Action Insight

Dollar attempted for recovery overnight but momentum has been very weak. Boston Fed President Eric Rosengren's hawkish comments provided brief lift to the greenback. But weakness in stocks and yield limited Dollar's gain. European majors are trading broadly lower for the week. Sterling was sold off as UK finally submitted formal request for Brexit yesterday. Euro was weighed down as traders pared expectations of stimulus exit from ECB any time soon. Commodity currencies are trading higher for the week but is bounded in established range. In other markets, DJIA closed down -0.2% at 20659.32 after failing to take out 20757.89 near term resistance. 10 year yield's recovery failed below 55 day EMA and closed at 2.386, down -0.023. Gold engages in sideway consolidation around 1250. WTI crude oil rebounded strongly and is heading back towards 50 handle.

Talks of ECB's tapering have been looming of late, thanks to Eurozone's improving economic developments, especially in Germany, adverse effects of negative deposit rates on financial institutions, bigger-than-expected targeted longer-term refinancing operations (TLTROSs) take-up last week, as well as the asset buying program's ongoing deviation from its capital key. Bundesbank president Jens Weidmann has been vocal about less expansionary policy and a review to the forward guidance, while other members of the Governor Council reiterated the need to maintain accommodative measures to boost inflation.

Euro drops sharply today, taking over Sterling as the weakest major currency for the week. The selloff in the common currency is triggered by reports that the markets have over-interpreted ECB's message in the March meeting. Back than, there was a slight change in the language in the guidance. Markets took that as a sign that ECB is moving closer to stimulus exit. However, Reuters quoted unnamed source saying that policy makers merely wanted to communicate reduced tail risk.

DJIA rebounded strongly overnight by closing up 150.52 pts or 0.73% at 20701.50. S&P also rebounded by gaining 16.98 pts or 0.73% to close at 2358.57. Some attributed the rebound to strong economic data. Conference Board consumer confidence jumped to 125.6 in March, hitting the highest level since December 2000. But from our point of view, the rebound in stocks were mainly technical driven. Strong support was seen in both DJIA and S&P 500 from 55 day EMA. Meanwhile, the rebound in stocks was also accompanied by yields and Dollar index. The development suggests that reversal Trump trade has at least passed the first climax even though there is no sign of it being completed yet. The focus is turned to Sterling selling as Brexit day finally arrives.

The financial markets stabilized today with major European indices trading mixed. DAX jumps 0.5% at the time of writing while FTSE and CAC stays in tight range around break even. US futures also point to flat open. In the currency markets, commodity currencies are soft but generally confined in yesterday's range. Yen is firmer against all others but there is no follow through buying to push it throw Monday's highs yet.

Trump administration's failure to repeal and replace Obamacare has hurt market sentiment, triggering concerns over the feasibility of the president's pro-growth policy agenda. In the FX market, US dollar fell across the board amidst concerns that reflation trades since Trump's victory is over. The DXY index dived to a 4-month low of 98.86 on Monday before recovery. USDJPY also plunged to 110.09, lowest since November 18, 2016, before stabilizing. As we mentioned in the January report, it would not be surprising to see USDJPY correct to 110-112 in 1Q17. Therefore, the current price movement has not yet derailed our forecast although Trump's implementation ability has surprised to the downside. While it cannot be ruled out that the currency pair might break below 110 briefly, we retain the forecast that USDJPY should recover to 115 and then to 117 later this year.

Dollar gains some ground against European majors and Yen as market sentiments stabilized mildly. But near term outlook remains bearish and more downside should be seen in the greenback in near term. DJIA closed down -0.22% at -20550.98 after diving to as low as 20412.80. S&P 500 also closed down -0.1% at 2341.59 after hitting as low as 2322.25. Both indices drew support from 55 day EMAs and pared much losses before close.

Dollar's decline accelerates as markets seem to have made up their mind regarding US president Donald Trump's health care act failure. The dollar index is losing -0.7% at the time of writing, diving through 99.23 near term support and hits as low as 98.90 so far. Risk aversion dominates the markets as investors seriously question Trump's ability to push through his policies. Nikkei closed down -1.44% at 18985.59. FTSE, DAX and CAC are trading down -0.8%, -0.95% and -0.45% respectively. US futures point to another three-digit fall in DJIA at open. In the currency markets, Yen and European majors are generally higher with Sterling leading the way. Commodity currencies are broadly under pressured.

Dollar tumbles broadly in Asian session while the Japanese yen surges. Nikkei also trade deeply in red and is down -1.4%, below 19000 handle, at the time of writing. These developments are seen as markets' reactions to US president Donald Trump's failure in pushing through his health care act. Some analysts noted that markets are generally getting more cautious as the failure exposed Trump's on his limits.

Risk aversion was the dominate theme last week on reverse Trump trade. DJIA suffered the biggest decline this year and lost -317.9 pts or 1.51% to close at 20596.72. S&P 500 dropped -34.27 pts or 1.44% to close at 2343.98. Treasury yield followed with 10 year yield losing -0.101 to close at 2.400. Dollar index dive through 100 handle to close at 99.62, down from prior week's close at 100.31. In the currency markets, Yen was the biggest winner last week on risk aversion and falling yields. Swiss Franc closely followed as the second strongest major currency. Dollar weakened against European majors and Yen but ended up against Aussie and Canadian Dollar. The two were the weakest major currencies last week. In other markets, Gold extended recent rise from 1194.5 and closed at 1248.5, but kept below resistance at 1264.9. WTI crude oil continued to stay in sideway consolidation between 47/50.

