Dollar strengthens broadly today as markets are eagerly awaiting US President Donald Trump’s tax reform plan. Dollar index is back above 99 after dipping to as low as 98.69 earlier this week. Meanwhile, stocks are also looking for fresh stimulus as DJIA and S&P 500 are looking at making new records highs. On the other hand, Euro and other European majors are paring some gains as the boost from French election fades. Euro traders are also getting cautious ahead of tomorrow’s ECB rate announcement and press conference. The Japanese Yen stays soft, except versus Aussie and Kiwi, as tensions in North Korea escalates. Canadian Dollar, on the other hand, is recovering mildly despite weak retail sales.
Trump administration to deliver tax reform
All eyes are on what US President Donald Trump would deliver regarding his tax reforms today. There are talks that Trump would push to lower public companies’ income tax rate to 15%, down from 35%. Besides, there would be cut on top tax rate on "pass through" businesses, from 39.6% to 15%. And there would also be tax rate cut on offshore earnings which are repatriated, down from 35% to 10%. Meanwhile, there won’t be a so called "border-adjustment" tax on imports. Treasury Secretary Steven Mnuchin and National Economic Director Gary Cohn are scheduled to have a joint pressure conference around 1:30pm ET today, from the White House Briefing Room.
North Korea tensions escalate
It’s reported that the US military has started installing the THAAD system in South Korea, to protect against threats from North Korea, ahead of the election day of the former on May 9. Hundreds of residents protested against such installation around 250km south of Seoul. In Seongju, there were protestors carrying signs reading "No THAAD, No War" and "Hey, US! Are you friends of occupying troops". And they are worried that such installation would indeed increase the risks of the area they live being targeted by North Korea.
In China, the foreign ministry spokesman Geng Shuang said "China strongly urges the United States and South Korea to stop actions that worsen regional tensions and harm China’s strategic security interests and cancel the deployment of the THAAD system and withdraw the equipment." Geng warned that "China will resolutely take necessary steps to defend its interests."
In Japan, the Cabinet Secretariat Civil Protection Portal Site warned that "Japan is facing urgent new threats to peace and security and diverse situations, including the proliferation of weapons of mass destruction and ballistic missiles." Visit to the site surged to 5.7m this month as the Japanese are getting more concerned with the geopolical risks. Meanwhile, civilians will be warned in case of a nuclear attack. And they will have 10-minute to hide underground in case.
BoJ watched in upcoming Asian session
BoJ monetary policy announcement will be the main focus in the upcoming Asian session. The central bank is widely expected to keep policies unchanged. Meanwhile, it’s expected that BoJ would lower inflation forecast in the quarterly Outlook for Economic Activity and Prices report, to be released after the policy announcement. But the central bank may upgrade growth forecast. In January forecast, BoJ projected core CPI to hit 1.5% yoy in this fiscal year. But core CPI is currently standing at 0.2% yoy in February with weak momentum in price growth. On the other hand, IMF raised Japan’s growth forecast to 1.2% in 2017, up from January estimate of 0.8%. BoJ could share similar view.
Euro lose momentum ahead of ECB
ECB meeting will be another focus tomorrow. The first round result of French presidential election, and centrist Emmanuel Macron’s high chance of winning the run-off should give ECB much relief. Nonetheless, the central bank is still not ready to hint on any stimulus exit yet. ECB President Mario Draghi has stressed enough that there are much downside risks to the economy, and underlying inflation stayed low. Risks are still tiled much to the downside in spite of the French election results. Meanwhile, various ECB officials have clearly expressed that the course of monetary policies are set for 2017. The central bank will continue with its EUR 60b per month asset purchase till the end of the year. And it’s unlikely that policy makers will opt for a rate hike before the asset purchase ends. We’d expect the speculation and debate on exit to start heating up again in June. For now, tomorrow’s announcement and press conference will likely be status quo.
Australian CPI back in RBA’s target range
Australia CPI rose 0.5% qoq and 2.1% yoy in Q1, up from prior quarter’s 0.5% qoq, 1.5% yoy. But missed expectation of 0.6% qoq, 2.2% yoy. That’s the first time inflation is back in RBA’s target range since 2014. RBA said earlier this month that it expected headline inflation to pick up over the course of 2017. However, it also expected that recovery in underlying inflation to be "a bit more gradual" due to subdued wage growth. Trimmed mean CPI rose to 1.9% yoy, up from 1.6% yoy and beat expectation of 1.8% yoy. Weighted median CPI rose to 1.7% yoy, up from 1.5% yoy, but missed expectation of 1.8% yoy.
Elsewhere…
Canada retail sales dropped -0.6% mom in February versus expectation of 0.2% mom. Ex-auto sales dropped -0.1% mom versus expectation of -0.3% mom. Swiss UBS consumption indicator was unchanged at 1.5 in March. Japan all industry activity index rose 0.7% mom in February.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.9911; (P) 0.9940; (R1) 0.9962; More…..
Intraday bias in USD/CHF is neutral for the moment with 4 hour MACD trending up. At this point, with 0.9999 minor resistance intact, deeper fall is still in favor. Below 0.9897 temporary low will turn bias to the downside for 0.9812 and possibly below. Nonetheless, whole decline from 1.0342 is seen as a correction. Hence, we’ll look for bottoming signal below 0.9812. Meanwhile, on the upside, above 0.9999 minor resistance will turn bias back to the upside for 1.0107 resistance.
In the bigger picture, we’re still maintaining that firm break of 1.0342 key resistance is needed to confirm underlying bullish momentum in the cross. However, the corrective nature of the fall from 1.0342 is starting to give the medium term outlook a bullish favor. Hence, in stead of looking for topping signal around 1.0342, we’d now pay closer attention to upside acceleration as USD/CHF approaches this level again.
Economic Indicators Update
| GMT | Ccy | Events | Actual | Forecast | Previous | Revised |
|---|---|---|---|---|---|---|
| 01:30 | AUD | CPI Q/Q Q1 | 0.50% | 0.60% | 0.50% | |
| 01:30 | AUD | CPI Y/Y Q1 | 2.10% | 2.20% | 1.50% | |
| 01:30 | AUD | CPI RBA Trimmed Mean Q/Q Q1 | 0.50% | 0.50% | 0.40% | |
| 01:30 | AUD | CPI RBA Trimmed Mean Y/Y Q1 | 1.90% | 1.80% | 1.60% | |
| 01:30 | AUD | CPI RBA Weighted Median Q/Q Q1 | 0.40% | 0.50% | 0.40% | |
| 01:30 | AUD | CPI RBA Weighted Median Y/Y Q1 | 1.70% | 1.80% | 1.50% | |
| 04:30 | JPY | All Industry Activity Index M/M Feb | 0.70% | 0.60% | 0.10% | -0.40% |
| 06:00 | CHF | UBS Consumption Indicator Mar | 1.5 | 1.5 | 1.45 | |
| 12:30 | CAD | Retail Sales M/M Feb | -0.60% | 0.20% | 2.20% | 2.30% |
| 12:30 | CAD | Retail Sales Less Autos M/M Feb | -0.10% | -0.30% | 1.70% | 2.30% |
| 14:30 | USD | Crude Oil Inventories | -1.0M |
