FX traders have to deal with a lot of drama.  Terrorists detonated an Improvised Explosive Device (IED) in a London subway, injuring 22 people.  At the start of trading in Asia, Kim Jong-un flipped President Trump “the bird” and launched a missile that passed over Northern Japan.

None of the events had a lasting impact on FX markets.

US Retail Sales were weaker than forecast. August Retail Sales-0.2% vs. forecast 0.1%, m/m and retail Sales-ex-Autos were 0.2% vs.forecast 0.5%, m/m.  The report should be ignored ado to the impact of Hurricane Irma.  The New York Empire Manufacturing Index rose to 24.4.

EURUSD was quiet in Asia but headed higher in Europe and continued that way after the US data.  The rally was because of the general dollar weakness but mostly because of comments from ECB board member.  Sabine Lautenschlaeger.  She said “The buoyant growth coupled with the monetary accommodation will take us back to an inflation rate which is in line with our goal,” according to Reuters.  EURUSD rallied from 1.1902 to 1.1955 and then extended the move to 1.1986 in New York

The bomb blast in London has put a short-term cap on GBPUSD gains.  GBPUSD is trading at 1.3584, just below the 1.3615 peak.

The sterling rally kicked off when a noted “dove” became a “hawk”.  Monetary Policy Committee (MPC) member Gertjan Vliege said rates would have to rise more if the economy develops as expected.  Traders reacted assuming a November rate hike will not be “a one and done” affair.

In Asia, USDJPY plunged from 110.47 to 109.56 after North Korea fired another missile over Japanese territory. Prices quickly reversed, supported by firm US Treasury yields.  USDJPY rallied to 111.32, in New York trading, but backed off to 110.77, after today’s US data.   Japanese stocks rallied as well.  The Nikkei closed with a 0.52% gain.

Perhaps traders are dismissing North Korea’s antics because, if NK is merely test firing missiles, they probably do not have much-working inventory.  Therefore the threat is for another day.

AUDUSD and NZDUSD were range bound in Asia but rallied in Europe due to the broad US dollar weakness. Prices have dipped since the New York open.

USDCAD bounced around in a 1.2126-1.2186 range, undermined by Canadian rate hike expectations and firm oil prices.  WTI popped above $50.00/barrel again, but profit taking into the weekend has pushed prices lower.

The rest of the day may see US dollar pressure as risk aversion concerns will be bubbling just below the surface.  Traders will be alert for a Trump tweet or comment, in response to North Korea, flipping him the bird.

USDCAD Technical outlook:

There isn’t any change to the short term USDCAD technical picture.  USDCAD is consolidating in a 1.2060-1.2250 band. The intraday technicals are bearish below 1.2180 looking for a break of 1.2120 to extend losses to 1.2060. Above 1.2180 targets 1.2250.

Today’s Range 1.2120-1.2220

Chart:  USDCAD 30 minute