Strong Risk Appetite Sends Swiss Franc and Yen Lower, DAX Hit Record, DOW to Follow

Dollar trades generally higher today, except versus Canadian Dollar. But strength of the greenback is rather unconvincing against Euro, Aussie and even Sterling. The more decisive moves are found in USD/CHF and USD/JPY. That should be more likely due to strong risk appetite. German Dax hit new record high at 13094.76 earlier today and is maintaining most of the gains at the time of writing. US futures also point to higher open as DOW would extend recent record runs. Meanwhile, weaker than expected housing data from US also limits greenback’s rally . Housing starts dropped to 1.13m in September, below expectation of 1.18m. Building permits also dropped to 1.22m, below expectation of 1.27m. From Canada, manufacturing shipments rose 1.6% mom in August.

Dollar strength on Taylor speculation far-fetched

The greenback is trading as the strongest one for the week and boosted by media report that US President Donald Trump was impressed by Stanford University Economic John Taylor at the Fed Chair candidate interview. Bets for Taylor to be the next Fed chair increased, making him one of the top three candidates alongside Jerome Powell and Kevin Warsh. Market reaction to the rise of Taylor was USD strength and an upward shift in the UST yield curve, hinging on hopes that this creator of the Taylor rule would accelerate the pace of rate hike if he has become the Fed’ chief. We believe such expectation is a bit too far-fetched. More in Taylor Rule, Taylor Rules?

UK job data unlikely to derail BoE November hike

UK unemployment rate was unchanged at 4.3% in August, staying at 42 year low. Average weekly earnings rose 2.2% 3moy, above expectation of 2.1% 3moy. Claimant counts rose 1.7k in September, below expectation of 3.2k. Claimant count rate was unchanged at 2.3%. The set of data should have done little to change the chance of a November BoE rate hike. But wage growth was lagging behind CPI, which was at 3% in September, highest in more than five years. That will more likely than not to keep BoE’s hands tied on more rate hikes in 2018.

ECB asset purchase program survived another legal challenge

ECB’s asset purchase program survives another legal challenge today. Germany’s Federal Constitutional Court rejected the request to stop Bundebanks from participation. The court said in a statement that "because of the high volume of purchases by the Bundesbank, disrupting bond purchases would endanger or even thwart the program’s goal to raise inflation to about 2 percent." And, "granting the interim bid now would be more than just conserving the status quo, it would be identical with granting the lawsuit."

Chinese President Xi pledged to take center stage in the world

Chinese President Xi Jinping laid out his ambition to transform China by 2050, to become more "prosperous and beautiful." He hailed the economic progress under "socialism with Chinese characteristics". And said it presents as a "new choice for other countries". Xi also pledges to "take center stage in the world". On foreign policy, Xi emphasized that "no one should expect China to swallow anything that undermines its interests". On economy, he targets to move industries to "medium-high end" of the global value chain and foster a number of "world-class advanced manufacturing clusters". Regarding markets, Xi pledged to "improve the framework of regulation underpinned by monetary policy and macro-prudential policy, and see that interest rates and exchange rates become more market-based."

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.99; (P) 112.23; (R1) 112.43; More…

USD/JPY’s strong rebound and break of 112.57 minor resistance suggests that pull back from 113.43 has completed at 111.64 already. And, rise from 107.31 is possibly resuming. More importantly, the development revives the case that correction from 118.65 has completed at 107.31. Intraday bias is now back on the upside for 113.43 first. Further break of 114.49 will confirm and pave the way to retest 118.65. However, break of 111.64 will mixed up the outlook again.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It’s unclear whether this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don’t expect a break there on first attempt.

Economic Indicators Update