Stock markets in Asia overnight continued to be under pressure from the stalemate between North Korea and America. It is a public holiday in Japan today.

The tension between the US and North Korea is still dominating the news and it is looming over the financial markets. The uncertainty surrounding the situation has been the main driver of the markets recently, and the enormous surge in the volatility index (VIX) tells us exactly what traders are thinking.

Global equity markets have been severely shaken by the standoff between the two countries, and oddly enough, the European stock markets seem to have been the worst performers. The CAC 40 and the DAXhave been in decline since May and June respectively, and now the sell-off has accelerated it.

The major decline in the FTSE 100 yesterday was partly down to a large dividend coming out of the index, and the British market is in better shape than its Continental counterparts.

Looking at the American indices, the markets that were the strongest going into the recent crisis are holding up the best. The Dow Jones has handed back some of the exceptional gains it made recently. While, the NASDAQ 100 and the S&P 500 traded back to levels not seen since mid-July.

Gold because of its safe haven status was pushed to its highest level in over two months. Dealers have been adopting a risk-off strategy, and the exodus from equities has boosted gold, the Swiss franc and the Japanese yen.

The US dollar slipped on the back of the producer price index (PPI) number which fell to 1.9% from 2% in June on a year-on-year basis. The consensus was for 2.2%. This suggested that demand in the US is slipping.

The Federal Reserve member William Dudley stated he expected the US economy to grow at a moderate rate and for inflation to pick up. Mr Dudley, described wage growth as ‘modest’ and the productivity growth rate as ‘sluggish’. This contributed to the drop in the greenback.

At 1.30pm, the US will announce the July inflation figures, and the consensus is for a reading of 1.8%, and that compares with the previous report of 1.6%. Since both the headline PPI and core PPI undershot estimates yesterday, traders could be half expecting the CPI figure to miss expectations.

We also have inflation reports from Germany, France, Spain and Italy this morning so the euro crosses will be in play.

Brent Crude and WTI sold-off yesterday after a representative from Gazprom Neft stated it was ‘economically feasible’ to go back to old production levels once the coordinated production cut is over. OPEC and some non-OPEC counties like Russia have agreed to cap production until the end of March 2018.

EUR/USD – has been slipping since the start of the month, and 1.17 is acting as support. A break below 1.17, would bring 1.1613 into play. The next support level down is 1.1479. A move above 1.1830 would point to a resumption of the wider upward trend.

GBP/USD – could receive support from the 50-day moving average at 1.2932. If we see a drop below 1.2932, the 100-day moving average at 1.2850 would be the next level to watch. 1.3059 and 1.3100 will be the upside targets.

EUR/GBP – 0.9000 is providing support, and if the level holds, the resistance at 0.9088 and 0.9141 will be the upside targets. A break below 0.9000 would bring the support at 0.8930 into play.

USD/JPY – has been declining for the past month, and it is eyeing the support at 108.82. A Break below 108.82, would put the support at 108.13 on the radar. Rallies could run into resistance at 109.56 and 110.36.

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