Macro Monday: Geopolitical tensions on the rise — #SaxoStrats
- Geopolitical tensions are escalating in wake of sanctions against North Korea
- Gold longs are growing and expected to increase further
- EURUSD has closed above its 200 week moving average
- Copper has hit new 52-week highs
By Andrew Bresler and James Kim
Summary of the past week
- Geopolitical tensions escalate in wake of sanctions: fire and fury, threats to Guam, Japan missile defence.
- China data disappoints: Trade lower and inflation misses.
- US CPI: missed, lowers outlook for rate increase.
- Fed speakers turn more dovish: Kashkari, Dudley, Kaplan and Bullard.
- Reserve Bank of New Zealand: Rates on hold, central bank talks down NZD.
- German data turns lower: Golden period over?
- Opec: Compliance falls to just 75%, lowest. Oil lower.
- South Africa: President Jacob Zuma survives no confidence vote.
The COT report
- EUR and CAD longs at 52-week highs. USD broadly short.
- Copper reaches new 52-week highs.
- Gold longs grow, expect to increase further.
- Wheat positioning turns short.
The week ahead
- Federal Open Market Committee and European Central Bank minutes; Sweden CPI; UK numbers; Austraila Jobs
- Central banks: BoT (TH) 1.5% no change (August 16); Chile 2.5% no change (August 18)
- Fed Speakers: Dallas Federal Reserve Bank President Robert Kaplan; twice (August 18)
- Other: RBA assistant governor Christopher Kent (August 14); RBA assistant governor Luci Ellis (August 17)
- August 14: NZ: Retail sales (0.7%e); Japan: GDP 0.6% Q2; China: Retail Sales (10.8%e) , IP (7.1%e), FAI (8.6%e); India: CPI(2%e).
- August 15: Germany: GDP (0.7%e Q2); Sweden: CPI (1.9%e y/y); UK: CPI (2.7%e) core CPI (2.5%e); US: Retail sales
- August 16: UK: Average wkly earnings (1.7%e); Unemployment (4.5%e); EU: GDP for Q2 (0.6%e); US: FOMC minutes.
- August 17: Japan: Trade; Australia: Employment Numbers (+20,000 and 5.6% exp); UK: Retail Sales (0.1%e); EU: ECB minutes, CPI (1.3%e) Core (1.2%e); US: IP (0.3%e).
- August 18: Germany: PPI (0.0%e); Canada: CPI (1.2%)
- Risks increased. Sanctions; fire and fury; threats to Guam, miniaturised warheads, Not tough enough, China's President Xi Jinping and US President Trump.
- August 14: General Joseph Dunford, chairman of the US Joint Chiefs of Staff, will meet with senior military officials along with President Moon Jae-in in South Korea.
- August 15: Anniversary of the end of Japan’s occupation of the Korean peninsula. A key annual event in the North Korea calendar that is renowned for provocation.
- August 21: South Korea to hold annual military drills with US. Base case: No further escalation, but risks of a miscalculation, much higher. Prudence advised: Decrease exposures, put on hedges, spend premium for downside protection.
Technical picture: James Kim
- Dollar index: supported at 2015/16 lows and 200 weekly moving average. Rallies continue to fail; 92.65 first level to hold for DXY; 93.79 the key resistance level.
- EURUSD: Closed above 200 week moving avearage, this should lend it support. Retracements extremely shallow. 1.1909 highs to be tested. Should find support in mid-1.17s.
- USDCAD: Runs into resistance at 23.6 retracement, outside day range last week. Sell 1.2678 stops above last week’s high.
- AUDUSD: healthy retracement, Aussie dollar closed below May-July trend line, strong signal if it closes back above this trend line; 0.7950 then 0.7978 seen as targets.
- USDJPY: Pauses at 50% retracement from 2016 low to 2017 highs. Potential double bottom in place. Break below ¥108.70 to open April 2017 lows. However risks to topside.
- USD 10-years: 126.21 target achieved; 127.08 the focus now.
- Nikkei: weeks of consolidation, triggered lower on JPY strength. Tactical retracement expected this week. Target 19,688.
- S&P/ASX200: Choppy trading and continued consolidation. Supported by 200 day moving average and topside resistance 5,792. Expect range to hold, needs a break to change this.
- S&P500: fresh 2017 high, then breaks trend line support from April 2017. Expect resistance at the trend line, focus on 2459 area.
- XAU: 2011 trend line break fully confirmed. Daily chart needs to clear 1295 to push higher. An initial retracement more likely before it runs higher. 1326 would be target for higher.
Here is this morning's recording of this week's Macro Monday call.
– Edited by Gayle Bryant
Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro. Please join us live for next Monday's Macro Call at 0830 [Singapore/Hong Kong], 0930 [Tokyo], 1030 [Sydney].