Euro trades broadly higher today as lifted by solid PMI data. Meanwhile, the greenback also follows even though markets are facing uncertainty on health care vote in House. US president Donald Trump has issued his ultimatum to House Republicans that if the American Health Care Act is not passed today, he will move on to other priorities and leave Obamacare alone.

The financial markets are holding their breaths as US House delayed the vote of President Donald Trump's health care plan. DJIA recovered to 20757.89 overnight but closed down -0.02% at 20656.68. S&P 500 also recovered to 2358.92 but closed down -0.11% at 234596. 10 year yield recovered by closing up 0.022 at 2.418 but stayed below 55 day EMA at 2.434.

The Japanese yen extends this week's broad based rally even though markets stabilized elsewhere. US President Donald Trump will be facing his first legislative test today. House will vote on Trump's American Health Care Act for replacing so called Obamacare. As Chair of the House Freedom Caucus, Mark Meadows, suggested, there are still insufficient votes to pass the bill but the chance appears to have improved. Meanwhile, there are also reports that there could be more than 25 Republicans opposing the bill.

China's financial system continues to display fragility and liquidity squeeze. China's 7-day repo rate jumped to 5.5% (close), the highest level since late 2014, on Tuesday, followed by PBOC's injection of RMB 80-90B to the market on Wednesday as some small banks failed to repay debts in the interbank market. Less than a week ago, PBOC raised a range of short-term and medium-term interest rates to reduce financial risks, thought to be a response to Fed funds rate hike. Interbank rates should remain volatile over the coming week, ahead of PBOC's quarterly macro-prudential assessment in late March. Although recent data suggested that the problem of capital outflow eased in February, ongoing interest rate normalization in the US would prolong China's capital outflow problem, sustaining the challenges facing China in the implementation of its monetary policy.

As widely anticipated, RBNZ left the OCR unchanged at 1.75% and maintained the neutral bias in the monetary policy stance. Domestic economic developments remained upbeat with rising inflation and positive growth outlook. Policymakers attributed weaker-than-expected 4Q17 GDP to temporary factors. The central bank acknowledged the recent depreciation in trade-weighted exchange rate. Yet, it reiterated that a weaker kiwi would be needed for more balanced growth. RBNZ warned that geopolitical uncertainty remained the biggest challenge in the global economic development. We expect RBNZ would stand on the sideline throughout the year.

New Zealand dollar is steadily in range after RBNZ stands pat as widely expected. The central bank left the Official Cash Rate unchanged at record low of 1.75% and maintained a neutral stance. Governor Graeme Wheeler reiterated in the statement that "monetary policy will remain accommodative for a considerable period." And, "numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."

Risk aversion dominates the financial markets today. European indices are trading broadly lower with FTSE leading the way by losing more than -0.7%. CAC and DAX are both down -0.5% respectively. DJIA had the worst day for this year yesterday and is set to extend the sharp fall as suggested by futures. Nikkei lost -2.13% earlier today as additionally pressured by report of North Korea's failed missile test. Stocks are sold off sharply on concerns that US president Donald Trump doesn't have the ability to fulfil his election promises and push through his policies.

US equities suffered the steepest decline for the year overnight. Doubts over US president Donald Trump's ability to push through his policies are seen as the major factor driving stocks down. In particular, some economists pointed out that there is simply not enough money in the government to allow for a tax cut, nor the fiscal stimulus programs. DJIA dropped -237.85 pts, or -1.14% to close at 20668.01. S&P 500 lost -29.45 pts or -1.25% to close at 2344.02. Financials led the way, dropping more than -2.5%. Treasury yield also suffered with 10 year yield extending the near term fall from 2.615 to close at 2.436, down -0.037. Dollar index broke 100 handle to as low as 99.66. In the currency market, risk aversion boosted Yen to be the strongest major currency for the week. Commodity currencies are the weakest with Aussie leading the way down. Sterling and Euro are relatively resilient.

Sterling strengthens against all other major currencies as its boosted by strong inflation data. Headline CPI accelerated to 2.3% yoy in February, up from 1.8% yoy and beat expectation of 2.1% yoy. Core CPI also accelerated to 2.0% yoy, up from 1.6% yoy and beat expectation of 1.7% yoy. Headline CPI is now back inside BoE's target zone. iIt's also the highest reading since September 2013. While BoE has been clear that it will allow inflation to overshoot for sometime, there are continuous speculation of the timing of a rate hike.

At the RBA minutes for the March meeting, policymakers raised concerns over the increasing levels of household debts which would be exacerbated by rising unemployment and falling consumption. The members also noted there had been a "buildup of risks associated with the housing market". While the central bank has been paying close attention to the housing market, including prices, supply, rents, debts and supervisory markets, the reference of "a buildup of risks" was non-existent in the March meeting statement and the February minutes.