Market Overview

Dollar remains broadly firm today, unmoved by the cautious comments from Fed Chair Janet Yellen. Traders are eagerly awaiting the long-awaited tax reform from US President Donald Trump. Meanwhile, Euro and Kiwi continue to suffer post election weakness. It's reported that German Chancellor Angela Merkel have begun the coalition talk between CDU, CSU, GDP and Greens. But the common currency could stay pressured until the picture becomes clearer. And, it's consistent with the technical development that EUR/USD is in a medium term correction that would take some more time to complete.

Dollar trades broadly higher today as markets are awaiting Fed Chair Janet Yellen's speech on inflation, uncertainty and monetary policy at the National Association for Business and Economics in Cleveland. Yellen is likely to maintain the tone that Fed is on course for gradual stimulus removal. Her comments regarding slowdown in inflation will also be closely watched. With the job market maintaining solid growth momentum, inflation is the main obstacle to another hike by Fed this year. Comments from other Fed officials are mixed so far. For example, New York Fed President Dudley just reiterated his expectation for inflation to climb back to 2% target after "idiosyncractic" factors fade. But Chicago Fed President Charles Evans is a little bit concerned that the slowdown in inflation is structural.

While Euro is staying soft, after post German election selloff, it's still holding above near term support against Dollar and Yen. Weakness is mainly seen against Sterling as 0.8773 support is taken out. Also, the common currency has not yet shown any sign of a rebound. Meanwhile, Dollar is turning slightly softer against others while Yen is picking up some strength. Mixed comments from Fed officials provided little support the the greenback. While are still pricing in more than 70% chance of a December Fed hike, the decision will remain very much data dependent. Tensions between US and North Korea remain tight as verbal exchanges between leaders continued to escalate.

Euro dips notably today in reaction to the results of Germany elections. And, the common currency is trading as the second weakest one so far, just next to New Zealand Dollar. While Angela Merkel won her fourth term as Chancellor, there are big questions and what the coalition government would be. First runner up Social Democrats are very clearly and determined to be a "strong opposition" and the "grand coalition" is ruled out. Meanwhile, the prospect of the Jamaica coalition of CDU, business friendly FDP and Greens is seen by many as having intrinsic instability. The rise of antit-EU AfD might prompt some worries over EU reforms. But AfD has already in disarray as its chair Frauke Petry walked out at a press conference and declared she won't sit with the party in the Bundestag, showing huge internal dissent.

Euro gaps lower against Dollar as another week starts. Markets seem to be dissatisfied with Germany election result even though Angela Merkel won her fourth term as Chancellor. Nonetheless, loss in the common currency is limited and it quickly recovers. Meanwhile, Kiwi also trades lower after indecisive election results. Yen is mildly weaker and risk sentiments are steady even though US President Donald Trump continued his verbal exchanges with North Korea officials. Yen traders' are probably more on Japan Prime Minister Shinzo Abe's press conference for snap election, rather than the words of the two sides that are on "suicide mission". Sterling is mildly firmer as the fourth round of Brexit negotiations starts.

There were a lot of happenings in the financial markets last week. The more hawkish than expected FOMC announce was supposed to give Dollar a strong boost. But it was the resilience of Euro that's much more convincing. New Zealand Dollar ended as the strongest one leading up to Saturday's election. Kiwi traders should be given a relief after the ruling National Party won the election, even though without outright majority. On the other hand, Canadian Dollar ended as the weakest as recent consolidation continued. Yen and Swiss Franc followed as the next weakest in an era of global monetary stimulus exit.

Yen trades broadly higher today on resurgence of geopolitical risks. North Korea threatens to launch hydrogen bomb in Pacific Ocean, in response to US President Donald Trump's "total destruction" provocation, and new sanctions. But overall, Yen is the weakest one for the week so far with risk appetite and global monetary stimulus exit in the background. This is also reflected in Swiss Franc, which is the second weakest for the week. On the other hand, Euro reversed the post FOMC selloff and is occupying the top spot among major currencies. The common currency is also getting support from solid data. Dollar is firm too but the uncertainty over the tension with North Korea is limiting its strength.

