eFXplus DATA

Faced with contagion fears over Turkey's crisis and a broad rally in the dollar, EUR/USD has set a new trend low in a slide that is unlikely to halt soon.
While the lira has recovered somewhat, it remains vulnerable to more weakness as Turkish authorities have yet to implement plans for more lasting currency stability.
Emerging market currencies will also remain on their heels as contagion fears escalate and add to the dollar's strength.
Slowing China growth has helped lift USD/CNH to a new trend high, raising the prospects of a test of the key 7.00 level.
Today's upside surprise to U.S. retail sales reminds traders of solid economic growth in the world's largest economy, which should leave the Fed's rate-hike path unaltered and the greenback's yield advantage over the euro zone intact.
The yield spread advantage will keep costs to short the dollar elevated.
The combination of those factors should keep EUR/USD pressured lower after the pair broke the July 2017 low.
Option barriers around big figures might slow the pair's slide, but charts show little support and a 1.1185/00 test seems likely.

CIBC Research discusses its reaction to today's US retail sales report for the month o July.

"What didn't go up last month went up this month, as US retail sales beat expectations for July's gain but June's increases were cut by more than half in revised data. Sales rose a brisk 0.5%, off a downward revised 0.2% June gain (prev. reported at 0.5%)....

The size of the revisions are a reminder that these "advance" data for July could be also off the mark. For now, the revisions and July data roughly offset, leaving the two month change close to consensus expectation," CIBC argues. 

Credit Suisse discusses EUR/USD outlook and adopts a sell-on-rallies strategy on a multi-weeks basis.

"In the case of the EUR, the parallel widening in Italian spreads and in financial CDS spreads continues to reflect the market’s concern for the upcoming budget proposals of the 5Star Movement + Northern League government in Italy. The key dates on that front remain 27 September, which will feature an update of the multi-year programming document (DEF), and 15 October, which marks the deadline for submitting budget proposals to the EU Commission

In the light of the already significant market concerns surrounding the health of the European banking sector, the addition of Turkey to the wall of worries is unfortunate in timing, as it represents another potentially negative factor for European assets at an already challenging time," CS argues.

"This leaves us further convinced of our view that upside in EURUSD is likely to be capped going forward. Barring a sudden – and very convincing – improvement in the Turkish situation, we would look to fade EUR strength above 1.1550-1.1580 area," CS advises. 

• Loss of bearish momentum pointing to supply fade
• Improved chances of having our 1.2890 offer filled
• However, very little bounce so far Wednesday
• Tight price action hugging the lower 30DMA Bolli line at 1.2728
• Hourly action giving little away but resistance looks the weaker side
• Note, hrly cloud twist 1.2780 late in the day

• Cable elicited support pre-1.2693 after easing following UK inflation data
• 1.2693 was 14-month low in Asia. UK CPI +2.5 pct YY, as f/c nUKLFJEE4F
• RPI +3.2 pct YY vs +3.4 pct f/c, 16-month low. 1.2735 was pre-UK data high
• BoE is not expected to follow Aug 2 hike with another hike anytime soon
• Latvian minister says chances of no Brexit deal 50-50 - BBC nL5N1V61QU
• GBP/USD fell from 1.30 last week on higher risk of "no deal Brexit"

The Aug.
1 high for USD/JPY of 112.15 could be revisited soon as the Monday bid holds into mid-week.
The cards are beginning to fall more favourably for the dollar and USD/JPY is retaining firmer levels in the low 111s.
Hedge fund short covering is a feature of the Tokyo session, and the broader market could follow suit as the emerging market tumult calms.
Japan's O-Bon holiday is likely to hit liquidity and could also help exaggerate any further short squeeze in the dollar.
An increasingly bullish technical picture also strengthens the case for a larger USD/JPY retracement of the recent 112.15 to 110.11 drop nL1N1V505O.
Monday's hammer candle received strong bullish confirmation Tuesday and a new recovery high of 111.43 so far Wednesday.
A thick and rising daily ichimoku cloud and break above the 10-DMA line complete the bullish daily picture.

