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FX/RATES DAYBOOK EUROPE: Dollar Gains; ECB’s Coeure Set to Speak

(Bloomberg) — The dollar climbed from a 32-month low as concerns over Hurricane Irma eased and the anniversary of North Korea’s founding passed without a missile test. China’s yuan tumbled in both the onshore and offshore markets after the PBOC set its daily fixing at a weaker-than-expected level, and following the reported removal of a reserve requirement for trading foreign-exchange forwards. TODAY

  • Italy industrial production
  • ECB’s Coeure speaks

FRIDAY TRADING SESSIONS

  • U.S.
    • Bloomberg dollar index fell 0.2% to push its weekly decline to ~1.5%, steepest in four months; USD/JPY ended Friday near 107.80; USTs pared weekly gain, with yields higher by 1.5bp-2.5bp across 5Y-30Y tenors despite weekend risks
  • EUROPEAN BONDS
    • Bund futures slipped Friday following a Reuters report that ECB policy makers were said to have discussed possible hawkish QE scenarios, including reduction to EU40b or EU20b and 6- to 9- month extensions
    • Peripherals pared some of Thursday’s post-ECB rally edging wider vs core, while a brief burst of inter-dealer selling in Italy 10y weighed. Block trades in BTP vs Bund (EU330k/bp) saw 10y spread pop 2bps wider
  • ASIA TODAY
    • USD/JPY rises 0.6% to 108.52, after touching 108.56; Bloomberg dollar index advances 0.2%, rebounding from Friday when it touched the lowest level since Jan. 2015
    • Aussie and kiwi reverse small gains driven by China inflation data; early Asian markets react to PBOC removing a reserve requirement on the trading of foreign- exchange forwards, a move that economists say shows an unease with yuan gains

TOP OVERNIGHT NEWS

  • North Korea warned of retaliation if the United Nations Security Council approves a U.S. proposal for harsher sanctions after Pyongyang conducted is sixth and most powerful nuclear test
  • Hurricane Irma hopscotched up Florida’s west coast Sunday, making two landfalls and driving a wall of water and winds that submerged Miami and had the Tampa Bay area readying for a deluge of a sort unseen in decades
  • China’s producer-price inflation accelerated to 6.3 percent in August from a year earlier, exceeding all but one of 38 estimates in Bloomberg’s survey of economists
  • Prime Minister Theresa May’s U.K. government is set to rally just enough lawmakers to back a key piece of Brexit legislation that will then face higher obstacles before it can become law
    • Lawmakers plan to debate the bill on Monday before a late-night vote that could continue into the early hours of Tuesday
  • The head of European listings at Nasdaq Inc. says Britain’s decision to leave the European Union is driving more U.K. companies to its Nordic market
  • China’s central bank will effectively remove a reserve requirement for trading foreign currency forwards — a move that may slow the pace of yuan appreciation after its biggest two-week surge in at least a decade — according to people familiar with the matter

KEY VIEWS

  • While USD/JPY has rallied after North Korea’s inaction over the weekend, prevailing wariness over geopolitical tension surrounding the country will limit aggressive dollar short- covering, according to Tokyo-based FX Prime by GMO
  • Yuan is ‘very, very strong’ as China picks up, CLSA chief executive officer Jonathan Slone says in Bloomberg TV interview

ECONOMIC DATA RELEASED TODAY

  • U.K. consumer spending index rises 0.3% in August, first gain in four months, according to a report by IHS Markit and Visa

ECONOMIC DATA (All times CET):

  • 8am: (NO) Aug. CPI YoY, est. 1.7%, prior 1.5%
  • 8am: (NO) Aug. CPI MoM, est. -0.4%, prior 0.3%
  • 8:30am: (FR) Aug. Bank of France Ind. Sentiment, est. 106, prior 105
  • 9am: (DE) Aug. CPI EU Harmonized MoM, prior 1.0%
  • 9am: (DE) Aug. CPI EU Harmonized YoY, prior 1.5%
  • 10am: (IT) July Industrial Production WDA YoY, est. 3.7%, prior 5.3%
  • 10am: (IT) July Industrial Production MoM, est. -0.4%, prior 1.1%

GOVERNMENT:

  • Sept. 11-Sept. 14: (SZ) Swiss Parliament Holds Autumn Session in Bern

CENTRAL BANKS (All times CET):

  • 9am: (EC) ECB’s Coeure Speaks in Frankfurt
  • 10am: (SZ) Total Sight Deposits CHF, prior 579.2b
  • 10am: (SZ) Domestic Sight Deposits CHF, prior 468.5b

BOND SALES/PURCHASES (All times CET):

  • For corporate bonds, see New Issue Monitor
  • 11:30am: Germany to Sell EU2.0b 182-Day Bills
  • 2:50pm: France to Sell Up to EU3.0b 91- Day Bills
  • 2:50pm: France to Sell Up to EU1.5b 154-Day Bills
  • 2:50pm: France to Sell Up to EU700.0m 336-Day Bills

MARKETS

  • USD/JPY +0.5% to 108.41 (range 108.09-108.56)
  • EUR/USD -0.2% to 1.2015 (range 1.1999-1.2036)
  • AUD/USD -0.2% to 0.8046 (range 0.8033-0.8073)
  • NZD/USD -0.3% to 0.7243 (range 0.7225-0.7287)
  • GBP/USD -0.1% to 1.3182 (range 1.3174-1.3200)
  • USD/CAD -0.2% to 1.2141 (range 1.2139-1.2163)
  • USD/CHF +0.5% to 0.9492 (range 0.9447-0.9506)

TECHNICAL OUTLOOK by Bloomberg strategist Michael G Wilson

  • USD/JPY – Trading toward September trendline resistance
  • Resistance: 109.84, Aug. 25 high 110.67, Aug. 31 high; 111.05, Aug. 4 high
  • Support: 107.32 September 8 low; 106.93/95 Nov. 11/10 highs; 106.52 61.8% Fibonacci retracement of June 2016 to Dec. 2016 high.
  • EUR/USD – Consolidation after recent gains
  • Resistance: 1.2092 Sept. 8 high; 1.2108/09 Jan. 2/1 2015 highs
  • Support: 1.1980 Sept. 1 high; 1.1950 Sept. 6 high; 1.1910, Aug. 2 high; 1.1823
  • EUR/JPY – Hovering above 50-DMA
  • Resistance: 130.66 Sept. 8 high; 131.09 Sept. 7 high; 131.71, Aug. 30 high
  • Support: 129.37, Sept. 6 low; 129.12 Aug. 25 low; 128.05, Aug. 11 low

–With assistance from Michael G. Wilson. To contact the reporter on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net Subhadip Sircar

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