Action Insight

Dollar remains generally soft today after job data comes in slightly below expectation. ADP report shows 135k growth in private sector jobs in September, slightly below consensus of 140k. Prior month's figure was revised from from 237k to 228k. For the week, the greenback is trading as the second strongest, next to Aussie. But it's pointed out in out earlier report that Dollar struggles to power through key near term resistance against Yen, Swiss Franc and Aussie. Elsewhere, Sterling attempts a recovery after better than expected PMI services but there is no follow through buying seen. In other markets, Gold is trying to regain 1280 after dipping to as low as 1271 earlier this week. WTI crude oil is trying to dry support from 50 after last week's steep selloff.

While major US indices extended their record run overnight, Dollar is lagging behind and is turning soft today. DOW closed up 0.37% at 22641.67, S&P 500 up 0.22% at 2534.58, NASDAQ up 0.23% at 6531.71. 10 year yield jumped to 2.361 but pared gain to close down -0.003 at 2.334. Technically, there are a few points to noted. USD/CHF struggled to stand above 0.9772 key near term resistance. USD/JPY also struggles to take out a medium term channel resistance. Meanwhile, AUD/USD also cannot sustain below 0.7807 key support. It's early to tell if Dollar is completing it's near term rebound, but risk is increasing.

Euro recovers broadly today as markets are looking past the political turmoil in Spain, with focus back on ECB and economic outlook. European markets, except Spain, are steady with Germany on holiday. At the same time, thousands of people protest in Barcelona against police violence during the referendum on Catalonia independence on Sunday. The European parliament will be holding a special session on the issue tomorrow and European commission spokesman Margaritis Schinas urged that "violence can never be an instrument in politics". Elsewhere, Sterling is trading as one of the weakest one today after shockingly bad construction data. Dollar stays firm but struggles to find follow through buying.

PBOC announced to adopt targeted RRR cut in 2018 in some banks to 'encourage inclusive financing, such as credit support for small and micro-sized enterprises (SMEs), startups and agricultural production, as well as small business owners, impoverished groups and students. All of the large and medium sized commercial banks, 90% of municipal commercial banks, and 95% of agriculture commercial banks are eligible for this measure. Banks with inclusive financing exposure higher than 1.5% of loans would be eligible for 50 bps RRR cut from benchmark ratios. Banks with exposure higher than 10% would qualify for additional 100 bps RRR cut. We believe the move is a fine-tuning of PBOC's other tightening measures, rather than a shift towards a loosening monetary stance. Indeed, by choosing a targeted RRR cut, instead of a broad-based cut or a rate reduction, the central bank is sending a signal that it has not changed the monetary policy stance which remains 'prudent and neutral”.

RBA left the cash rate unchanged at 1.5% in September. The accompanying statement contained few changes from the previous one. This perhaps explains the modest drop in Aussie after the release, as the market had expected a more hawkish message. The central bank is upbeat over the economic developments, hinging on the improving non-mining investment. Policymakers also acknowledged the strength in the job market, pointing to the rise in participation rate as well as a number of forward-looking indicators. Comments on the exchange rate were limited, with the central bank reiterating the impact of a strong Aussie on inflation, GDP growth and employment. We expect the central bank to keep the policy rate unchanged until 2H18.

US equities surged to new record highs overnight on solid manufacturing data and dollar followed by gaining broadly in Asian session today. DOW jumped 152.51 points or 0.68% to close at 22557.6. S&P 500 rose 9.76 pts or 0.39% to end at 25.29.12. NASDAQ also gained 20.76 pts or 0.32% to 6516.72. 10 year yield was steady, though, failing to take out last week's high at 2.344 but still rose 0.011 to 2.337. While the greenback is clearly stronger against European majors, it's strength against commodity currencies is less apparent. Aussie dips mildly after RBA left interest rates unchanged. But no follow through selling is seen yet below 0.78 handle.

Sterling weakens sharply today as pressured by weaker than expected manufacturing data. Indeed, the Pound performs even worse than Euro, which is troubled by the political tensions in Spain. And, in spite of the early selloff, EUR/USD is holding above last week's low at 1.1716 and no follow through selling is seen yet. Meanwhile, commodity currencies are trading broadly higher, recovering part of last week's loss. In other markets, gold extends recent fall and dips to as low as 1273.7 so far. WTI crude oil also declines sharply and breaches 50.5, comparing to last week's high at 52.86.

Despite government's violent intervention, Catalonia's referendum took place and resulted in an overwhelmingly "yes" to seceding the region from the rest of Spain. European financial markets' reactions are rather negative to the outcome. Euro's selloff accelerated in the European morning with EURUSD falling -0.7% at the time of writing this report. Spanish equities fell with the benchmark IBEX index losing over -1% in the morning session. Treasuries fell, sending yields higher. The 10-year Spanish government bond yields soared to a 2.5-month high of 1.68%. Spread between Spanish-German 10 yields rose to the highest in 3 weeks.

