Taiwan worries intensify

The US dollar retreated yesterday but stayed relatively elevated however, in anticipation of the CPI rates due out on Wednesday. Since there are no major financial news releases today, the greenback is expected to remain calm, ahead of tomorrow’s inflation rates results, which according to estimates, the pace of price increases started to peak.  We highlight though on the other hand the possibility of fundamentals leading the market sentiment in today’s European and American sessions given the prementioned absence of high impact financial releases. The US stock markets edged higher yesterday, as investors reassessed the outlook of monetary policy and today we would like to note besides the earnings releases due out, IBM’s dividend payout. WTI’s rose yesterday, moving towards the $90 barrel level, on news regarding the revival of the 2015 Iran nuclear accord and the European Union is awaiting approval from Washington and Tehran within a couple weeks. Should the deal be approved, then we could potentially set the stage for a boost in Iran’s oil exports by at least 1million barrels per day, however the approval seems unlikely. Furthermore, oil traders look forward for the US weekly API Crude oil stock figure later today providing a snapshot of the demand side of oil. Gold prices were on the rise yesterday, mainly due to the dollar’s underperformance and their negative correlation. Tomorrow’s CPI reports are of particular interest for gold traders as the precious metal is also used as an inflation hedging instrument. In today’s Asian session, we note the results of Australia’s NAB Business Confidence indicator which pointed to a particular notable strength in business sentiment as optimism rose and at the same time showed an improvement of the current conditions in the Australian economy in the month of July. On the other hand, we cannot contain our fundamental worries for the possibility of China proceeding with military action on the island of Taiwan. It’s characteristic that Taiwan’s foreign minister Wu warned earlier today in a press conference that “China has used the drills … to prepare for the invasion of Taiwan” according to Reuters and urged “international support to safeguard peace and stability across the Taiwan Strait”. It should be noted that Taiwan straits are of the busiest shipping routes worldwide and tensions could halt trading activities. We highlight the possible adverse risks for the Chinese economy of the matter, but also the closely linked Australian economy, as well as the outlook for global economy as a whole, given its severity.

USD/JPY retracted after it briefly tested the 135.20 (R1) resistance level, edging closer to the ascending trendline. We hold a bullish outlook bias for its future price action and supporting our case is the RSI indicator showing a value of 55 however it appears to be flattening at the time being. Should the bulls continue reign over, we may see the break of the 135.20 (R1) resistance line and move towards the 136.70 (R2) resistance level. Should the bears take over, we would require seeing the break below the ascending trendline and the 133.60 (S1) support level and the definitive move towards the 131.80 (S2) support base.

AUD/USD price action appears to be confined between 0.6860 (S2) support level and 0.7030 (R1) resistance level, with 0.6960 (S1) acting as the midline. We hold a sideway bias for the pair, as the RSI indicator hovers slightly above the 50 midline showcasing indecision. Should the pair find extensive buying orders along its path, we may see the break above the 0.7030 (R1) resistance level and a move close to the 0.7115 (R2) resistance barrier. Should the selling interest overwhelm, we may see the break below the 0.6860 (S2) support level and move towards the 0.6790 (S2) support base.

Other highlights for the day:

Tomorrow during the Asian session we note the release of Japan’s Corporate Goods prices for the month of July and China’s PPI and CPI yoy rates, both for the month of July.

USD/JPY H4 Chart

Support: 133.60 (S1), 131.30 (S2), 130.40 (S3)

Resistance: 135.20 (R1), 136.70 (R2), 139.20 (R3)

AUD/USD H4 Chart

Support: 0.6960 (S1), 0.6860 (S2), 0.6790 (S3)

Resistance: 0.7030 (R1), 0.7115 (R2), 0.7200 (R3)

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