• Cable on back-foot pre-UK inflation data at 0830GMT, courtesy of USD demand
• USD is in the ascendancy due to fragile risk sentiment and Fed expectations
• 1.2693 was fresh 14-month low for GBP/USD in Asia. 1.2704 was Tuesday's low
• Cable could extend south if UK CPI comes in below 2.5 pct consensus forecast
• Sub-f/c CPI would be new blow for UK rate hawks after earnings miss Tuesday
• 1.2723 (last week's low) and 1.2731 (Monday's low) are now resistance levels

• USD/JPY retreats in thin Asia PM trading, from 111.43 to 111.17 EBS
• Hedge fund short-covering over this morning, retreat in thin conditions
• O-Bon holidays in Japanese leaving participation very low
• Retreat in Us yields, soggy Nikkei helping USD/JPY, JPY crosses down too
• Option expiries below like the massive ones above
• Today 110.50 USD736 mln, tomorrow 110.50-60 1.46 bln, 110.75-111.00 646 mln

• Off 0.3% in Asia and busy, as risk appetite sours, Nikkei & AsiaxJP -1%
• AUD/NZD -0.1% & has given back last week's RBNZ led gains - back at 1.1000
• Momentum studies, 5, 10 & 21 daily & weekly MAs trend south - bearish setup
• Initial target is 0.7182, well tested trend support from May 15th
• Below is 0.7135/60 support zone, Dec 2016 range base & 76.4% 2016/18 rise
• Close above 0.7339 falling 10 DMA needed to undermine bias - risk & USD lead

EUR/USD: Bearish (13 Aug 18, 1.1400): Room for further weakness in the coming days.

In line with expectation, EUR extended its decline as it hit a ‘fresh’ low of 1.1328 yesterday. As highlighted on Monday (13 Aug, spot at 1.1400), there is “room for further weakness in the coming days” and the next level to focus on is at 1.1285 followed by 1.1185. The former level appears to be within reach sometime this week. On the upside, the ‘stop-loss’ level is adjusted lower to 1.1460 from 1.1500. Shorter-term, 1.1430 is already a strong resistance level.

GBP/USD: Bearish (since 09 Aug, spot at 1.2885): Oversold but further GBP weakness still likely.

The bearish phase that started late last week (see update on 10 Aug, spot at 1.2825) is still clearly intact as GBP eked out a fresh low of 1.2704 yesterday. As highlighted on Monday (13 Aug, spot at 1.2760), while the current decline in GBP is oversold, further GBP weakness is still likely. The low of 1.2704 was not far from the next ‘target’ of 1.2675 and a break of 1.2675 would shift the focus to 1.2590. All in, we continue to hold a bearish view until the ‘stop-loss’ level at 1.2840 is taken out (level was previously at 1.2880).

AUD/USD: Bearish (since 13 Aug 18, spot at 0.7285): No indication that bearish phase is ending soon.

We turned bearish AUD on Monday (13 Aug, spot at 0.7285) with an immediate ‘target’ of 0.7220 and were of the view that the “odds for further extension to 0.7160 are relatively high”. There is no change to our view as AUD dropped to an overnight low of 0.7224 and a break of 0.7220 would open up the way for a move to 0.7160. To put it another way, there is no indication that the current bearish phase is ending soon and only a break of the ‘stop-loss’ at 0.7330 (level previously at 0.7380) would suggest that a short-term low is in place.

NZD/USD: Bearish (since 10 Aug 18, spot at 0.6610): NZD unlikely to maintain pace of decline but scope for extension to 0.6540.

There is not much to add as NZD traded in relatively muted manner and ended the day largely unchanged (NY close of 0.6574, -0.06%). The bearish phase that started last Friday (10 Aug, spot at 0.6610) is still intact but as highlighted, “NZD is unlikely to maintain pace of decline but there is scope for extension to 0.6540”. There is no significant improvement in downward momentum and we continue to hold the same view. Looking ahead, a clear break 0.6540 would shift the focus to 0.6490. ‘Stop-loss’ level is currently at 0.6630 (previously at 0.6660).

