percent at 11,972.20 points; France's CAC 40 trades 1.0 percent lower at 5,065.18 points.

Commodities Recap

Crude oil prices declined to their lowest in more than a week after the International Energy Agency said market rebalancing would be delayed due to weak OPEC compliance with output cuts despite strong demand growth. International benchmark Brent crude was trading 0.7 percent down at $51.44 per barrel by 0952 GMT, having hit a low of $51.28 earlier, its weakest since Aug 1. U.S. West Texas Intermediate was trading 0.7 percent down at $48.14 a barrel, after falling as low as $47.99, its weakest since July 26.

Gold prices steadied after rising to their highest in more than two months, as increasing tensions between the United States and North Korea triggered safe-haven buying. Spot gold rose 0.2 percent to $1,287.62 per ounce by 0957 GMT, having touched a high of $1,288.86 an ounce earlier in the session, it highest level since June 8 and was set for a weekly gain of over 2 percent. U.S. gold futures for December delivery was mostly unchanged at $1,290.50 per ounce.

Treasuries Recap

The U.S. Treasuries jumped after remaining flat for a long time as investors moved into safe-haven assets on The escalating war of words between U.S. President Donald Trump and North Korean leader Kim Jong Un sent equity markets tumbling as the region braced for more provocations from his regime next week. The yield on the benchmark 10-year Treasury, slumped 2 basis points to 2.19 percent, the super-long 30-year bond yields also plunged nearly 2 basis points to 2.77 percent and the yield on short-term 2-year note traded 1 basis point lower at 1.32 percent.

The UK gilts surged during mid-European session Friday after tensions soared over the Korean Peninsula, following fresh comments from the US President Donald Trump that rattled riskier assets, with investor demand pouring in for safe-haven instruments. The yield on the benchmark 10-year gilts, slumped 3 basis points to 1.05 percent, the super-long 30-year bond yields plunged nearly 2 basis points to 1.72 percent while the yield on the short-term 2-year traded flat at 0.22 percent.

The Eurozone periphery bonds jumped Friday after benchmark Germany’s consumer price inflation remained unchanged for the month of July. Also, investors wait to watch the country’s gross domestic product (GDP) for the second quarter of this year, scheduled to be released by early next week. The benchmark German 10-year bond yields, which moves inversely to its price, slumped 3 basis points to 0.38 percent, the French 10-year bond yields plunged nearly 3-1/2 basis points to 0.68 percent, Irish 10-year bond yields fell 2 basis points to 0.71 percent; however, Italian 10-year bond yields up nearly a basis point to 2.02 percent, Netherlands 10-year bond yields down 2 basis points at 0.52 percent, Portuguese equivalents slipped nearly 1 basis point to 2.83 percent and the Spanish 10-year yields traded 1-1/2 basis points lower at 1.43 percent.

The New Zealand 10-year bond yields closed Friday’s session at over 6-week low, tracking similar trend in the overnight performance of the U.S. Treasuries after economic data, highlighting the initial jobless claims as well as producer price index disappointed markets, surprisingly. Also, President Trump, expressed little hope that negotiations could defuse tensions or put an end to North Korea’s program to develop nuclear-armed intercontinental ballistic missiles capable of striking the United States or its allies, during a speech on Thursday. At the time of closing, the yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped 4 basis points to 2.81 percent, the yield on 7-year note also plunged 4 basis points to 2.67 percent and the yield on short-term 2-year ended 2-1/2 basis points lower at 2.02 percent.

The Australian bonds made a solid comeback on the last trading day of the week, tracking highs in the U.S. counterpart, after tensions re-ignited between the US and North Korea, that revamped demand for safe-haven assets. Also, weaker-than-expected U.S. economic data late Thursday added dullness to bond prices. The yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped to its lowest in more than a month, by nearly 7 basis points to 2.59 percent, the yield on 15-year note plunged 7-1/2 basis points to 2.89 percent and the yield on short-term 2-year traded nearly 5 basis points down at 1.77 percent.

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