Market Overview

Dollar's decline accelerates in early US session after weak economic data. Headline CPI slowed to 1.6% yoy in June, down from 1.9% yoy and below expectation of of 1.7% yoy. Core CPI was unchanged at 1.7% yoy, in line with consensus. Meanwhile, headline retail sales dropped -0.2% in June, below expectation of 0.2%. Ex-auto sales dropped -0.2%, also missed expectation of 0.2%.

Dollar stays soft on cautious comments from Fed officials. Testifying before the Senate Banking Committee, Fed CHair Janet Yellen indicated that risks from inflation are two-sided, and it was premature to conclude that the underlying inflation trend would continue to fall below the 2% target, despite the slowdown in the price gains in recent months. Dallas Fed President Robert Kaplan advocated a cautious approach to rate hike and said that "future removals of accommodation should be done in a gradual and patient manner."

Dollar trades generally weaker today except versus Yen and Canadian Dollar, where it's consolidating in oversold conditions. The greenback, nonetheless, continues to feel the weight added by dovish testimony of Fed Chair Janet Yellen. Yellen will have the second round of her testimony today but that will likely bring little news. Meanwhile, overwhelming strength is seen in Aussie and Kiwi today, as lifted by rebound in commodity prices and solid Chinese trade data. Euro, on the hand, is also struggling as traders start to turn cautious on ECB policy bets. Sterling is believed to be saved by comments from BoE hawk Ian McCafferty and rebounds against most others.

Dollar trades broadly lower as markets generally percevied Fed chair Janet Yellen's testimony as a dovish one. DOW ended up 123.07 pts, or 0.57% at record high of 21532.14. Meanwhile, 10 year yield closed sharply lower by -0.035 at 2.327. A focus today is on 112.88 in USD/JPY which could trigger further selling of the greenback on breaking. EUR/USD retreated quite sharply overnight but is holding on to 1.1382 minor support, and thus maintains near term bullishness. And of course, USD/CAD is set to extend it's near term down trend towards 1.2460 low as the Loonie is boosted by BoC's neutral rate hike and rebound in oil price.

Canadian Dollar surges broadly as BoC delivered the highly anticipated rate hike as widely expected. The overnight rate target was raised by 25bps to 0.75%. More importantly, the central bank delivered a upbeat outlook and adopts an open stance to further policy adjustments. USD/CAD extends recent decline to as low as 1.2824 and is still on course to retest 2016 low at 1.2460. EUR/CAD drops through recent support at 1.4649 and is heading to 1.4597 key near term support level.

Dollar trades mixed in early US session as Fed chair Janet Yellen sounds balanced in her prepared speech for the testimony to Congress. The greenback is trying to rebound against Euro at the time of writing. Though, that's mainly due to Euro's own weakness after yesterday's rally. And the greenback is staying weak against Yen and Aussie. Sterling rebounds today on better than expected job data and is firm against Dollar too. Canadian Dollar is treading water as markets await BoC rate decision.

Euro surged broadly overnight, with the help from selloff in Sterling and then Dollar. Strength in the common currency carries on in Asia session today. Fed Governor Lael Brainard's cautious comments regarding rate hike is seen a a factor triggering the decline in the greenback. Fed chair Janet Yellen's testimony to Congress today will be the key to decide whether the greenback will suffer more selling. Meanwhile, Sterling tumbled as markets continued to price out a near term BoE hike. BoE Deputy Governor Ben Broadbent's lack of comments on interest rates was taken as a sign of neutral stance. Meanwhile, Canadian Dollar is staying in range against Dollar as markets are awaiting the highly anticipated BoC rate hike.

