Action Insight

Dollar opens the week generally higher as boosted by news that Senate has finally passed their tax bill. But strength is relatively limited firstly on concern that Russian probe is getting closer to President Donald Trump. Secondly, there are talks that the final version of the tax bill would just give very little lift to the economy. Sterling is also cautious bullish on optimism over Brexit negotiation. Swiss Franc and Japanese Yen are trading as the weakest one today. Looking ahead, the week is jam-packed with RBA and BoC meeting, plus many heavy weight economic data including non-farm payrolls.

Dollar took a back seat last week as traders were cautious ahead of the Senate's vote on the tax bill. Sterling took lead instead as boosted by positive Brexit news, as UK and EU seemed to have agreed on the divorce bill and Irish border. Canadian Dollar followed as the second strongest as stellar employment data raised the chance of more BoC hike next year. Meanwhile, Yen ended as the weakest one. It's followed by Euro, despite solid Eurozone data. Now, with the tax bill finally passed in Senate on Saturday, the greenback would likely come back to spotlight this week, with non-farm payroll also featured.

Canadian Dollar rebound strongly in early US session after stellar economic data. The employment market grew 79.5k in November, more than double of prior month's 35.3k and was well above expectation of 10k. Unemployment rate also dropped to 5.9%, down from 6.3%, way below expectation of 5.9%. USD/CAD reached as high as 1.2908 yesterday on Dollar strength. But the current sharp fall and break of 1.2804 support suggests rejection from 1.2916 key resistance. And consolidation from there is extending with another decline, possibly back to 1.2665 support. Also from Canada, GDP grew 0.2% mom in September, above expectation of 0.1% mom.

The Caixin manufacturing PMI for China slipped to 50.8 in November, from 51 in October. The reading also missed expectations of 51. Looking into the details, production and new orders increased at modest rates, while purchasing costs rose sharply. However, confidence towards the business outlook dropped to joint-lowest on record. As the agency noted, the manufacturing sector remained stable for most of November, despite 'some signs of weakness'. It forecast that the economy would remain stable for 4Q17. While growth should improve this year, when compared with 2016, it should decelerate in 2018. By contrast, the official manufacturing PMI rose +0.2 point to 51.8 in November this also beat expectations of a drop to 51.5. Non- manufacturing PMI increased +0.5 point to 54.8 last month. Divergence between official and private PMIs is nothing new. Part of the reason for the divergence is that the official data focus on large enterprises, while Caixin's focus on SMEs. This interpretation appears contradicting this month. Indeed, the official report suggests that SME PMI improved, while that for large companies slipped -0.2 point to 52.9 in November.

US stocks were once again boosted by optimism on Senate passing the tax bill. DOW gained 331.67 pts or 1.39% to close at 24272.35. S&P 500 rose 21.51 pts or 0.82% to end at 2647.58. Both were at record highs. NASDAQ lagged behind but still gained 49.58 pts or 0.73%. Though, Asian markets don't follow and are trading mixed at the time of writing. It should also be pointed out that treasury yield also staged strong rally. 10 year yield closed up 0.041 at 2.417 and looks very safe from key near term support at 2.273. More positive news on tax bill could push 10 year yield through near term resistance at 2.475, which will give support to Dollar, in particular USD/JPY.

Dollar stays firm in early US session, except versus Sterling and Euro. Forex traders are turning a bit cautious as economic data from US provide little inspiration. Focus will turn to the Republican's tax plan debate and vote in Senate. Meanwhile, Euro reversed earlier dip on disappointing inflation data as buyers emerged. Sterling, on the other hand, remains the start performer this week as more positive Brexit news come out. In other markets, WTI crude oil recover mildly and is back above 57.7 after OPEC agrees to extend production cut. Gold, on the other handle is pressured and breaches 1280 handle. Stocks traders are still partying with DOW futures pointing to another record high today.

The latest testimonies of both the incoming and outgoing Fed chairs suggest that the FOMC's approach would be more the less the same after February next year. At his confirmation hearing before the Senate, Jerome Powell affirmed that future monetary policy would remain data-dependent. He also added that...

Sterling and Dollar remain the two strongest currencies for the week. The greenback was supported by better than expected GDP data overnight, as well as Fed Chair Janet Yellen's upbeat comments. Positive sentiments in the US also sent DOW to record high at 23940.68, up 103.97 pts or 0.44%. NASDAQ, though, dropped -1.27% as investors dumped tech for bank stocks. That was in response to Fed Chair nominee Jerome Powell's hints on easing regulations. An important development to note is the rebound in treasury yields. 10 year yield closed up 0.038 at 2.376, keeping the near term bullish trend. The focus will now turn to Senate tax plan vote and PCE inflation data from US today.

Dollar's rally gathers momentum in early US session. Q3 GDP growth was revised higher to 3.3% annualized, up from 3.0% annualized and beat expectation of 3.2% annualized. The 3.3% annualized growth was the fastest in three years. More importantly, US growth has topped 3% for two quarters in a row. Considering the current momentum, it's possibly that the economy will make it three for the first time since 2004/5. There is little doubt that Fed will raise interest rate again in December. Solid growth momentum will most likely push wage and inflation and ease some Fed doves' concerns. Senate Republican's tax bill has already passed the Budget Committee and could be put to floor vote on Thursday.

