Action Insight

As widely anticipated, ECB left the policy rates unchanged, with the main refinancing rate, the marginal lending rate and the deposit rate staying at 0%, 0.25% and -0.40% respectively. The focus of the meeting was on the updated economic projections and the press conference. For the former, accompanying the upbeat statement were upgrades of GDP growth and inflation forecasts. The staff has also unveiled the 2020 outlook for the first time. For the latter, little news revealed with President Mario Draghi refraining from discussing the internal division over the future of the QE program. He, however, reiterated that the monetary policy should remain accommodative as inflation has yet to be self-sustainable.

Dollar's data inspired rally overnight was brief and weak. The greenback is still set to end as the weakest major currency for the week despite a Fed rate hike. It seems like markets are rather worried on passage of the reconciled tax bill in the Senate. Euro is indeed trading as the second weakest one for the week. Even though ECB raised both growth and inflation forecasts, it's still not going to meet 2% inflation target before 2020. Commodity currencies are trading broadly higher for the week. Canadian Dollar was given a boost by BoC Governor Stephen Poloz's upbeat comment. But it's overwhelmed by Aussie and Kiwi.

Dollar is trying to regain some ground in early US session after ultra-low jobless claims and strong retail sales. Indeed, at the time of writing, the greenback is trading up against all but Aussie for today. Nonetheless, after yesterday's post CPI and FOMC selloff, Dollar has to do more to convince the markets of its momentum. Meanwhile, Euro is actually trading as the strongest one today, trailing Dollar closely. The common currency is lifted by strong Eurozone PMIs. ECB also raised growth and 2019 inflation forecasts in the latest projections. Elsewhere, BoE and SNB stand pat as widely expected.

The BOE voted unanimously to leave the Bank rate unchanged at 0.5% in December, following a historic rate hike in the prior month. Policymakers also decided to leave the asset purchase program unchanged at 435B pound. Overshooting of inflation remains a key concern with the central bank putting its blame on British pound's weakness. Policymakers noted that recent macroeconomic data have been "mixed" and raised the concern that GDP growth might slow in 4Q17. The central bank also acknowledged the progress of Brexit negotiations, suggesting that it has helped support the pound. We expect the BOE would keep its powder dry at least for the first half of next year, unless abrupt changes in the growth and inflation developments.

While leaving the policy rates unchanged for another month and pledged to continue FX market intervention when needed, the SNB has turned less dovish in December. It has turned more upbeat over the economic recovery outlook and acknowledged the depreciation of Swiss franc and the euro and US dollar. the central bank revised modestly higher the inflation forecasts for this year and 2018, while leaving that for 2019 unchanged.

The greenback got dumped, as a result of a series events happened over the past day. Defeat of GOP Roy Moore in the Alabama Senate race and the miss of the core CPI were followed by a final version of tax bill. The day culminated in the conclusion of the FOMC announcement, which saw a 25 bps rate hike as expected, but with two dissents. US dollar fell against major currencies with the DXY index losing -0.71% for the day. Treasuries firmed, sending yields higher with the 2-year and 10-year yields dropping -4 points and -5 points respectively.

Dollar tumbled broadly after FOMC rate hike as most likely an extended selloff after core CPI miss. News on the progress in Republican's tax bill provided little support to the Dollar. Technically, Dollar index should have confirmed the rejection from 94.16 resistance. Equivalently, EUR/USD has defended 1.1712 key near term support. more downside is now likely in the greenback in near term with EUR/USD heading back to 1.1960 and possibly have a go at 1.2 handle before year end. Staying in the currency markets, Aussie is propelled higher by a stunning job report. European majors are generally firm too, ahead of SNB, BoE and ECB rate announcement.

Dollar drops broadly today even though Fed raise federal funds rate by 25bps to 1.25% to 1.50% as widely expected. Two known doves, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans dissented.

Dollar suffers some fresh selling in early US session after weaker than expected inflation data. Headline CPI rose 0.4% mom, 2.2% yoy in November inline with consensus. However, core CPI rose just 0.1% mom, 1.7% yoy , below expectation of 0.2% mom, 1.8% yoy. The greenback will now look into FOMC rate decision and statement for the needed fuel to extend recent rebound. Elsewhere in the currency markets, Sterling is trading as the best performing one today in spite of disappointing job data. Meanwhile Swiss Franc is trading as the weakest one, followed by Euro.

Investors expressed their vote of confidence overnight as they await the highly anticipated FOMC rate decision and press conference. DOW closed at record high at 24504.80, up 118.77 pts or 0.49%. S&P 500 followed closely and gained 4.12 pts or 0.15% at 2664.11, also a record. 10 year yield closed above 2.4 handle at 2.403, up 0.018. The dollar index breached 94.10 key near term resistance. However, EUR/USD is still holding on to equivalent support at 1.1712. The greenback is trading mixed only as traders seem to be cautious before Fed showing whether it's still on track for three hike next year. In the currency markets, New Zealand Dollar remain the strongest one for the week and helped keep Aussie up. Euro and Sterling are generally soft.

Dollar trades with an undertone for most of the day, but it's trying to regain some ground after stronger than expected up stream inflation data. Nonetheless, momentum is so far too weak for the greenback to resume recent rebound. Traders will still likely wait for tomorrow's CPI data and FOMC statement/projections before making up their minds. Meanwhile, Sterling also fails to ride on stronger than expected CPI data and is stuck in tight range. Commodity currencies remain the strongest ones for today and for the week.