Yen recovers broadly today while Asian equities are trading generally lower as geopolitics is back haunting the markets. Tensions between North Korea and the US escalated again this week after US President Donald Trump's threat of "total destruction". This was followed by an executive order by Trump to forcefully push through trade embargo with North Korea. Then, North Korea responded by pledging to strike back with with countermeasures, including the use of hydrogen bomb. Dollar is mixed today as the boost from FOMC faded. Aussie and Kiwi are under much pressure. Aussie is still feeling heavy after China rate downgrade. Kiwi is cautious ahead of election in the weekend. On the other hand, Euro is staying firm ahead of Germany election on Sunday. Sterling is mixed a UK Prime Minister Theresa May's high profile Brexit speech is awaited.

Dollar is maintaining most of the post-FOMC gains against other major currencies. But it's turning softer against Euro and Sterling today. Better than expected job data provides no inspiration to the greenback. While developments in USD/CHF and USD/JPY are bullish, GBP/USD shows the Pound is still having an upper hand against Dollar. EUR/USD is staying well above 1.1822 support zone and maintaining near term bullishness too. Nonetheless, it's the selloff in Aussie and Kiwi that catches most eyes. RBA Governor Philip Lowe's comments suggest that he's in no hurry to follow other central banks in tightening. But the main driver is S&P's downgrade of China's sovereign credit rating.

The financial markets responded to Fed's hawkish announcement overnight rather positively. DOW gained 41.79 pts or 0.19% to close at 22412.59. S&P 500 rose 1.59 pts or 0.06% to end at 2508.25. Both indices made new record high. In short, Fed's new economic projections showed that policymakers are still projecting another rate hike in December, and three more next year. Fed fund futures are pricing in 73.4% chance of a December hike, comparing to 57.7% chance a day ago, and 48.6% a week ago. 10 year yield rose 0.034 to close at 2.277, extend recent rebound from 2.034. Dollar is now trading as one of strongest for the week among Aussie and Kiwi. Yen and Swiss Franc are trading as the softest ones. Gold dipped lower and breached 1300 handle following Dollar's strength.

Dollar jumps after FOMC kept the target range of federal funds rate at 1.00-1.25% as widely expected. Fed also confirmed that the balance sheet normalization program will be initiated in October. The Dollar positive parts of the announcement are firstly, GDP growth projection for 2017 and 2019 are revised up. Secondly, unemployment rate forecast for 2018 and 2019 are revised down. Federal fund rates projection for 2017 and 2018 are kept unchanged. That indicates Fed is still on course for another rate hike this year and three hikes next year. Nonetheless, core PCE projection for 2017 and 2018 are both revised down.

Dollar is trading broadly lower today as markets await FOMC policy decision and press conference. It's widely expected that Fed would formally announce the schedule of the long-awaited normalization of its USD 4.5T balance sheet. At the June meeting, the Fed revealed the plan to "gradually reduce" its securities holdings by "decreasing its reinvestment of the principal payments" received. More details are awaited as the plan is formalized. Inflation has remained persistently soft despite the upside surprise in the August data. We believe some members would raise concerns that weak price levels might last longer than previously anticipated. There might be downward revisions in the inflation forecast in 2018. Meanwhile, there are some speculations that the Fed might reduce its average Fed funds rates projections. Thus, the so called dot-plot will also be closely watched.

US equities surged to new records highs overnight as markets await FOMC's announcement on balance sheet normalization. DOW closed up 39.45 pts or 0.18% at 22370.80. S&P 500 gained 2.78 pts, or 0.11%, to 2506.65. 10 year yield also extended recent rebound and rose 0.014 to 2.243. But Dollar is trading generally lower in Asian session today. For the week, Euro, Aussie and Kiwi remain the strongest ones. Meanwhile, Canadian Dollar is under pressure as rate hike speculations cooled. Strong risk appetite in the market is pressuring Yen as the second weakest. Markets have little to response to US President Donald Trump's provocative talk to totally destroy North Korea.

