Action Insight

Risk appetite dominated the markets last week and with global equities having a stellar start to 2018. With that, Japanese Yen and Swiss France ended as the two weakest ones. Dollar attempted to rebound multiple times but failed. Non-farm payrolls data were solid even though the headline number missed expectations. But it nonetheless gives no push for Fed to quicken it's rate path. Euro was also relatively firm throughout the week, until data showed headline and core inflation slowed in December. Sustainable strength was seen in commodity currencies. In particular, Canadian Dollar ended as the star as double boosted by strong job data and surge in oil price.

Canadian dollar soars in early US session after another month of stellar job data. The employment market grew and impressive 78.6k in December, just slightly smaller than prior month's 79.5k. It's also well above expectation of 0k growth. Unemployment ate, dropped to 5.7%, down from 5.9% and was way below expectation of 6.0%. That's also the lowest level in more than four decades, since the series began in 1976. The strength in job market is sealing the deal for BoC to hike again in Q1. And there could be more speculations for a January hike ahead. USD/CAD dives through 1.2380 handle, comparing to 1.2500 just an hour ago. Also from Canada, trade deficit came in larger than expected at CAD -2.5b in November.

Japanese Yen and Swiss Franc are trading as the weakest major currencies for the week on strong global risk appetite. Nikkei is extending recent rally in Asian session, after hitting 26 year high yesterday. DOW, S&P 500 and NASDAQ also closed at record highs again overnight, following the record high in FTSE. Commodity currencies and Euro are the main beneficiary in the current market sentiments. Dollar, on the other hand, stays generally weak except versus Yen and Franc. Non-farm payroll report, in particular wage data, will be key to whether the greenback can stage a turnaround. In addition, Canadian job data and Eurozone CPI will also be closely watched.

The pattern continues today with Dollar trying to recovery but fails. Economic data from US are solid but that gives little support to the greenback. Instead, Euro shines today as PMI data confirmed a "stellar" end to 2017, as the best year for over a decade. Released from US, ADP report showed 250k growth in private sector jobs in December, above expectation of 190k. Initial claims rose 5k to 250k in the week ended December. Challenger report showed -3.6% yoy fall in planned layoffs in December. From Canada, IPPI rose 1.4% mom in November. RMPI rose 5.5% mom.

US equities ended broadly higher overnight as boosted by tax cuts optimism. DOW gained 0.40% to 24922.68 and 25000 handle is within reach. S&P 500 closed solidly above 2700 handle at 2713.06, up 0.64%. NASDAQ also rose 0.84% to 7065.53. All three indices were at records. Nikkei follows today and surges close to over 2.6% through 23300. Dollar was also lifted by Fed officials's discussion that tax cuts could prompt faster rate hike. But for the moment, the greenback is still traded in red against all but Swiss Franc for the week. More support is needed from economic data, possibly non-farm payroll and wage growth, to give the greenback a turnaround.

The FOMC minutes for the December meeting revealed that policymakers were optimistic about the path of economic expansion. This was partly a result of the government's fiscal stimulus. On the tax cut, some members judged that it would help boost both capital and household spending, although the magnitude remains uncertain. The December rate hike of +25 bps was data-dependent but a key factor was the strong employment market. While wage growth was still "modest", a few members forecast it to accelerate as the job market tightened further. Many members expected that the tightening labor market would lead to higher inflation in the medium- term, but some continued to judge that core inflation would persistently stay below the 2% target. The rate hike in December was not unanimous as Chicago Fed President Charles Evans dissented.

The forex markets are trading rather mixed ahead of FOMC minutes. Commodity currencies overtake Europeans as the main driver today, with Aussie and Loonie trading generally higher. Sterling dips on weaker than expected data but remains the second strongest for the week. Dollar is also trying to stage a rebound but stays in red for the week, except versus Swiss Franc. Strength in Dollar's rebound is rather unconvincing. Traders are relatively more active back from holiday. But would likely need more inspirations from today's ISM and Friday's NFP.

Dollar is trying to recover in Asian session today after the steep new year selloff. Nonetheless, the greenback remains the second weakest one for the week, just next to Kiwi. S&P 500 and NASDAQ closed at records high at 26951.81 and 7006.90 overnight. DOW also gained 104.79 pts or 0.42% to 24824.01. 10 year yield staged a strong rebound by gaining 0.06 to 2.465 but that was mainly driven by surge in European yields, including Germany and UK. In other markets, gold breached 1320 handle before retreating mildly today. WTI crude oil is also holding above 60 handle.

Dollar's broad based selloff continues as 2018 starts. In particular, EUR/USD reaches as high as 1.2080 and is set to take on 1.2091 key resistance. USD/JPY is holding above 112.02 support for the moment, but it looks vulnerable. Among the currencies, Euro is so far trading as the strongest one, followed by Sterling. But Swiss Franc clearly lags behind its European rivals.

The forex markets start rather slowly today as, without any news, traders are staying in holiday mood. Trading could remain subdued today as UK manufacturing PMI is seen as the only market moving event. Nonetheless, US events will take lead later in the week with FOMC minutes, ISM indices and non-farm payrolls featured. Dollar was under tremendous pressure by the end of last year, partly thanks to surging commodity prices. The greenback will need some strong data to give it a life. Otherwise, Dollar index would have a take on 91 key support level within January.

