Action Insight

Sterling trades notably high against Dollar and Yen today on more optimism over Brexit. GBP/USD reaches as high as 1.3942 so far and looks set to take out 1.3835 key resistance decisively. That would carry long term bullish implications. But for now, Euro and Swiss Franc are trading as the strongest ones for today. There is no change in Dollar's fate for the moment as its rebound again lacks follow through momentum. The greenback is weighed down by talks of global diversifications away from Dollar assets, including China and others. And Euro is an important destination of the funds.

Trading in the forex markets remain rather dull today. Dollar's recovery overnight again lack conviction. Nonetheless, USD/JPY does seem to have bottomed out, but that's mainly thanks to Yen's weakness. Canadian Dollar is bounded in range after the highly anticipated BoC rate hike. Traders are holding their bet on the Loonie after cautious tone of BoC. Sterling spiked higher through 1.3835 key resistance but there was no follow through buying. It'll take a little more time to see if that's bull trap. Australian Dollar doesn't get any lift by strong job data and is staying in consolidation.

BOC raised the policy rate by +25 bps to 1.25% in January, as 'recent data have been strong, inflation is close to target, and the economy is operating roughly at capacity'. The move had been widely anticipated. As such, we observed the instant 'sell the news' move in...

Euro is trading generally lower today after some ECB officials expressed concerns over its recent appreciation against Dollar. The greenback is also trying to gain some footing as the steep broad based selloff is exhausted. But for the momentum, there is no confirmation of a turnaround in Dollar yet. At least, Dollar's recovery today is overwhelmed by the strength in Aussie and Kiwi. Canadian Dollar, on the other hand, remains in tight range as traders await BoC rate decision cautiously.

While the forex markets remained generally steady, stock traders experienced a roller coaster ride overnight. DOW surged in initial trading to as high as 26086.12 (up 283 pts) but reversed gain and closed down -0.04% at 25792.86. That's the biggest single day reversal since February 2016. Similarly, S&P 500 surged to 2807.54 but closed down -0.35%. 10 year yield was relatively steady, closed down just -0.008 at 2.544. TNX is still struggling to have the momentum to get through 2.621 key resistance. A factor is the concerns over government shutdown in the US. The Congress will need to pass a spending bill by the end of this week to avoid the shutdown and it's seen as a risk by many traders

The forex markets are generally trading within yesterday's range today as markets turn into consolidation mode. Dollar is trying to pare back some losses but there is no indication of bottoming yet. The greenback remains the weakest major currency for the week so far. Commodity currencies, in particular Aussie, stays strong. Elsewhere, markets are also in general risk seeking mode. At the time of writing, German DAX is up 0.95%, French CAC 40 is up 0.28%. FTSE 100 is nearly flat, though. US futures point to sharply higher open as markets come back from bank holiday. DOW would extend recent record run and would likely take on 26000 handle.

Dollar is mildly higher in Asian session, as it turns into consolidation after recent steep selloff. Among the mostly traded currencies, Australian Dollar is trading as the strongest one. That's partly supported by strength in China as the Shanghai SSE composite index, trading at 3420, is close to 2017 high at 3450. And break there will push the index into highest level since 2015. Meanwhile, Hong Kong HSI, as a proxy to China, is also close to the record high at 31958 made 10 years ago. Euro is trading as the second strongest as supported by hawkish comments from ECB officials. It seems now, after last week's December meeting minutes, ECB policymakers are starting to sing a chorus of ending asset purchases after September. As for today, UK inflation data will be a key event to watch.

Dollar continues to trade as the weakest major currency as another week starts. Over the month, the greenback is trading weakest against Kiwi and Aussie. Meanwhile, Euro is catching up as Germany is closer to reforming the grand coalition. Sterling follows on improving prospects of a favorable Brexit deal. For the moment, it's unclear which is the main driving force behind Dollar's selloff. The fact that other global central banks are catching up on tightening is a factor. Surge in commodity prices is another one. But these two factors are not strong enough to send the Dollar index to three year low. The concerns of China's consideration to move away from Dollar assets could be the more important reason.

EUR/USD powers through 1.21 handle today on new that German Chancellor Angela Merkel has achieved some breakthrough in forming the new coalition government. It's reported that Merkel has struck a deal with the Social Democrat to formally open talks for reforming the grand coalition. The marathon talks were closed with a 28-page blue print between the CDU/CSU and SPD. Close cooperation with France to strengthen the Eurozone is one of the key point of the blue print.

Risk appetite continued to be generally strong. DOW closed up 205.6 pts, or 0.81% overnight to 25574.73. S&P 500 and NASDAQ were up 0.7% and 0.8% respectively. All hit new record highs. Positive sentiments continue in Asian session with gains in China and HK markets even though Nikkei weakens mildly on recent Yen strength. WTI crude oil also extended recent rally to as high as 64.77 and is set to test 65 handle. Gold is firm, consolidation around 1320, as Dollar is back under pressure. The greenback will look into today's CPI reading for direction.