Euro surges to highest level since 2015 against Swiss Franc today as boosted by solid improvement in economic sentiments. But the common currency is overwhelmed by Aussie and Kiwi on strong risk appetite. Meanwhile, Sterling also regained ground after the pull back following BoE Governor Mark Carney's cautious speech yesterday. Dollar is generally softer as markets await FOMC policy decision and press conference tomorrow. In other markets, Gold is gyrating in tight range around 1310 but is vulnerable to another dip to 1300 handle. WTI crude oil is also struggling around 50.

Risk appetite continued to drive US indices to new records higher overnight. DOW gained 63.01 points, or 0.28% to close at 22331.35. S&P 500 rose 3.64 points or 0.15% to 2503.87. Both were at new records. 10 year yield also gained 0.027 to 2.229. Traders continue to raise their bet on a December Fed hike, with over 57% chance as indicated by fed fund futures. But the Dollar is not getting much support yet. Markets will have their eyes on tomorrow's FOMC decision on balance sheet normalization, and the post meeting press conference first. Meanwhile, Sterling and Canadian Dollar are both talked down mildly by respective central bank officials. Yen and also stays weak in risk seeking environment. In other markets, Gold is extending recent pull back and is pressing 1310. WTI crude oil continues to struggle around 50.

Yen trades generally lower today in otherwise quiet markets. Euro is trading firmer while Sterling is paring some of last week's sharp gains. Global markets are generally in risk seeking mode. The MSCI Asia Pacific ex Japan index surged to decade high earlier today. European indices follow with some gains, including FTSE. US futures also suggest that stocks are going to extend the record run. If other markets, gold continues with it's pull back from recent high at 1362.4 and hits as low as 1314.5 so far. It's possibly heading back to 1300 handle, which is close to 55 day EMA at 1293.4. WTI crude oil weakens mildly as it struggles to find sustainable buying to stay firm above 50 handle.

Politics and central bank events will be the main drivers in the markets this week, with economic data taking a back seat. FOMC policy decisions and press conference is one of the main highlights. Fed is expected to finally announce unwinding of its USD 4.5T balance sheet. But spotlight will first be on BoE Governor Mark Carney's speech at IMF in Washington. Markets will look to Carney for his view on the chance of a November hike. Meanwhile, Germany and New Zealand will have their general elections the coming weekend. Talking about elections, Japan Prime Minister Shinzo Abe might announce to dissolve the Lower House and call for a snap election. UK Prime Minister Theresa May will deliver a Brexit speech in Italy on Friday. And there could be more verbal exchanges out of UK and EU ahead of the fourth round of Brexit negotiation starting next week. And, let's not forget also US President Donald Trump will address the United Nations in New York on Tuesday when North Korea tensions are still present. Trump is given a chance to confront North Korean representative face-to-face.

British Pound ended as the strongest major currency last week as boosted by hawkish BoE announcement. A November rate hike by BoE is now a real possibility. Kiwi ended as the second strongest in spite of some volatility ahead of generally election. Dollar followed on revived speculations of a December Fed hike. Meanwhile, Yen ended as the weakest as markets on return of risk appetite. US equity indices made records highs while strong rebounds were seen in DAX and CAC. FTSE was the exception due to BoE rate expectation. Yen is also additionally pressured as markets are back looking at diverging global interest rates.

Sterling continues to shine today as firmly boosted by BoE rate hike in near term, possibly in November. The Pound also takes other European majors higher with it, including the Swiss Franc. On the other hand, Yen is sold off deeply against others and it seems market's theme is back on global monetary stimulus exit. Dollar initially yawned at news of North Korea firing another missiles over Japan. But the greenback gives way to European majors and pares back much of its gain. Mixed economic data released in US session also provide little support to the greenback.

North Korean launched another missile test before the weekend. Even though it proves its capability of reaching Guam, market reactions are very muted this time. Japanese yen Yen and Swiss Franc remain the weakest major currencies for the week. And Nikkei maintains earlier gains and is trading up 0.5% at the time of writing. Sterling is set to end the week as the strongest one, riding on the hawkish BoE message that tightening would come within months. Dollar follows as the second strongest as supported by expectation of a tax reform plan later this month, and pick up in inflation. Indeed fed fund futures are now pricing in 52.9% chance of a Fed hike in December, up from 31% a week ago