Dollar remains generally weak as 2017 is coming to a close. It has been a rather bad year for the greenback despite Fed's rate hike. The highly anticipated tax plan of the Republicans also provided little boost to the greenback. Dollar index's yearly high was made back in January at 103.82. It then dropped to as low as 91.01 in September before finally staging a rather weak recovery. The sharp fall in December would very likely put 91 hand back into in the coming January. And we could see more downside in the greenback, at least in near term, before seeing a sustainable rebound.

Dollar stays weak in early US session as economic data provide little inspiration. Initial jobless claims were unchanged at 245k in the week ended December 23, above expectation of 241k. Four week moving average rose 1.75k to 237.75k. Continuing claims rose 7k to 1.94m in the week ended December 14. Wholesales sales rose 0.7% in November. Trade deficit widened to USD -69.7b in November. With the broad-based selloff in Dollar, EUR/USD should now be heading for a test on 1.1960 resistance.

Dollar's selloff accelerates overnight on sharp selloff in treasury yields and stays weak in Asian session. 10 year yield lost -0.053 to close at 2.414, well below last week's high at 2.499. Worse than expected consumer confidence reading was seen as a factor. Conference board consumer confidence dropped to 122.1 in December versus consensus of 128.2. Year end reposition was seen as another factor in the movements in bonds. But probably, the continuous flattening of yield curve is worsening before year end as markets are not to optimistic with the Republican's tax plan.

Commodity currencies continue to shine today with help of surge in copper prices. Aussie is so far the biggest winner, while Canadian Dollar is also strong. Sterling also gained in post-holiday trading on optimism of smoother Brexit negotiations ahead in 2018. While Dollar is weak, Swiss Franc and Yen are even weaker as markets are back in risk seeking mode.

The financial markets are treading water in quiet holiday trading. DOW closed -0.03% down at 24746.21 overnight. S&P 500 closed down -0.11% at 2680.50. Nikkei is also trading up around 0.1% at the time of writing. In the currency markets, Aussie is the clear winner for the week while Yen is broadly lower. The markets may need to wait for consumer confidence from US to give it back its life.

Dollar shows little reaction to mixed economic data released from the US. Personal income rose 0.3% in November, below expectation of 0.4%. Spending rose 0.6%, above expectation of 0.5%. Inflation data are positive. Headline PCE accelerated to 1.8% yoy, up from 1.6%, in line with consensus. Core PCE accelerated to 1.5% yoy, up from 1.4% yoy, meeting expectation of 1.5% yoy. However, durable goods orders disappoint. Headline durable goods orders rose 1.3% in November, below expectation of 2.2%. Ex-transport orders dropped -0.1%, below expectation of 0.5% rise. The greenback continues to trade as the third weakest one for the week, just next to Yen and Swiss Franc.

Canadian Dollar remains generally firm today but it's overwhelmed by Aussie on commodity prices. Meanwhile, Euro trades mildly lower as results of the Catalonia regional election provide no resolution to the political crisis. Dollar again attempts to recover today but it's trading in red against all others expect Yen for the week. The greenback will need some solid PCE inflation data if it's going to have a sustainable rally.

Canadian Dollar soars in early US session after impressive economic data. Head line retail sale rose 1.5% mom in October versus expectation of 0.3% mom. Ex-auto sales rose 0.8% mom versus expectation of 0.4% mom. Inflation data also came in generally stronger than expected. Headline CPI accelerated to 2.1% yoy, up from 1.4% yoy and beat expectation of 2.0% yoy. CPI core median rose to 1.9% yoy, up from 1.7% yoy and beat expectation of 1.7% yoy. CPI core trim rose to 1.8% yoy, up from 1.5% yoy, beat expectation of 1.5% yoy. Nonetheless, CPI core common slowed to 1.5% yoy, down from 1.6% yoy and missed expectation of 1.7% yoy. The set of data adds to the case for BoC to raise interest rate again in Q1. USD/CAD dipped to as low as 1.2719, comparing to this week's high at 1.2919.

As widely anticipated, BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. The central bank has turned more upbeat on the economic outlook, especially on Capex and consumption. Goushi Kataoka was again the lone dissent as he supported bond purchases so as to facilitate the decline of 10-year (or over) bond yields. Governor Kuroda's speech at the press conference has not tilted towards less easing/ policy normalization in the near-term

US tax plan has now only one more stepto take, President Donald Trump's signature, and it will become law. Market's reactions were relatively muted yesterday after House and Senate approvals. DOW closed slightly down by -0.11% at 24726.65. S&P 500 lost -0.08% to end at 2679.25. In the currency markets, Dollar trades mildly higher today, but remains the second weakest for the week. Yen is the worst performing one as pressured by powerful rally in treasury yields. BoJ's standing pat provides little inspiration to the Japanese currency. Meanwhile, Euro remains the strongest one for the week, followed by Swiss Franc.