Euro opens the week broadly lower as the Catalonian referendum for independence on Sunday turned into chaos. Legally recognized or not, preliminary results show that 90% votes were in favor of independence with a turnout rate of 42.3% (2.3M votes). What shocked the world is that the the peaceful campaign had met with violent suppression of the Spanish government, with brutal attack by the national police (firing rubber bullets, seizing ballot boxes from polling stations, etc). It's believed the violence of the government provoked more "yes" vote for independence.

There were some conflicting movements in the markets last week. Risk appetite was clearly strong in US and Europe. S&P 500 and NASDAQ ended at record highs and DOW was not far from it. Dollar was firm as investors finally got some more details about the long awaited tax reform. Treasury yield also jumped as markets were getting more confident on the bet of December Fed hike. However, the greenback was overshadowed by Swiss Franc, which ended as the strongest one for the week. Dollar was only the second best performer. Yen also ended the third strongest ones. The decoupling of risk sentiments with Swiss Franc and Yen could be partly seen as the results of quarter end position squaring. Or, it's a sign that Dollar strength was indecisive due to lack of confidence over the tax plan.

Dollar weakens pare gains as markets are heading to weekly close. In particular, Swiss Franc has overtaken Dollar's place as the strongest one for the week. Economic data from US are providing little boost for the greenback. Instead, tamer than expected inflation is weighing mildly on Dollar. And traders should be taking profit at quarter end, and ahead of next week's employment data. Meanwhile, some more time is needed to reassess the impact of US President Donald Trump's tax plan, before traders take a more decisive stance. US personal income rose 0.2% in August, spending rose 0.1%, in line with consensus. Headline PCE was unchanged at 1.4% yoy while core CPI slowed to 1.3% yoy. Both were below expectations. From Canada, GDP rose 0.0% in July, below expectation of 0.1% mom. IPPI rose 0.3% while RMPI rose 1.0% mom in August.

Dollar is losing some momentum but it's still likely to end the week as the strongest one. The initial reactions for US President Donald Trump's tax plan were positive. But markets quickly turned into cautious mode as they reassess the situation. DOW gained 0.18% to 22381.20 overnight, but stayed below 22419.51 record high made last week. S&P 500 ended at new record at 2510.06 by was kept below Thursday's high as 2511.75. 10 Year yield opened sharply higher and jumped to as high as 2.344, but pared back all gains to close flat at 2.309. In the currency markets, commodity currencies are set to end as the weakest ones. Euro, Yen and Sterling could end the week mixed.

Dollar is paring some gains today but it remains the strongest major currency for the week so far. While bond yields remains firm today, the greenback is losing some momentum. Euro and Sterling are trading firmer while commodity currencies remain weak. Released from US, initial jobless claims rose 12k to 272k in the week ended September 23, above expectation of 269k. Continuing claims dropped -45k to 1.93m in the week ended September 16. Trade deficit narrowed to USD -62.9b in August. Wholesale inventories rose 1.0% in August. Q2 GDP was revised up to 3.1% with price index unchanged at 1.0%.

The financial markets responded quite positively to US President Donald Trump's tax plan in spite of some criticisms. Most notable movements are seen in treasury yields. 10 year yield closed up 0.080 at 2.309, resuming recent rise from 2.034 and is on course to 2.396 resistance. 30 year yield also resumed recent rally and ended up 0.093 at 2.863. Stocks also strengthened with S&P 500 hitting new intraday high at 2511.75 before closing at 2507.04, up 0.41%. DOW gained 0.25% to close at 22340.71. Fed fund futures are pricing in 83% chance of December hike, up from 73% a week ago. Dollar extended this week's advance, in particular, it's picking up momentum against commodity currencies.

As widely anticipated, RBNZ left the OCR unchanged at 1.75% in September Policymakers downgraded the domestic growth outlook and suggested that the accommodative monetary policy would stay for a “considerable period'. Thanks to the recent decline in New Zealand, driven by heightened political uncertainty, RBNZ tweaked its warning over currency strength. It noted that a lower exchange rate would "would help" raise tradables inflation. We expect RBNZ to keep the policy rate unchanged for the rest of the year, and likely through 2018.

Dollar's rally extends in early US session after solid economic data. Headline durable goods orders rose 1.7% in August, versus consensus of 1.0%. Ex-transport orders rose 0.2%, in line with expectation. Dollar traders are keenly looking forward to US President Donald Trump's announcement of tax reform (or just tax cuts?). It's reported that corporate tax rate would be brought down from 35% to 20% level. Top individual income tax rate will also brought down from 39.6% to 35%. Trump is scheduled to deliver a speech in Indianapolis later in the afternoon to promote his plan.

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.