US equities staged a strong rally overnight. Investors were happy that another step was taken with the Republican's tax plan. Senate version was approved by the Budget Committee, paving the way for a floor vote on Thursday. Also, Fed chair nominee Jerome Powell commented that current banking regulations are "tough enough". And there could even be some easing also lifted sentiments. DOW closed up 255.93 pts or 1.09% at 23826.71. S&P 500 gained 25.62 pts or 0.98% at 2627.04. NASDAQ also rose 33.84 pts or 0.49% to 6912.36. All three indices closed at record highs. Dollar rebounded broadly but was overwhelmed by Sterling. The Pound was given a strong boost on reports that UK and EU have agreed on the divorce bill.

Dollar recovers broadly today as it's digesting recent losses. Also there is some support from OECD report that projects acceleration in US growth next year. Focus will turn to Fed chair nominee Jerome Powell's confirmation hearing. But Powell is generally seen as a safe choice for the job and shouldn't give us surprises. While the greenback recovers, momentum remains unconvincing as trader stays cautious ahead of Senate vote on tax bill later in the week. Elsewhere, Aussie and Kiwi are both trading as the strongest one today while Sterling is back under broad based pressure.

Trading remains rather quiet in the forex markets this week so far. Dollar was supported by upbeat comments from Fed officials regarding a new term rate hike. Jerome Powell also indicated that he preferred continuity when taking over the Fed chair job. But Dollar traders stay cautiously watching...

There isn't a clear new direction in the forex markets today. Euro remains firm against as supported by economic outlook, and improving political situation in Germany. But the common currency is out-performed by commodity currencies. On the other hand, Dollar's recovery quickly lost momentum, with EUR/USD continuing to gyrate higher. The greenback is only performing slightly better than Swiss Franc, which trades as the weakest one so far. Overall, trading is rather quiet. Traders are holding their bets ahead of inflation data from US, Eurozone and Japan. Also, the development with US Senate tax bill and Germany coalition talks, as well as Brexit negotiations will also be the drivers later in the week.

Dollar recovers broadly today, except versus Japanese yen. But momentum in the greenback doesn't warrant a sustainable rebound yet. For the moment, Euro is still in the driving seat in the forex markets. Political news out of Germany over the weekend looked positive as Chancellor Angela Merkel secured support form her allies on grand coalition. This will remain a major topic of attention for the week ahead. Besides, US Senate is set to floor their version of tax bill and could trigger some volatilities on the markets. The economic calendar is light today but will build up intensity towards the end of the week. In particular, inflation data from Eurozone, US and Japan are the highlights.

Euro surged broadly last week as economic data suggested a "boom" in Germany ahead. Also, political situation in Germany has improved. Ending as the strongest currency, Euro also took Sterling and Swiss Franc high. On the other hand, Dollar ended as the weakest one as traders held their bet during thin holiday trading. The US tax plan is entering into a "make or break" week. Despite sharp rally in oil price, Canadian Dollar ended as the second weakest one as data suggested that BoC would remain on hold. Aussie and Yen were both weak too. We perceive the rout in China stock markets as a factor in pressuring both.

Euro strengthens again today as boost by strong confidence data. German Ifo business climate hit a record high. Additionally, there is positive political news out of Germany as the Social Democrats announced to enter into talk with Chancellor Angela Merkel. Dollar pared back some losses against all but Euro and Sterling. But the greenback will still likely end the week as the weakest one. Meanwhile, Japanese Yen lost much ground as risk appetites returned to global markets. Yen and Canadian Dollar could end as the weakest ones together with Dollar.

Markets are engaging in quiet holiday trading today while Dollar is paring some losses. But for the week, the greenback is still set to end as the worst performing one. Trading will likely stay subdued today as traders are already having their eyes on next week. In particular, the Senate will return from Thanksgiving recess and would floor the tax bill. Markets will then have a clearer idea on what the final version of Senate tax bill then. And assessment could then be done on the final reconciled version between House and Senate.

Euro strengthens broadly today as supported by solid PMI data that indicates strong Q4 growth. Nonetheless, the common currency remains in negative territory against all major currency except Dollar and Loonie, Canadian Dollar suffers some selling after much softer than expected retail sales data. Overall, trading is relatively quiet today as US is on holiday. Subdued trading could carry on for the rest of the week.

Dollar tumbles overnight as November FOMC minutes should some members are concerned with weaker inflation. December hike is still the base case but there might be growing doubts on whether there will be three more hikes next year. Euro closely follow Dollar as the second weakest on political uncertainties in Germany. Meanwhile, commodity currencies are supported by this week's rebound in commodity prices. ECB monetary policy accounts, Eurozone PMIs are the main focus in European session today. Canada will release retail sales while US will be on holiday.

The greenback slumped as the FOMC minutes for the November meeting revealed that 'several' members were concerned that weak inflation would be persistent, rather than temporary. They highlighted the worries about a 'a diminished responsiveness of inflation to resource utilization'. Another important message suggested in the minutes is that a December rate hike is almost a done deal with 'many' members judging that it is 'warranted in the near term' if the macroeconomic data remain steady. Such opinion has outweighed the thought of 'a few 'members' that a rate hike should be delayed. We view the USD selloff might have been over-reacted. Note that the (core) PCE, the Fed’s preferred inflation barometer, has improved, while the October CPI, released after the November meeting, also picked up. We believe the majority of the FOMC still retain the view that weak inflation is transitory.