eFXplus DATA

EUR/USD appears to have an underlying bullish sentiment even as U.S.-China trade tensions mount and are likely to escalate further.
Indeed, the U.S. dollar is suddenly lacking an impetus for strength, and that vacuum is a major factor in lifting EUR/USD.
And even as the 10-year U.S. Treasury yield nears 3.01/3.03% resistance, the greenback is unable to mount any serious rally.
This is likely because yield spread compression is aiding the Euro’s lift as well.
DE-US 2-year yields are narrowing as is the IT-US 2-year spread on the back of reduced concerns over Italy's upcoming budget.
Thus, EUR/USD is once again edging closer to 1.1750/1.1800 resistance and technicals continue to suggest a breakout is possible.
Daily and monthly RSIs provide a tailwind and are not overbought, while the nearly converged 10-, 21- and 55-DMAs exert positive influence.
A break above the resistance is likely to usher in a short squeeze with bulls then setting their sights on the 200-DMA which currently sits near 1.1950.
Above here can place the next major hurdle near 1.2100 in focus.

Bank of America Merrill lynch Research discusses the JPY outlook around tonight's BoJ September policy decision. 

"The BoJ is likely to leave its policy targets and guidance intact at its 19 Sep MPM. Kuroda press conference likely dovish. The JGB market and the BoJ are waiting for each other's next move, so the market has fallen back into a rigid state....

Kuroda's likely dovish tone a slight negative for JPY but USD/JPY to be driven by USD...The next major event for USDJPY is the US midterm election in November. The consensus, as well as our US experts, thinks a split congress is most likely. The reduction in the USD long position among spec money suggests the FX market at least partly expects this result. 

The domestic flow dynamic continues to support USD/JPY. Thus, we think risk reward still points to upside for USD/JPY. We expect the pair to rise gradually toward 115 by the end of this year," BofAML argues. 

• Cable tests 1.3173 (July 31 high) after extending north from 1.3120
• 1.3120 was Ldn am low, after half-cent fall from early Ldn high
• Price action suggests trade war tide might be turning on USD
• USD has risen on prior U.S/China trade dispute escalation episodes
• Trump accuses China of using trade to target mid-term election
• IMM speculators have been net long USD for 13 straight weeks

MUFG Research discusses the USD outlook in light of the latest round of US tariffs on China in which the Trump administration announced overnight that it will impose a 10% tariff on a further USD200 billion of Chinese imports from next week.

"The latest developments clearly highlight the risk that trade tensions continue to escalate between the US and China. The financial market reaction overnight to the fresh tariff announcement has been relatively muted. The market appears to have taken the announcement in its stride so far, which may reflect in part that it was well anticipated," MUFG notes.

"The shift to more protectionist US trade policies has already played a role in strengthening the US dollar so far this year, especially against high beta commodity related and emerging market currencies. Yet, the announcement overnight has not proven sufficient to trigger renewed upward momentum for the US dollar. It is a further example of disappointing price action for the US dollar in recent weeks," MUFG argues. 

• 50 pip range for cable thus far Tuesday, 1.3120-1.3170 (high before low)
• 1.3170 = seven-week peak, before China said will retaliate vs new US tariffs
• See: nL3N1W41ZW. Recent GBP gains aided by positive Brexit deal vibe
• German minister says Brexit deal possible by Nov nB5N1U600R nL8N1W4249
• More GBP shorts may be squeezed if vibe stays positive thru EU Salzburg meet
• IMM GBP gross shorts outnumber gross longs by nearly two to one

The monthly chart continues to target the 0.6827 low for AUD/USD from January 2016.
A bear trend, in place since the AUD peaked at 0.8136 in January, has shown some signs of stalling but continues to register lower lows.
Trade war escalation is the Tuesday focus, and despite AUD/USD gain consolidation it is hard to see the Australian currency escaping the tariff storm.
Shorter-term charts still offer some hope for those who caught the AUD on its recent dip to 0.7085, but the monthly picture gives a warning, and there are some negative pointers behind the bullish daily price action too.
Daily price is in a 0.7142 to 0.7229 range, against a backdrop of negative 14-day momentum, below zero since Aug.
9, and a neutral to bearish stochastic.
Bearishly aligned ichimoku study also highlights the fragile nature of the daily bull bias.
Weeklies are the most constructive, but failure to better the 0.7236 early September high this week could open up a reversal.

