FTSE -7 points at 7288

FTSE -7 points at 7288

DAX -12 points at 12528

CAC -4 points at 5221

Euro Stoxx -3 points at 3523

Asian traders woke up to another risk-off session as North Korea launched a new missile over Japan as a response to the recent UN sanctions. The US dollar edged higher against all G10 currencies, partly on the risk-off sentiment, partly on the stronger-than-expected US inflation that tinkled the Federal Reserve (Fed) hawks before next week’s FOMC meeting. Although the market gives 0% probability for a September rate hike, the balance sheet normalisation could be on the menu. The probability of a December rate hike rose to 43.4%, sensible higher from past weeks, but insufficient to be broadly priced in. The Fed outlook doesn’t threaten the US stocks yet, equity traders’ attention remains on the feasibility of Donald Trump’s tax reform.

The yen and gold gain on the back of safe-haven inflows. Though the flight to safety seemed more of a courtesy than a necessity; we didn’t see massive risk-off trades as it has been the case in N. Korea’s earlier nuclear attempts. Nikkei (+0.54%) and Topix (+0.42%) traded higher despite a short spike in yen in the early Tokyo trading.

Australian ASX 200 (-0.78%) was pulled down by mining stocks (-1.78%).

Gold recovered to $1’334 and could extend gains toward the weekly resistance of $1’340 if the risk-off comes and goes. Rangebound trading is more plausible. Support is eyed at $1’315 (week low).

The USDJPY shortly plunged to 109.56 and saw support above 109.85 following the first shock. If the N. Korean crisis doesn’t escalate, the pair could aim for a weekly close above the 110.00 handle. Dip-buyers should wait for the risk-off trade to exhaust before entering long positions. Resistance is eyed at 111.00 mark (weekly resistance), before the key 200-day moving average (111.50).

The death cross formation on the AUDUSD’s hourly chart kept the carry appetite contained, combined with the North Korean jitters and a better USD appetite. The intra-day market mood could encourage a consolidation near the 0.8000 (50-hour moving average).

The pound traded through the roof after the Bank of England (BoE) policymakers hinted at an eventual rate hike in 12 to 14 months to fight back the rising inflationary pressures. As a result, there has been a significant change in the BoE interest rate outlook. The probability of a November rate hike surged to 50% and a December rate hike was revised up to 65.6%. The market assesses 75% probability for March rate hike and 84.5% probability for May rate hike. This is a fundamentally positive shift for the GBP outlook.

To us, sending a hawkish signal to the market was a clever move, as a stronger pound would rapidly temper the inflationary pressures by giving the pound an immediate upswing. In the light of the recent developments, the next important mid-term technical level versus the US dollar is 1.3420 (Fibonacci 50% retracement on post-Brexit sell-off). It should be noted that the Brexit uncertainties are still a major downside risk.

The FTSE 100 lost 95 points on sharp pound appreciation and closed Thursday’s session below the 7300p mark. Downside pressures prevail.

The EURUSD consolidates below the 200-hour moving average (1.1952). The Eurozone’s trade surplus could have softened from 22.3 billion euros to 20.3 billion euros in July and could give a reason for the euro-bears to extend their downside correction bets. Nevertheless, the US dollar will likely remain the main driver before the weekly closing bell. The US August retail sales, industrial production and University of Michigan’s September sentiment index are due today. Analyst expectations are soft, yet the consumer and producer inflation data improved the USD mood earlier in the week. Only a big negative surprise could dampen the mood before next week’s Fed meeting.