Action Insight

Euro jumps as ECB President Mario Draghi acknowledged in the post meeting press conference that growth in the Eurozone is solid and broad-based. At the same time Draghi also promised to "decide on the calibration" of its policy instruments beyond this Autumn. He went further to say that the "bulk of the decisions" will come at the October meeting. Regarding a recent hot topic in exchange rate, Draghi noted that a "few" members express concerned back in July. And those concerns were reiterated by "most" members this time. And recent volatility in the exchange rate is seen as a source of uncertainty that requires monitoring. Nonetheless, while financial conditions "unquestionably tightened" following Euro's rise, they remain "broadly supportive" for non-financial enterprises.

Euro recovers mildly in Asian session today but stays in red for the week except versus Dollar. Markets are cautiously awaiting the highly anticipated ECB policy decision and press conference. There were rumors flying around since last week that ECB will deliver nothing this time. The decision on tapering the asset purchase program would be delayed to October or even December. At this point, October is still a more likely option. After all, the central bank will likely maintain the rhetoric that "the net asset purchases, at the current monthly pace of EUR 60b, are intended to run until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". Policymakers would also warn of currency appreciation. At the Q&A session, Draghi would probably stay neutral in the tapering schedule.

In a surprising move, BOC increased the policy rate by +25 bps to 1% in September, following a rate hike in July. Policymakers cited the better-than-expected economic developments as a key reason for the removal of stimuli from the market. However, they remained cautious over a number of issues including excess capacity, subdued inflation, geopolitical risks and the strength in Canadian dollar.

Canadian Dollar soars sharply in early US session after BoC shocked the markets by raising overnight rate by 25bps to 1.00%. Correspondingly, the Bank rate is lifted to 1.25% and deposit rate to 0.75%. While there were speculations of a rate hike, markets generally believed that BoC will hold their hands till October, as it has just raised interest rate back in July. Nonetheless, after the rate hike, BoC remains open to further tightening It noted that "future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation." Meanwhile, it doesn't sound concerned with strength of the Canadian Dollar as it is "reflecting the relative strength of Canada's economy."

Dollar is trading as the weakest major currency for the week. Dovish comments from Fed officials are weighing on the greenback. Also stocks and yield played catch up after holding and suffered notable lost. DOW closed down -1.07% at 21753.31. 10 year yield dropped through last week's low, losing -0.087 to close at 2.070. 2.0 handle is starting to look vulnerable as recent decline extends.

Market sentiments continue to stabilize today with European indices trading mixed. DAX is trading up 0.55% at the time of writing, CAC flat and FTSE down -0.1%. US futures point to a mildly lower open as markets come back from holiday. In the currency markets, Yen is firm against most currency except Aussie and Kiwi. But Swiss Franc is trading broadly lower as risk aversion recedes. Euro and Dollar are trading as the second and third weakest for the day so far. In other markets, gold pares back some gain but maintains near term bullishness for a take on 1350 handle later in the week. WTI crude oil staging a strong rebound and is back above 48. Strength in oil might start to life Canadian Dollar later in the session.

As widely anticipated, the RBA left the cash rate unchanged at 1.5%, historic low since August 2016. Policymakers remained confident over the economic outlook, but stayed cautious over the strength in property prices. Again, they warned that recent appreciation in Australian dollar would weigh on the outlook for growth and employment, and prolong soft inflation. . It appeared that the central bank would keep its policy rate unchanged at the current level for some time.

The Japan yen remains firm across the board on mild risk aversion. It's reported that North Korea is quietly moving another intercontinental ballistic missile towards its west coast, readying for another launch by the end of the week. But market reaction is relatively muted. There is no follow through buying seen in neither Yen or Swiss Franc. With the exception of USD/CAD, most pairs are still bounded in familiar range as consolidations continue. Aussie strengthens mildly after RBA stands pat, but similar to most others, AUD/USD is stuck in range trading for the moment. In other markets, Nikkei trades in red again today and is down -0.5% at the time of writing. Gold stays firm at around 1340/5 and could take on 1350 handle later in the week. WTI crude oil is mildly higher but struggles to get rid of 55 day EMA at 47.5.

