Forex Today: USD recovers from 33-month lows on easing N. Korean tensions

The weekend passed without any new missile launches from N. Korea and helped the US Dollar Index to stage a goodish recovery from Friday's 33-month lows. Also collaborating to the greenback's uptick at the start of a new trading week was the US President Donald Trump comments on Saturday to speed up efforts to overhaul the US tax code. Investors this week would look forward to Thursday's US inflation report for fresh clues over the Fed's ability to deliver third rate hike this year before positioning for any additional near-term recovery for the buck. 

US inflation key ahead of Sept 20 FOMC - ING
As the FOMC meeting looms near (Sept 20), the Economics Team at ING notes that this week's data in the US will be of crucial importance, with the inflation numbers the main event to keep an eye on.

Main topics in Asia

Easing geopolitical tensions drove flows away from perceived safe-haven Japanese Yen, lifting the USD/JPY pair away from a 10-month low level of 107.32 touched on Friday. Traders even shrugged today's better-than-expected release of Japanese core machinery orders, which jumped 8.0% m-o-m in July as compared to a 4.4% gains expected. 

USD/JPY pressured higher as North Korea's hedging unwinds
The fact that there were no further developments in the North Korean crisis over the weekend has seemingly induced hedged positions to unwind.

N. Korea closely following moves of US with vigilance – KCNA

North Korea requires a global response - NATO chief
NATO's general secretary, Jens Stoltenberg, while talking to BBC's Andrew Marr, said North Korea's nuclear program "is a global threat and requires a global response".

Meanwhile, the Chinese inflation figures released over the weekend did little to provide any fresh impetus to the antipodean, with broad based USD recovery acting as an exclusive driver through Asian session on Monday.

AUD/USD fails to cheer N.Korea inaction and uptick in Chinese inflation
The AUD/USD is not particularly impressed by North Korea inaction over the weekend and an uptick in Chinese inflation, forcing us to question whether the range bound Aussie-US 10-year yield spread is playing the spoil sport.

The NZD was further being weighed down by a downward revision of the inflation forecasts for 2017/18 by the New Zealand Institute of Economic Research (NZIER). 

New Zealand - NZIER lowers inflation forecasts
The New Zealand Institute of Economic Research (NZIER) revised its 2017/18 inflation forecasts to 1.1% from the previous forecast of 1.5%.  The inflation is seen rising 1.9% in 2018/19 as opposed to the previous forecast of 2%.

Key focus ahead

The EUR/USD pair remained supported by last week's comments by the ECB President Mario Draghi, suggesting that the central bank would decide on tapering its massive stimulus program at its October meeting. 

EUR/USD - Open positions in Puts spike, is the correction due?
EUR/USD dipped to a low of 1.1998 in Asia as the USD sell-off ran out of steam on North Korea inaction.

The GBP/USD pair corrected further below the 1.3200 handle as focus shifts to this week's UK employment details and the very important BoE monetary policy decision. 

GBP/USD weaker below 1.32 mark as focus shifts to this week's key event risks
The greenback staged a modest recovery during Asian session on Monday, pulling the GBP/USD pair away from over one-month highs touched on Friday.

Demand for the commodity-linked currency - Loonie, continues to be underpinned by positive trading sentiment around crude oil prices and Friday's better-than-expected Canadian jobs report.

USD/CAD could reach 1.20 in Q4 – Scotiabank
Eric Theoret, FX Strategist at Scoatiabank, sees the pair grinding lower towards the 1.20 area by year-end.