USD/JPY: Neutral (since 23 Jul 18, 111.20): Outlook unclear, USD likely trading in a broad range.

Our recent expectation for USD to edge lower towards 109.35 is proven wrong as it staged a surprisingly strong rebound and hit an overnight high of 111.31. While the high is below the 111.50 ‘key resistance’, the strong daily closing is enough to indicate that the recent downward pressure has eased. We continue to hold a neutral USD view and after the recent choppy price action, the outlook for the next couple of weeks is unclear. The best call is probably for USD to grind higher but the 112.14 high seen early this month is a solid resistance and the odds for a break of this level are not high. It appears more likely that USD is trading in a broad range for now, probably between 110.30 and 112.20.

• AUD/USD not reacting to Aus Q2 WPI, as it came in as expected
• AUD/USD trading heavy after making fresh 19 mth low at 0.7222 earlier
• AXJ equity index down 0.5% despite positive lead from Wall Street
• Dalian iron ore down 1.35% and Lon Copepr down 0.30% in early trading
• AUD/USD trending lwoer with no support ahead of Dec 2016 low at 0.7160

A great deal has been written about the negative impact of a looming hard, or no-deal Brexit, but the crosses show that GBP/USD's 1.7 percent fall in the last week has been driven by the USD, rather than GBP.
Since August 8, EUR/GBP has fallen 0.5 percent and GBP/AUD is up 0.8 percent, as the EUR weakened on fears of potential financial contagion from the Turkish crisis, while the AUD suffered as a proxy for EM Asia, which could also be hit if Turkish uncertainty and financial turmoil become a more widespread phenomenon.
The JPY is usually a barometer for global risk, and as risk assets came under pressure, the JPY strengthened across the board, so the modest 0.2 percent fall in GBP/JPY shows GBP resilience.
Longer term, Brexit will again come to the fore heading into crucial EU meetings on September 20 and October 18 nL5N1US68K, and judging by the recent comments and uncertainty from negotiations, it is hard to see a viable soft Brexit compromise nL5N1V55HA.
A hard exit from the European Union will certainly result in a major broad-based GBP selloff, but in the short term, the USD is pivotal.
Related nL5N1V44Z9.

• +0.1% pre Tokyo - closed +0.4% with broad USD strength & firmer UST yields
• No data or scheduled speeches - focus on Nikkei, after yesterday's bounce
• Rising cloud remains resilient support - comes in today at 110.95
• Tenkan & Kijun lines are again horizontal - suggests consolidation
• 111.31 NY high 111.64 Kijun line is first resistance
• 111.00 Tenkan line & 110.95 cloud top initial support

• EUR/USD opens 0.58% lower despite most EZ data beating expectations
• No specific catalyst for EUR/USD fall as bearish sentiment strengthens grip
• Break of 200-week MA at 1.1360 will be very bearish if it closes week below
• Trend is bearish with the objective at 61.8 of 1.0340/1.2556 at 1.1186
• EUR/USD likely to consolidate between 1.1335/65 in Asia

Bank of America Merrill Lynch Research discusses the latest BoJ measures at July-31 meeting in which the central bank 1- unveiled plans to strengthen the framework for continuous powerful monetary easing, along with 2-introducing forward guidance for policy rates

"The BoJ slightly modified its policy at the 31 July Monetary Policy Meeting. While maintaining the 10yr JGB yield target at around 0%, the BoJ Governor, Haruhiko Kuroda, explained at his press conference that the yields might move upward and downward at about double the range of -0.1% to +0.1%," BofAML notes. 

"Although annual ETF and J-REIT purchases were maintained at the same rate, the BoJ will now raise or lower purchases depending on market conditions. With these adjustments, the "stealth" measures we pointed out as possible in "The BoJ's public and private face" and "The stealth BoJ" have been completed.

In this way, the BoJ did not change the important numerical figures in its Monetary Policy Meeting statement out of consideration for the forex and stock markets, but it is attempting a course adjustment away from extreme monetary easing. Through this "stealth" approach, the BoJ is trying to bring about its true desires without abandoning its public stance," BofAML argues. 