The news is huge but the reactions in the markets are relatively mild. Quick escalation in North Korea tension over the weekend triggered selloff in global equity markets. Nikkei suffered much by dropping -0.93% to 19508.25, closing close to intraday low at 19479.40. While European stocks follow, FTSE is back at 7410 after dipping to 7404, down -0.37% at the time of writing. DAX dropped to 10050 but it's back at 12118, down only -0.20%. CAC, similarly, dips to 5088.28 but is back at 5109, down -0.28%. In the currency markets, no follow through buying is seen in Japanese Yen and Swiss Franc after initial gap up. The more decisive movement is found in gold, which jumps to as high as 1345.5 and is trading above 1340, up fro than 0.75%.

Korean peninsula tensions have escalated further as North Korea confirmed the sixth nuclear test on Sunday, following a missile launch over Japan on August 29. In response to the growing threat of its closest neighbor (and ethnic brother), South Korea has earlier today conducted a missile drill and pledged to implement contingency measures to stabilize the economy in case of drastic deterioration. In the US, Defense Secretary James Mattis warned of "massive military response" to North Korea's intimidation, echoing President Donald Trump's comment 'all options are on the table' following the rogue regime missile launch last week. While US' warnings imply that a military strike against North Korea cannot be ruled out, we believe the chance is low as it is the least preferred option for all major stakeholders.

Yen and Swiss Franc gap up as the week starts while Dollar and Aussie trade broadly lower. Nikkei tumbles in early trading and is down -170 pts at the time of writing. Gold resumes recent rally and surges to as high as 1343.5. Korea tension resurfaces as North Korea conducted a sixth nuclear test on Sunday. It's believed that this one, an advanced hydrogen bomb or a long-range missile, is of a significantly larger scale and more powerful, as an Pyongyang described the underground explosion in a televised statement that it's a "perfect success in the test of a hydrogen bomb for an ICBM". And, "the creditability of the operation of the nuclear warhead is fully guaranteed." It's even claimed that the detonation of the bomb triggered an initial magnitude 6.3 earthquake in the northern part of North Korea. The United Nations Security Council was set to meet later on today to discuss fresh sanctions against the country.

Dollar survived the geopolitical risks in Korea peninsula, damage of hurricane Harvey, and a set of disappointing non-farm payroll data, to end the week "mixed". While the pull back in EUR/USD caught much attention, we'd like the point out that Dollar ended the week lower against Canadian Dollar, Australian Dollar and Sterling. Indeed, the pound ended as the third strongest major currency, next to Canadian Dollar, even though the third round of Brexit negotiations ended with no concrete progress but more verbal exchanges between EU and UK officials. On the other hand, as risk aversion came and went quickly, Yen and Swiss Franc ended as the weakest ones, just next to Kiwi. Traders could take a brief rest on Monday as US and Canada will be on holiday. But three central bank meetings, RBA, BoC and ECB promise much volatility ahead.

Dollar is back under selling pressure in early US session after all the way bad non-farm payroll report. NFP showed only 156k growth in August, below expectation of 180k. Prior month's figure was revised down from 209k to 189k. Unemployment rate rose to 4.4%, up from 4.3%. And more disappointingly, average hourly earnings grew a mere 0.1% mom, below expectation of 0.2% mom and slowed from prior month's 0.3% mom. EUR/USD took out 1.1928 minor resistance and should have completed this week's pull back. Further rise is now in favor through 1.2 handle back to retest 1.2069 high. USD/CAD dives through 1.2412 low and is now resuming medium term down trend. US will also release ISM manufacturing later today but it's unlikely to help the greenback.

Dollar lost some momentum after yesterday's sharp rebound, as markets are waiting employment data from US. Non-farm payroll report is expected to show 180k growth in August while unemployment rate is expected to be unchanged at 4.3%. Wage growth is also a key to watch and average hourly earnings are expected to rise 0.2% mom. It's clearly that Fed will announce the plan to unwind its balance sheet later this month. The main question for all market participants is whether Fed will hike again this year. Fed fund futures are only pricing in 36.9% chance of another hike in December. Stronger than expected NFP numbers might lift the pricing a little. But Fed policy makers would still need to see evidence that inflation is back on track before making another move.

