War Games

North Korea called Trump's recent comments a "declaration of war" and vowed to respond as the rhetoric ramps up. The US replied that Trump's comments were not a declaration of war. The Japanese yen was the top performer, closely followed by gold,while the New Zealand dollar lagged. The BOJ minutes are due later. Watch out for Yellen's Tuesday speech on inflation and monetary policy at 12:45 Eastern (17:45 London time). 3 out of the 5 Premium Trades are in progress.

The words 'North Korea' and 'war' set off algos Monday and a wave of selling in yen crosses. USD/JPY fell as low as 111.48 from 112.15. The Swiss franc and gold also jumped on the headlines and didn't retrace.

The problem with the North Korea story lately is that there is no ebb and flow. You would expect some rhetoric and then something to cool it off but neither side seems capable of diffusing tensions. Instead, the series of insults and threats continues. The comments echoed especially loudly as they emerged during US market hours. North Korea's foreign minister spoke early in New York trade and that meant extra attention in markets. Previously, the main rhetoric was limited to the weekend. Inevitably, the talk will cool down but it's tough to fade the trend at the moment against the risk of a tweet or statement at any moment.

Politics Galore

Separately, politics are dominating markets. Merkel's disappointing election showing and the risk of fractured or failed coalitions in Germany hurt the euro. US Congress is haggling over a healthcare proposal that seems dead and a tax proposal that's still unclear. In Japan, the snap election raises new risks. Brexit is never ending. It's a veritable minefield with tape bombs landing constantly and the threat of real bombs. That makes a good argument for paring risk until there is more clarity.

Coming up in Asia-Pacific trading, the minutes of the July 19-20 BOJ meeting will be released but the yen is more-likely to driven by comments from Abe and developments in North Korea.