The financial markets lack a general theme today. DOW opens flat and is set to extend recent range trading. European indices are trading mixed at the time of writing with FTSE and CAC in red. The strong rebound in Nikkei earlier today had no follow through in other markets. Gold is struggling in tight range between 1210/5 while WTI crude oil is bounded between 44/45. In the currency markets, Sterling dips notably as markets are disappointed by the lack of hints on monetary policy from BoE deputy. New Zealand Dollar remains the weakest for today, followed by Swiss Franc and Yen. Technical development in Sterling will be closely watched in the US session. Key levels are 1.2849 in GBP/USD, 0.8879 in EUR/GBP and 146.03 in GBP/JPY.

Yen remains generally weak today but it's weakest spot was overtaken by New Zealand Dollar. Meanwhile, Dollar, Euro and Sterling are staying in recently established range against each other. Economic calendar is rather light and traders are generally holding their bets ahead of the key events later this week. In particular, BoC rate hike tomorrow will catch as much attention as Fed chair Janet Yellen's testimony. Meanwhile, Euro could stay mixed until there are fresh inspirations about ECB's timing for tapering. In other markets, gold recovered ahead of 1200 handle but struggled to find follow through buying above 1210. WTI crude oil is trying to regain 45 after dipping through 44 last week.

The forex markets are generally staying in tight range today. Yen is attempting to extend recent down trend but momentum is relatively weak. In particular, USD/JPY is feeling a bit heavy ahead of 114.36 key medium term resistance level. Euro is firm as Sentix investor confidence stayed closed to 10 year high in July. But both Dollar and Sterling are mildly stronger and they pare some of last week's losses. Canadian Dollar is also in consolidation even though markets are expecting BoC to deliver a 25bps rate hike later in the week. In other markets, Gold dips to as low as 1204 and is held below 1210 handle so far. WTI crude oil is mildly lower at around 44.0.

Yen stays weak in an otherwise quiet start to the week. G20 meeting didn't give impact to the markets. Global leaders pledge to continue to "fight protectionism including all unfair trade practices" and "recognize the role of legitimate trade defense instruments in this regard." While leaders have taken note of US's withdrawal from the climate accord, all but US "agree that the Paris Agreement" is irreversible. Regarding migration, G20 somewhat toughen up and said that "we emphasize the sovereign right of states to manage and control their borders and in this regard to establish policies in their own national interests and national security, as well as the importance that repatriation and reintegration of migrants who are not eligible to remain be safe and humane."

Central bank comments and rate expectations continued to be the main drivers in the global financial markets last week. However, the developments reminded us that no matter how hawkish central bankers sound, monetary policies have to be supported by data. Canadian Dollar being an example that BoC Governor Stephen Poloz's hawkish comments were supported by strong employment data. And the Loonie ended as the strongest major currency as markets are generally expecting a BoC rate hike on July 12 this week. Dollar ended as the second strongest one after solid ISM indices and non-farm payroll headline number even though markets are not convinced of a September Fed hike. Meanwhile, Euro was the third strongest as markets perceived the ECB monetary policy meeting accounts as a hawkish one.

Dollar is quite unfancied by the stronger than expected headline non-farm payroll number. NFP showed 222k growth in June versus expectation of 173k. Prior month's figure was also revised up from 138k to 152k. However, unemployment rate rose 0.1% to 4.4%. And more importantly, average hourly earnings rose 0.2% mom versus expectation of 0.3% mom. Prior months wage growth was also revised down from 0.2% mom to 0.1% mom. EUR/USD spikes lower to 1.1388 but is quickly back at 1.1420. Nonetheless, USD/JPY is firm at around 113.70, but as supported by Yen's weakness.

Yen tumbles broadly as global bond rout continued and pushed yields higher again. German 10 year bund yields broke 0.5% level for the first time since January 2016. Meanwhile, US 10 year yield jumped to a near two month high and closed firmly at 2.37, up 0.036. The resumed selling in bonds were believed to be triggered by the hawkish ECB minutes which indicated the discussion of removing easing bias. Also, some believed that weak results of French 30 year bond-auction was another trigger. UD/JPY reaches as high as 113.83 as recent rise resumed. GBP/JPY also hits as high as 147.60. Meanwhile, EUR/JPY is even stronger and hits 129.91, set to take on 130 handle.