Despite a retreat after breaching the 1.2 level against US dollar, the euro has still gained almost +2% since the last ECB meeting. Indeed, the single currency is the best performer so far this year, up13% against the greenback and +8% against the pound, whilst the trade-weighted index has appreciated over 7% since 2Q17. A non-eventful Jackson Hole failed to dampened euro's rally. Rather, it led EURUSD to surge to as high as 1.2069, a level not seen since early 2015.

Sharp pull back in Euro and strong rebound in the Dollar are the main themes in the forex markets today. The common currency is weighed down by reports that "unnamed" ECB officials are concerned with its strength. And ECB might opt to "muddle" through the September meeting instead of announcing some solid tapering plan. That's more that offset the supposed positive boost from stronger than expected Eurozone CPI. On the other hand, Dollar continues to regain grounds as supported by positive economic data. Nonetheless, Canadian Dollar is indeed the strongest one today as lifted by stronger than expected GDP growth. New Zealand Dollar stays the weakest but Sterling catching up as another round of Brexit negotiation is concluded without any progress.

Dollar is trading firm is Asian session today and maintains overnight gains inspired by positive ADP and GDP data. That was accompanied mild strength in stocks, with DOW closed up 0.12%. 10 year yield also edged higher by gaining 0.007 to 2.143. Dollar index dived to as low as 91.62 yesterday but seems to be getting strong support fro 91.91/3 key level and rebounded. The key will lie in tomorrow's non-farm payroll report. As risk aversion eased, Yen is trading in red against all other major currencies for the week, except Canadian Dollar. Gold also pares back much of this week's gain and is back pressing 1300, after hitting as high as 1331.9 earlier in the week. The Loonie is weighed down by weakness in oil price which sees WTI dips to as low as 45.58.

Recent weakness in Swiss franc against the euro has not yet boosted Switzerland's economic outlook in a meaningful way, evidenced by the disappointing KOF indicator and Credit Suisse (formerly conducted by ZEW) investor sentiment index for August. While, at the meeting on September 14, the SNB would certainly affirm the stance that the franc remains "overvalued" and the pledge the combat deflation, we are concerned that there would still be a long way to go for the country's economy to get back in shape, as the pass-through of exchange rate into inflation is subdued. Meanwhile, a recent study by the SNB suggests that its monetary policy would have to stay relatively more accommodative (than ECB's) for longer to push inflation higher. We believe this reinstates the central bank's commitment to leave the policy unchanged.

Dollar's rebound gathers additional steam in early US session after better than expected job data. AFP report showed 237k growth in private sector employment in August, beating expectation of 188k. Q2 GDP growth was also revised up to 3.0% annualized, up from 2.6% and beat expectation of 2.7%. Besides, US President Trump will finally kick-off his campaign on tax reform today. Trump will deliver a speech in Springfield, Missouri, and will likely tout the tax reform as a way to help the working class as well as the middle class. If the speech is consistent with Trump's usual rhetorics, it will likely focus on the "why" aspects of the reform. However, the markets would be more interested in know the "how" aspects of it. Nonetheless, for now, Dollar selling is likely past a climax and more upside is mildly in favor, at least until non-farm payroll release on Friday.

Risk appetite returned as DOW staged the a 200 points swing in the biggest intraday comeback in near nine months overnight. Major indices ended higher with DOW gained 0.26%, S&P 500 rose 0.08% and NASDAQ added 0.30%. 10 year yield dived to as low as 2.091 but pared back much losses to close down -0.023 at 2.136. Dollar also stabilized and recovered after intraday selloff. Some analysts attributed the rebound to the lack of escalation out of US regarding North Korea's firing of missile over Japan. US President just said that all options are on the table, without any follow up. Nikkei follows by gaining near to 100 pts in Asia at the time of writing. Gold also retreated from intraday high at 1331.9 and is back below 1320.