The December minutes turned out more hawkish than expected. While the policymakers generally judged that the existing monetary policy remained 'appropriate'. They also agreed that the forward guidance might warrant some adjustments as the pace economic recovery accelerated. The minutes noted that the 'transition would take place without a change in sequencing', suggesting that no rate hike would be implemented before the end of the asset purchase program. The minutes indicate that the forward guidance would be a key policy tool in the year ahead.

Two issues happened in China have roiled the market over the past two days. While the adjustment of renminbi fixing mechanism has resulted in a weaker currency, a news report citing an anonymous Chinese official as recommending to trim or halt purchases of US Treasuries has sent the longer-dated US Treasury (UST) yield higher, thus steepening the UST yield curve. While the former reveals that the Chinese government continues to actually intervene the FX market, putting its commitment to internationalize the currency in question, the latter is merely an act to maintain currency stability and a response as the US-China trade friction once again heats up.

Aussie trades broadly higher in Asian session as lifted by retail sales data. While AUD/UD is still limited below 0.7896 key near term resistance, EUR/AUD has dipped through 1.5226 support, which signals more Aussie strength ahead. Over the week, Yen remains the strongest one on speculations of BoJ stimulus exit. Dollar suffered steep selling of talks that China will slow purchases of US assets. But still, the greenback in trading mixed, in red against Yen Aussie and Kiwi only.

Dollar dives broadly today on news that China is considering to diversify its foreign exchange reserves away from Dollar. It's reported by Bloomberg, without unnamed source, that Chinese officials are recommending the government to slow or even halt purchase of US treasuries. The China's State Administration of Foreign Exchange has yet provide a response to press query yet. But it's believed that the lowered attractiveness of US assets, as well as trade tensions between the two countries could be the reasons for the change in strategies.

BOJ offered to buy 190B yen of JGBs with maturity of 10- 25 years, down 10B yen from the purchase made on December 28. It also reduced the purchase of JGBs with maturity of 25- 40 by the same amount to 90B yen. The move has heightened speculations that the central bank is preparing to trim its stimulus measures. The market reactions match with the speculations with USDJPY slipping -0.42% while EURJPY down -0.65% on Tuesday. Japanese longer- dated 20- and 40-year bond yields rose to their highest in a month. Longer- term US Treasuries were also affected by BOJ’s move with 10-year yields gaining +6 points to 2.546%. Of course, the movement of US Treasuries was also affected by the auctions this year.

Risk appetite remains strong in global financial markets. All three major US indices, DOW, S&P 500 and NASDAQ made record highs over night. Optimism carries on in Asian session. Even though Nikkei is trading a touch lower, stocks in China and Hong Kong are strong. The biggest surprise overnight was the surge in US treasury yields. 10 year yield close up 0.066 at 2.546. 2.621 key medium term resistance is now within reach. The development also helped lifting the dollar index back above 92.5. The greenback is probably finally preparing for a sustainable rebound.

Yen remains the strongest major currency for today as BoJ operates spurred speculations of stimulus exit. Dollar also follow closely as the second strongest one. On the other hand, European majors are under much selling pressure as recent rally fails to sustain momentum. Euro continue to shrug off positive economic data while EUR/USD's fall gathers steam. Elsewhere, commodity currencies are generally mixed. Speculations for a January BoC rate hike continue to grow. But Loonie's rally is looking stretched.

Yen strengthens against all major currencies in Asian session on news that BoJ lowers its long-dated JGB purchases. Strength in Yen is followed by Aussie, which is lifted by strong housing data. On the other hand, Dollar and Euro are both trading weakly. Comments from Fed officials overnight gave no extra confidence to the markets that Fed would hike three more times this year, not to mention four. Meanwhile, Euro stays soft as recent rally lost steam.

Despite a string of upbeat confidence data from Eurozone, Euro tumbles broadly today. Weaker than expected German retail sales could be a factor. Some also point to the risks of upcoming election in Italy. But it's seen that the decline in Euro is due to recent loss in momentum, and the failure of EUR/USD to break through 1.2091 key resistance. On the other hand, the greenback is trying to regain some ground, together with the Japanese Yen. BoC business outlook survey is the only economic release in US session. Focus will be on speeches of Fed officials including Atlanta Fed Raphael Bostic and San Francisco Fed John Williams.

Markets open another week rather steadily. Canadian Dollar remains the strongest one as supported by rate hike expectations. Dollar is trying to recover again, in particular as EUR/USD is feeling heavy ahead of 1.2091 key near term resistance. But more evidence is needed to confirm underlying strength in the greenback. Strong global risk appetite is keeping Yen and Swiss Franc soft. But Aussie is so far the weakest one after the government forecasts 20% drop in iron ore price this year.