What you need to know for Friday:
· The rhetoric of US President Trump on North Korea continued to escalate, noting that Wednesday's 'fire and fury' warning to North Korea maybe wasn't tough enough, adding that North Korea should be "very, very nervous" if it does anything to the United States. Besides, North Korea issued detailed plans to fire missiles over Japan, near Guam. The game of chicken between the two leaders took its toll yet again on equities, with the S&P 500 experiencing its 2nd worst day this year, while the Yen and Gold were the main beneficiaries.
· Disappointing US data see USD offers re-emerge, helping to offset the recent bullish momentum on the buck. US PPI, perceived as a preview of the US CPI report - due on Friday - saw a significant miss, reinforcing the state of uncertainty over the US economy. Meanwhile, US Initial Jobless Claims w/e came near expectations at 244k vs 240k Rtrs f/c ( US Jobless Claims 4-Wk Avg w/e 241.00k, 242.00k prev)
· Fed's Dudley gave a speech, in which he turned slightly more dovish (despite being a mild hawkish). Dudley recognized that he doesn't even see inflation back towards 2% in the medium term. There wasn't much substance behind Dudley's words, resulting in the speech being largely ignored, with North Korea and soft US data at the forefront of Thursday's market drivers.
· Thursday's UK data dump saw relatively positive results, allowing the Sterling to catch some solid bids sub 1.30, mainly driven by the recovery in industrial production, with manufacturing output coming out flat. On the flip side, the UK trade balance fell to meet expectations, especially in the exports component. Analysts were expecting the depreciation in the Pound may have provided a renewed impulse for higher trade flows.
· OPEC report sees higher 2018 oil demand while suggesting an ease in glut. Risk averse conditions coupled with a bearish take on the report saw Crude Oil slide sharply over 1 and a half cent to end the day depressed around $48.5.
· UK NIESR July GDP estimate came at +0.2% vs +0.3% exp. The period covered was May to July. As a reminder, UK NIESR, while not an official indicator, The NIESR estimates GDP data on a monthly basis in an effort to predict the quarterly government-released data.
· Focus now shifted, barring any flare up of tensions on North Korea, towards Friday's US CPI. The data release will have a significant impact in all USD-denominated asset classes.
· RBA's Lowe, testifying before the House of Representatives’ Standing Committee on Economics in Melbourne, was initially shrugged off by the market. AUD selling intensified later.
· The psychological 1.17 area continues to prove a tough nut to crack
· US PPI miss drives USD lower across the board, helping EUR-denominated assets
· Market likely to enter consolidation period ahead of US CPI on Friday
· Risk-off flows undermine high beta currencies but not as big a driver in Euro
· Two successive bullish hammers on the daily, POCs left behind suggest sellers trapped
· Fairly choppy price action sub 1.30, two brief drives above round number rejected
· Cable saw solid bids off lows in London am time, demand improved on Ind prod beat
· Risk-off environment on North Korea likely to limit gains, to meet grateful sellers
· If North Korea situation doesn't worsen in next 24h, next main driver US CPI
· Latest daily closes start to show divergence with UK vs US 10y yield spread/curve
· Offered outright as North Korean tensions intensify
· Daily close suggest any bounces will be met with strong selling commitment
· Latest fall in sync with falling US vs JPY yield spreads, equities sell-off
· US CPI, North Korea clear main drivers in next 24h, brace for major volatility
· Overstretched daily candle, JP on holiday may see flows recede until US CPI (subject to N Korean headlines)
· Aussie inevitably pressured on risk-off flows
· USD-led selling post-US PPI fades at 0.79, sellers capitalize on deleveraging off high beta currencies
· Slide in commodities, AUD/JPY add pressure to AUD/USD
· Technically bearish while sellers have control of POC just ahead of 0.79
· Decline in exchange rate not in alignment with recovery in AU vs US yield spreads (not main driver as risk worsens)
FX Option expiries
Option expiries for todayNY cut, via DTCC.
· EUR/USD: $1.1567(E469mn), $1.1700(E1.17bn), $1.1750-65(E2.48bn), $1.1825(E760mn)
· USD/JPY: Y109.00($1.62bn), Y109.75($660mn), Y110.75($730mn), Y111.00($1.51bn), Y112.50($500mn)
· EUR/JPY: Y127.25(E320mn), Y128.25(E400mn), Y131.00(E264mn)
· EUR/GBP: Gbp0.9000(E876mn), Gbp0.9300E624mn)
· AUD/USD: $0.7850(A$348mn), $0.7900(A$643mn), $0.7930(A$366mn)
· USD/CAD: C$1.2650-55($595mn), C$1.2725-45($1.48bn), C$1.3000($513mn)
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