Trading activities in the forex markets are rather subdued today. Dollar weakens mildly as traders are staying cautious ahead of FOMC rate decision later on Wednesday. Sterling is also soft as markets eye today's inflation data. On the other hand, New Zealand Dollar remains the strongest one this week and commodity currencies are generally firm. But there is no confirmed signs of a trend there yet. In other markets, US indices gained some ground overnight but DOW and S&P 500 are kept below the historical highs made last week. Treasury yields were mixed with 10 year yield gained a little by 0.002 to 2.385. Asian markets are also mixed with Nikkei trading nearly flat at the time of writing.

New Zealand dollar is the star performer today as markets respond very positively to the appointment of the new RBNZ governor. Strength in the Kiwi also took Aussie generally higher. Meanwhile, Dollar is paring recent gains against all but Sterling and Loonie. Dollar traders are cautiously adjusting their positions ahead of the FOMC rate hike and new forecasts on Wednesday. But it's Sterling who's the weakest and impact from Brexit breakthrough faded. More volatility is anticipated ahead with Fed, ECB, BoE and SNB meeting this week, in addition to heavy weight data like US and UK CPI.

The forex markets opened the week relatively quietly. Yen is the notably weaker one, extending last week's selloff. Sterling is trading mildly firmer but there is no clear strength. Similarly, Euro also recovers mildly too but it's kept below 1.1814 resistance against dollar so far, maintains an undertone. The calendar is relatively light today and trading could remain subdued. But activity will quickly increase as a busy week starts "informally" on Tuesday. Fed, ECB, BoE and SNB will meet and there are heavy data including US and UK CPI to be featured.

Dollar ended the week as the strongest major currency on optimism that Republicans are on track to get the tax bill passed by the end of the year. However, there was certain indecisiveness in Dollar's rally. In particular, the greenback lost momentum as wage growth in non-farm payroll report disappointed. That added to concerns of lack on inflationary pressure, and thus could slow down Fed's tightening pace. But there are two sides of every coin as the greenback just lost momentum, but not reversed. Dollar will look into this week's FOMC rate hike and economic projections for guidance.

Initial reactions show markets are not too happy with US non-farm payroll report. While headline job growth beat expectation, it was partly offset by downward revision in prior month's figure. More importantly, wage growth came in weaker than expected. It's seen as a crucial factor for inflationary pressure, or the lack thereof. While the greenback retreats mildly as knee jerk reaction, there is no sign of a reversal. Instead, the greenback stays very strong against Euro and Swiss Franc. 1.1712 in EUR/USD is now at risk and break will probably trigger broad based acceleration in Dollar. Meanwhile, Sterling reversed earlier gains as Brexit negotiation breakthrough finally becomes a fact today.

Dollar remains generally strong today, but it's over powered by Sterling. The Pound is lifted by optimism that Brexit negotiation is finally close to completing the first phase. It's reported that the Irish border issue is solved with UK Prime Minister Theresa May's new proposal. And she's flying to Brussels again today to complete the talks. Dollar will look into today's non-farm payroll report for the fuel for further rally. Elsewhere in the currency markets, Yen and Swiss Franc are trading as the weakest ones today.

Dollar remains the strongest currency in early US session as supported by positive job data. Initial jobless claims dropped 2k to 236k in the week ended December 2, below expectation of 241k. That's also the lowest level in five weeks. Four week moving average dropped from 242.25k to 241.50k. Continuing claims dropped -52k to 1.91m in the week ended November 25. Challenger report, though, showed 30.1% yoy rise in planned layoff in November. Overall, recent job released data point to solid non-farm payroll report to be released tomorrow. And expectation of 200k job growth could easily be matched. But again, the tricky point will remain to be wage growth.

SNB's FX reserve slipped to 738.17B franc, from a record high of 741.96B franc (revised from previous estimate of 741.32B franc), in November. The drop is in contrast with consensus of an increase to 745B franc and marks the first drop since June this year. Meanwhile, the sight deposit fell to 576.78B franc in the week ended December 1. Subsequent decline from the August peak has sent sight deposit to the lowest level since June 2017. The movements of both FX reserve and sight deposit have suggested that the SNB is not in a hurry to intervene with the recent weakness in Swiss franc. Separately, the country's unemployment rate stayed unchanged at 3% (seasonally adjusted) in November, compared with expectations of a rise to 3.1%. For the quarterly SNB meeting scheduled on December 14, we expect policymakers to maintain the status quo, i.e. keeping 3-month LIBOR target range unchanged, at between -1.25% and -0.25%, maintaining the interest rate on sight deposits with the SNB at -0.75% and reaffirming that the central bank is committed to intervene in the FX market as necessary. We believe the domestic economic developments since the September meeting have shown gradual improvements, leaving policymakers more room to wait and see.

Dollar is trading broadly higher today as its shrugged off negative news. US President Donald Trump announced to recognize Jerusalem as Israel's capital could unsettle the region and triggered a dip in USD/JPY. But the pair quickly recovered as the impact faded. Markets are also ignoring the risk of partial government shut down after money runs out on December 8 if no spending bill is agreed by the Congress. Also, news regarding special counsel Robert Mueller subpoena on Trump's Deutsche Bank records was also disregarded by traders.