Dollar is under some pressure in early US session after disappointing job data. On the other hand, Euro surged broadly as market perceived the ECB monetary policy account as a hawkish one. US ADP employment report showed 158k growth in private sector jobs in June, below expectation of 180k. Prior month's figure was revised down to 230k, from 253k. Initial jobless claims rose 4k to 248k in the week ended July 1, versus consensus of 243k. The number, nonetheless, remain historically low and stayed below 300k handle for the 122 straight weeks. Continuing claims rose 11k to 1.96m in the week ended June 24, staying below 2m for 12 straight weeks. Also released in early US session, US trade deficit narrowed to USD -46.5b in May. Canada trade deficit widened to CAD -1.1b in May. Canada building permits rose 8.9% mom in May.

Dollar and Canadian Dollar remain the strongest major currencies for the week, but both are losing momentum. Markets are rather unmoved by the highly anticipated FOMC minutes released overnight. DOW closed down -0.01% t 21478.17 after struggling in tight range for all the session. S&P 500 closed up 0.15% at 2432.54. NSADAQ is the more vulnerable one even though it closed up 0.67% at 6150.86. 10 year yield edged higher to 2.357 but failed to extend recent gain and closed down -0.012 at 2.334. In other markets, gold is trying to stabilize 1225 after diving to as low as 1216.5 earlier this week. WTI crude oil suffered steep selloff yesterday, from 47.3 to 44.51 and is now at around 45.3. The selloff in oil price accompanied the pull back in Canadian Dollar.

Dollar's rebound extends today as markets are awaiting FOMC minutes. The key to watch is any hint on the next move of Fed. That is, whether Fed will hike rates in September and start shrinking the balance in December, or reverse. Or, Fed would indeed do nothing in September. Currently, fed fund futures are pricing in less than 20% chance of a September hike. Also, odds for federal fund rates to hit 1.25-1.50% and above in December is less than 60%. Technically, the greenback is staying near term bullish against Yen. But Dollar is holding below near term resistance against Euro, Sterling, Aussie and Canadian, and stays bearish.

Dollar recovers this week but momentum isn't too strong so far. Indeed, the greenback is overwhelmed by the strength in Canadian Dollar, which follows high oil prices and hawkish BoC comments. Dollar is still holding well below near term resistance against Euro, Pound and even Aussie, and maintains bearishness. Meanwhile, Yen also tried to recover on news of geopolitical tensions in Korea but no follow through buying is seen. US markets will be back from holiday today with major focus on FOMC minutes. Sterling will look into PMI services for inspirations.

Yen rebounds strongly in Asian session today following steep in decline in China and Hong Kong stocks markets. In particular, the HK HSI is trading down -400 pts, or -1.5% at the time of writing, led by tech titan Tencent and casino stocks. Some attributes the selloff to North Korea's firing of another ballistic missile just ahead of July 4. That drew response from US President Donald Trump, with his tweet that "hard to believe that South Korea and Japan will put up with this much longer". And Trump tried to shift the spot to China again saying that "perhaps China will put a heavy move on North Korea and end this nonsense once and for all!" USD/JPY is back below 113 after surging to 113.46 overnight following the stronger than expected ISM manufacturing data.

Trading remains rather subdued in the forex markets today. Dollar is trying to regain some ground after last week's steep selloff. The stronger than expected ISM manufacturing is giving the greenback extra fuel. But the recovery looks nothing more than a recovery so far, except versus Yen. Sterling is also under some pressure after PMI disappointment. But loss is limited. Yen, on the other hand, is trading weakly, in particular to greenback, despite an upbeat Tankan report. The biggest news from Japan was the humiliating defeat of Prime Minister Shinzo Abe's fulling LDP in Tokyo's local election. Meanwhile, Canadian Dollar is staying firmly in tight range as WTI crude oil is extending it's rebound to as high as 46.65.