• Previous hour saw spot close up 25 pips on the EBS, biggest gain since July
• This hour sees a complete reversal as the market offloads on China's threat
• China: No choice but to retaliate against latest U.S. tariffs nB9N1VS029
• Heavy selling from the 112.28 peak. Big Japanese exporter offers weigh
• Major Fibo impedes , as does crowded long trade
• Decent support near 111.66 low hit on U.S. tariff announcement nL3N1W41ZW

• USD/JPY bulls remain in control, but need to break the major 112.38 Fibo
• 112.38 is a 76.4% retrace of the 113.18-109.78 (July to August) EBS fall
• We remain long at 111.25 for an overshoot to our 112.95 target
• Our trailing stop at 111.55 is being guarded by today's 111.66 session low
• Caution: "cloud twist" on daily chart in lower 111s on Sept 24 could draw
• USD/JPY bulls tighten grip to focus on key Fibo

• USD/JPY and EUR/JPY bid into Europe, 111.66 to 112.03, 130.30 to 131.03 EBS
• USD/JPY caught in gravitational pull of USD1.3 bln in 112.00 option expiries
• Pair buoyant but talk good offers trailing higher, Japan exporters
• Bounce in US Tsy yields supportive, 10s 2.977% early to 2.996%, Nikkei up
• EUR/JPY on hold ahead of gradually descending 200-DMA at 131.09
• Break up bullish though false break-out on July 17, high then 131.98

• AUD/USD has filled in most of the gap created after the latest Trump tariffs
• It fell from 0.7180 to 0.7144 and is now settling around 0.7175
• Relatively calm reaction in Asia to US/China trade war escalation supported
• Consolidation likely ahead of China's response to the tariffs
• Support @ 61.8 of 0.7085/0.7229 @ 0.7140/resistance @ 21-day MA @ 0.7225
• No reaction to RBA Minutes which didn't contain any surprises

ING discusses USD/JPY technical outlook and maintains a neutral bias on a multi-days basis.

"We note that last Friday’s close above the horizontal resistance around 111.95 is bullish suggesting further strength towards the target around 113.15 as a result of the completion of the falling wedge pattern around 110.60 at the end of August.

However, today’s price action looks toppish, suggesting a better buying opportunity within the next few days before moving higher. Short-term support comes in at the slowly rising MA-50 line at 111.37. We recommend buying the dips," ING argues. 

• No surprise in RBA Minutes, as they continue to signal rates on hold
• RBA upbeat on employment and growth, but warn trade tensions are a risk
• RBA noted recent decline in AUD a positive for the economy
• Minutes won't impact AUD/USD direction as external factors the key driver

• AUD/USD traded down to 0.7144 from above 0.7180 following tariff news
• Yesterday's low was 0.7140 and it is also the 61.8 of the 0.7085/0.7229 move
• Bounce is likely an attempt to fill the gap created in the wake of the news
• Market will now brace for reaction from China and if they will retaliate
• AUD/USD resistance at 0.7180/0.7200 where sellers are tipped

The White House's move to impose a 10 percent tariff on an additional $200 billion worth of Chinese imports wasn't a surprise, but the caveats in the announcement point to a prolonged trade war that will weigh on risk sentiment and hurt the AUD .
An escalating, protracted trade war between the U.S. and China will continue to limit AUD/USD rallies and a move below 0.7000 appears inevitable once the market is forced to price in slower global growth.
Today's White House statement said the 10 percent tariffs will rise to 25 percent by the end of 2018 and threatened further tariffs on an additional $267 billion worth of Chinese imports if Beijing retaliates.
China has given every indication they will retaliate and assuming they do, the tit-for-tat trade war could easily extend into 2019.
Such as escalation will weigh on emerging markets and key commodities - and the AUD is a proxy for those assets.
Selling rallies towards 0.7300 for an eventual test and break below 0.7085 is the preferred strategy while the U.S.-China trade war continues to intensify.
Earlier comment .

