Daily analysis | 11 September 2017
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Markets opened in a risk-on mood today, as North Korea did not conduct any missile tests to celebrate the 69th anniversary of its foundation. Investors may have anticipated something like that, considering last week’s media reports that North Korea was set to launch a missile for the anniversary, as it has done in recent years. As a result, safe haven assets such as gold, JPY and CHF, opened with negative gaps, while Asian stock indices are mostly in the green at the time of writing.
Today, the UN will vote on fresh sanctions against the regime. The updated measures are expected to include sanctions on oil and gas, as well as a ban on textiles. In our view, the risks surrounding the situation moving forward are two-sided. On the one hand, the UN hopes that another round of sanctions could motivate North Korea to come to the negotiating table. Any such signs could cause the latest price action to continue.
However, there is the risk that the North Korean regime interprets such measures as an act of aggression, and may therefore respond with another show of force, like a missile launch. In that case, safe havens could quickly come back under demand. Either way, the next few hours could prove critical to how the situation develops, and to what the market anticipates.
Gold opened with a negative gap on Monday, to hit support slightly above the 1333 (S1) line. Given that the price structure on the 4-hour chart remains higher peaks and higher troughs above the uptrend line taken from the low of the 10th of July, we believe that the short-term outlook is still positive. However, for now we see the case for the latest retreat to continue for a while. This is supported by both our short-term momentum indicators. The RSI slid and fell below 50, while the MACD, although positive, has topped and fallen below its trigger line. What’s more there is negative divergence between both these indicators and the price action. A dip below 1333 (S1) may confirm the case for further setback and is possible to aim for our next support of 1325 (S2).
Loonie pulls back a little after underwhelming jobs data
The Canadian dollar gave back some of its BoC-related gains on Friday, following the nation’s employment data for August. At first glance the report appeared decent, as the unemployment rate ticked down, while the net change in employment came in higher than expected. However, a closer look revealed that these were mainly due to many full-time jobs being substituted by part-time ones, which is a relatively downbeat development. Having said that though, Canada’s labour market remains pretty strong, as do most of the nation’s economic data, particularly GDP growth. In addition, market expectations for yet another BoC rate hike this year continue to heighten, with the implied probability for such an action currently standing at around 72%. As such, despite the minor pullback on Friday, we maintain our view that the Loonie’s broader outlook remains positive.
USD/CAD traded higher on Friday, following the not-so-encouraging employment data for August from Canada. The rate rebounded after it hit support at 1.2060 (S1) and the recovery stopped at 1.2165 (R1). In our view, given that the price structure on the 4-hour chart remains lower peaks and lower troughs below the prior upside support line taken from the low of the 26th of July, the short-term picture remains negative. Even if USD/CAD rebounds a bit more, we expect the bears to take charge again soon and aim for another test near the 1.2060 (S1) support. A dip below that level may pave the way for the psychological zone of 1.2000 (S2).
Norway’s CPI data for August are already out. Both the headline and the core rates declined, confounding expectations of rising. NOK tumbled as a result. We also have a speaker on the agenda: ECB Executive Board member Benoit Coeure.
As for the rest of the week:
On Tuesday, we get CPI data for August from both the UK and Sweden. On Wednesday, the UK employment data for July are due out. On Thursday, market participants will turn their eyes to the BoE and SNB policy decisions. Both Banks are expected to remain on hold. We think that the BoE could maintain a balanced tone and continue to signal little urgency for near-term rate hikes, amid underwhelming economic developments. As for the economic data, we get Australia’s jobs figures, China’s retail sales, industrial production and fixed asset investment, as well as US CPI figures, all for August. Finally on Friday, the US retail sales for August will be in focus.
- Support: 1333 (S1), 1325 (S2), 1315 (S3)
- Resistance: 1343 (R1), 1356 (R2), 1365 (R3)
- Support: 1.2060 (S1),1.2000 (S2), 1.1920 (S3)
- Resistance: 1.2165 (R1), 1.2260 (R2), 1.2335 (R3)