EUR/USD is not participating in the rebound in risk appetite today led by the bouncing Turkish lira, and for good reason. Turkey's government has yet to provide markets with concrete plans that would lead to lira gains.
The market will likely look to sell lira bounces, which should help keep peripheral euro zone government yields elevated. Meanwhile, the Fed and ECB are still following divergent rate hike paths, helping to keep DE-U.S.
yield spreads significantly in favor of the greenback.
That advantage is expected to persist and could expand should U.S. economic data continue to surprise to the topside.
Technicals also provide reason for EUR/USD to ignore today's risk bounce.
RSIs are biased down and consolidation of losses from the late-July highs appears to have set in.
Once the consolidation phase runs its course EUR/USD should break lower and the longer-term bear market will likely resume.
These bearish factors have led traders to target the 1.10 area with some even eyeing the 1.05 area.

Weak Chinese data nL4N1V51T1 and lack of resolution to Turkey's problems suggest that USD/JPY's rebound may be a selling opportunity. USD/JPY has reverted up toward its 10-DMA at 110.19 amid a respite in the lira and CNY-led EM tumble that boosted yen repatriation.
The pause in EM-related derisking partly depends on whether Thursday's conference call between Turkey's Finance Minister and investors restores confidence in the lira -- a tall task unless the central bank finally raises rates.
Also hanging over TRY and any rebound in risk to weaken JPY are U.S. trade tariff threats against Turkey, seemingly spurred on by the ongoing detention of an American pastor.
Unless Turkey raises rates and returns the pastor, USD/TRY will resume its rise.
And the escalating U.S.-China trade war, firm U.S. data and tightening Fed, in contrast to weakening China data and easing fiscal and monetary policy, will drive USD/CNY toward a breakout above 7, increasing selling pressure on EM currencies and demand for JPY.
If USD/JPY clears the 10-DMA, perhaps after Wednesday's retail sales report, it's likely to stall near 111.50 and have a second run at supports by 110.

ING discusses USD/JPY technical outlook and maintains an 'Up' rating (see here) on a multi-days basis.

"Prices successfully tested the former neck line of the completed bottom formation and EMA-200 line, both around 110.10, in the development of a higher bottom. The making of this higher bottom should be confirmed by prices returning above the still rising MA-50 line at 110.97.

This would suggest that the next rally is imminent. A rise above the July highs around 113.15 will confirm the bullish scenario for a test of the overhead horizontal resistance area 114.45-115.50. The completed bottom formation above the 110.80 level indicates a price target of around 118.00," ING argues. 

• Cable left-hand side bias reasserts following UK earnings miss nL5N1V52RL
• 1.2763 = low water-mark since 1.2827 knee-jerk high on 4 pct UK jobless rate
• See: nL1N1V505C. 1.2750, 1.2723 and 1.2700 are GBP/USD support levels
• Recent drop to 1.2723 (14-mth low) was fuelled by fears of a no-deal Brexit
• UK foreign minister Hunt says risk of no-deal Brexit rising nL5N1V55HA
• Car hits pedestrians outside UK parliament nL5N1V51YB

Credit Agricole Research discusses a possible scenario of a US direct intervention in the FX markets to weaken the USD.

An FX intervention to cheapen USD may succeed in our view only if it not sterilized, that is, if it results in growing US money supply. The extra cash can spill over into extra demand for exports and worsen the US external imbalances, weakening USD on a more sustainable basis...

Higher US rates could in turn encourage foreign investment flows into USD, negating the impact of the Fed’s intervention. In addition, any unilateral FX intervention will most likely violate the recent G20 agreement to prevent any form of currency manipulation and even trigger a global currency war with foreign central banks trying to debase their currencies

A global currency war could ultimately encourage renewed foreign inflows into USD, which remains the most liquid reserve currency, offering superior returns and offering unrivalled access to funding. This is a war that President Trump is likely to lose," CACIB argues.