• EUR/USD opens 0.53% higher as USD fell across the board on Monday
• Brexit optimism and falling Italian yields helped EUR to outperform
• US/China trade tensions didn't support USD as it has previously
• EUR/USD support at 21-day MA at 1.1628 and 55-day MA at 1.1616
• Resistance at series of daily highs between 1.1720/90
• US to announce China tariffs shortly, market will brace for China reaction

 Credit Agricole Research discusses EUR/USD outlook and thinks that EUR will remain generally more resilient than other G10 currencies in the face of growing threat of escalating trade conflict between the US and China.

"In particular, EUR should continue to benefit from evidence that the US and the EU have started moving closer to a trade deal and/or that the Italian government comes up with a budget proposal on 27 September that respects the EU rules.

In addition, EUR has benefited from the relatively positive ECB assessment of the Eurozone’s economic prospects that underpinned its outlook for gradual policy normalisation in 2019," CACIB argues. 

"We remain positive on EUR/USD over the long term, expecting the Eurozone growth and inflation outlook to improve. Furthermore, EUR/USD remains below its long-term fair value implied by our model G10 VALFeX and PPP," CACIB adds. 

• USD/JPY uptrend on hold by 112 as Fed hike hopes meet trade fears
• Week's biggest option expiries by 112 likely to attract
• WH advisor Kudlow bolsters talk of US upping China tariffs soon
• Holds out hope for trade talks, but market doubts a near-term deal
• Light data calendar until Japan Aug CPI & Sep PMIs on Friday
• Good support at 111.75/65, 111.20 key pre-BOJ & Fed meets next week
• A 112.15+ close would probably put in play the 113.18 July
• JPY offered on crosses, EUR/JPY testing 200-DMA rsst at 131.10

AUD/USD is mounting a bullish counterattack, stemming the slide from last week’s high.
Indeed, after 0.7150/40 structural support contained early Monday weakness, the pair is now back above the 10-DMA and green for the session.
The price action suggests potential for a bottom and should it clear 0.7240/50 resistance it will have completed an inverse head and shoulders pattern which suggests a move to the 0.7400 region and possibly beyond.
That said, bulls will have a tough time pushing the pair higher as bearish factors linger.
Among those issues, U.S.-China trade tensions continue to simmer and could escalate.
Additionally, Australia's economic growth has been lackluster.
Meanwhile, the Fed and RBA are on diverging rate paths which should keep the greenback's yield advantage over the Aussie dollar near multi-decade wides.
Against this, bulls might be able to pin their hopes on a reduction of net-long U.S. dollar positions.
Long positions remain elevated and if an aggressive reduction in those positions takes hold, that could be the impetus for AUD/USD to complete the inverse head and shoulders bottom.

NAB Research discusses USD/JPY outlook and adopts a neutral bias in the near-term.

"USD/JPY has remained contained within our expected near term range of ¥109.50- ¥112, however recent developments are now helping the pair flirt with a break above ¥112.

We also note that our rate strategists contend that 10y UST yields are unlikely to make a sustained break above 3% near term, seeing this more as a 2019 story. Trade uncertainties also remain a hindering factor (albeit not as influential as for EM FX).

Overall, USD/JPY looks to be shifting into a higher trading range with conflicting forces capping the upside below ¥113 while the expected new term range bottom is now seen at ¥110," NAB argues.