Market Overview

The British Pound surges sharply today as boosted by strong inflation reading. BoE is still widely expected to keep bank rates and asset purchase target unchanged on Thursday. But there is now more reasons for the central bank to reiterate its stance on interest rates. That is, BoE would like to remind households and businesses that markets are under-estimating the scale of interest rate hikes in the coming years. Following Sterling, commodity currencies and Dollar are the strong ones on full return of risk appetite. But Canadian Dollar lags behind as it continues to digest recent gains. Meanwhile, Yen and Swiss Franc remain the weakest ones. Both maintains this week's loss after United Nations Security Council approved watered down sanctions on North Korea. And risks of immediate military conflicts are much reduced.

Risk appetite staged a strong strong return as DOW closed up 259.58 pts, or 1.19%, to close at 22057.37 overnight. S&P 500 also gained 26.68 pts, or 1.08%, to 2488.11, a record close. 10 year yield also responded positively, gaining 0.064 to 2.125. Gold, on the other hand, extended this week's sharp pull back and is back below 1330. Asian markets followed with MSCI Asian Pacific ex Japan hitting the highest level since 2007. Sentiments were given a boost after United Nation Security Council passed fresh sanctions against North Korea. It may be a slap in the face to the US as it can only get a much watered down version of the sanctions approved. But the fact that there is no outright ban on oil supplies to North Korea means the threat of an immediate military confrontation should have eased. And that was cheered by investors. IN the currency markets, Canadian Dollar and US Dollar remain the strongest ones for the week while Yen and Swiss Franc are the weakest.

Dollar recovers mildly today as risk aversion eased slightly. Hurricane Irma is weakening as it moved past Tampa, Florida. Some analysts pointed out that damage of Irma is not as catastrophic as feared, even though it's still devastating. Meanwhile, North Korea risk is temporarily eased after the weekend. The US has backed down on pushing toughest sanctions on North Korea. A watered down version will be tabled for vote in UNSC today. While the greenback trades mildly higher, it's clearly outshone by Canadian Dollar and Sterling. Meanwhile, Yen and Swiss Franc are trading as the weakest ones. Gold is also notably weaker, hitting as low as 1335.2, comparing to Friday's high at 1362.4. WTI crude oil is hovering tight range below 48 handle.

Dollar recovers broadly today as the weekend passed without any geopolitical events. But the greenback is slightly out-performed by Canadian Dollar. Meanwhile, Swiss Franc and Yen trade broadly losing, paring some of last week's risk aversion gains This pattern is also seen in other markets as gold is back pressing 1340 handle after hitting as high as 1362.4 last week. Economic calendar is rather light today and the forex markets will likely engage in some more consolidative trading. Nonetheless, more key events are scheduled for the week ahead including UK inflation, BoE and SNB meeting.

Dollar ended the weak as the weakest major currency as weighed down by a number of factors. Judging from the fact that Yen and Swiss Franc were the strongest ones, risk aversion was a key factor in driving the greenback down. There is so far no resolution to the geopolitical tension between the US and North Korea yet. While US is calling for United Nations Security Council to vote on fresh sanctions against North Korea, it's effectiveness is in heavy doubt. There were also fears that North Korea will launch another missile to celebrate its foundation day on September 9, that is today. Also, not long after hurricane Harvey left, another one Irma is expected to land this weekend too. Some estimated the dame of Irma to be as much as USD 200b, topping Katrina that slammed into New Orleans back in 2005.

Dollar's selloff accelerates today as markets are concerned of any more geopolitical risks during the week end. It will be North Korea's Foundation Day on Saturday and Pyongyang might just launch another missile to celebrate. At the same time, another hurricane Irma will likely make landfall in Florida late Saturday of early Sunday. In the background, the surprised early resignation of Fed Vice Chair Stanley Fischer created even more uncertainty in Fed as Janet Yellen's future as Fed Chair is unknown. Euro, despite being lifted against Dollar after ECB, could follow as the second weakest for the week.

Fresh selling is seen in Dollar as most of the event risks for the week are past. Weakness in Dollar is also accompanied by falling treasury yield, with 10 year yield closed down -0.047 at 2.061. USD/JPY finally takes out 108.12 key support level in Asian session, resuming medium term fall from 118.65. EUR/USD was also lifted after ECB meeting yesterday and took out near term resistance at 1.2069. But for the week, commodity currencies are particularly strong. USD/CAD also started diving early this week after BoC's rate hike. 1.2 handle is now within touching distance and Canadian Dollar will look into employment data for further strength. AUD/USD also takes out 0.8065 resistance today to resume larger rally. In other markets, gold continues to extend recent strong rise and is trading above 1360 handle now. WTI crude oil, however, is struggling to take out 50 handle again.

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.

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.

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%.

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.

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.