Aug 7, 2017 - Market Update (DXY up from strong support, EURUSD correction shallow to 1.1700/1650, A look towards 1.2000 still on the cards, World CBs to reassess how aggressively hawkish they are, S&P sees Fed on hold ,3 hikes in 2018, Iron ore up 5.5% on China continuous stock piling, US stock options - already positioning for increased volatility, Glencore looking to buy into Rio Tinto's assets, UBS private banking with USD 2 trln of AUM)

Short recap

Asia in green

Europe opening higher

New sanctions against North Korea (supported by China/Russia as well)

UK ready to pay EUR 40 bln Brexit bill

S&P sees Fed on hold this year with 3 hikes in 2018

OPEC/Non-OPEC meeting today/tomorrow

Iron ore up 5.5% on China continuous stock piling

Equities

Glencore stretching muscles and increasing offer (USD 2.7 bln) for Rio Tinto’s assets

Deutsche Bank dropping from the list of world’s top 15 private banks

Hit by heavy bill of USD 14 bln for MBS mis-selling

UBS staying at the top with more than USD 2 trln of AUM

Weak USD to keep supporting global stocks further

Elliott disclosed 6% stake in NXP Semiconductors

Likely to make NXP sale to Qualcomm more expensive (USD 38 bln)

US stock options – stocks at highs, volatility at lows…and some investors are already positioning for increased volatility

Bonds

10-yr Trys yield at 2.27% vs 2.23% on Friday

10-yr Bund yield at 0.47% vs 0.45% on Friday

Higher yields are looming but market complacent

Central banks likely to be very cautious not to disturb the market

Funds stay long bonds, not looking to exit trades anytime soon

Recalling 2013 – still far from 3% yields, so visible action from funds yet

Vanguard and BlackRock not happy with bond traders being too complacent link 

Inflation in the U.S. bound to accelerate in matter of months

Bond traders are too complacent and TIPS ‘incredibly cheap’

COT report as of last Tue:

EUR longs at 83k vs 91k previously, cut by 8k

JPY shorts at 112k vs 121k previously, cut by 9k

GBP shorts at 29k vs 26k previously, increased by 3k

DXY

Jumped up from strong support zone (92.64 and 91.88)

NFPs may be seen as an excuse for correction in USD but US yields crucial

Fed expectations pivotal for further USD direction as well as policy direction of other central banks

As their more hawkish stance made their currencies to strengthen a lot versus USD

They are likely to reassess “how aggressively” they want to be hawkish

But it should support USD in a short term only unless political, tax and fiscal mess in US disappears

Have we already seen the top at EURUSD 1.1910 and bottom at USDJPY 109.84?

EURUSD

Shorts pared back some gains as US yields showed no change on market expectations of Fed policy

Support 1.1776 (200 WMA, last week closing below), 1.1772 (10 DMA)

Followed by 1.1723 (23.6% Fibo)

But the critical is the yield spread between Trys/Bunds

Not expecting a deep correction, likely 1.1700/1650 at this stage

Look towards 1.2000 still on the cards

USDJPY

Staying within a tight range

Bids placed from 110.00 up

Resistance 110.78 (10 DMA), 110.97 (61.8% Fibo) and Ichimoku turning line at 111.02

110.14 (76.4% Fibo) and rising trendline as support

Data/events

Mon

Fed’s Bullard (1545 GMT)

Fed’s Kashkari (1725 GMT)

Thu

Fed’s Duddley (1400 GMT)

Fri

Fed’s Kaplan (1340 GMT)

Fed’s Kashkari (1530 GMT)

Aug 24-26 Jackson Hole

Draghi’s show up highly expected in the light of potential tapering

Any clues on EUR 60 bln monthly purchase being taken down o 40…or?

Sep 7 - ECB

Sep 19-20 FOMC

Sep 29 US debt ceiling deadline

Should you have any questions feel free to contact me anytime.

Good luck Champs!

Mr Hawk

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