The main story overnight remains the escalating tensions between the US and North Korea with Trump intensifying warnings by standing by his August 8th threat to bring down ‘fire and fury’ on North Korea, saying that the statement maybe ‘wasn’t tough enough’ As many commentators have been warning of late with equity indexes at highs and volatility at lows, the growing tension may be the catalyst for a pullback. Declines in U.S. stocks accelerated yesterday. On the screens this morning, I’m seeing plenty of red with European bourses opening lower with the likes of the German DAX 0.22% and French CAC40 down 0.74% at time of writing. Overnight in the US the DJIA closed down 0.93% with the tech heavy NASDAQ 2.22% lower.
From a FX perspective, some of the reactions were as expected with the Korean Won falling whilst the typical safe haven currencies like the Swiss Franc rising, up almost 2% versus the US Dollar in the past few trading days. For the major pairs, recent ranges remain in place. For example, EURUSD failed to breach light support at 1.1700 yesterday with the pair opening higher this morning at 1.1755 bringing the 1.1812 resistance into the picture. Trading since yesterday afternoon again hasn’t been too kind for sterling (surprise surprise) as EURGBP trades higher to .9055 at this morning’s opening bringing last week’s high and key resistance level of .9088 (GBPEUR 1.1004) firmly into play.
Looking ahead at today’s data calendar whilst slightly on the lightish side, there’s still some key US inflation figures out later. The headline reading of year on year CPI is expected to have risen to 1.8% in July (from 1.6%). Obviously any major divergence from this may have market implications as investors reassess the outlook for future Fed policy. In addition to CPI, there’s also wage growth data out too. As has been discussed numerous times before, the significance of wage growth versus inflation is an important factor to monitor too. Later in the afternoon, several Fed members are scheduled to give various speeches which we will keep one eye on. Already this morning, we had CPI data too from Germany with inflation there coming in at as expected at 1.7%