Action Insight

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.

The BOC left the policy rate unchanged at 1% in December. While acknowledging the strength in the employment situation, it warned of the slack in the labor market. While upgrading GDP growth forecast, it noted that it does not necessarily imply a narrower output gap. While admitting the policy rate would have to increase over time, it reiterated caution over any monetary decision. All in all, the central bank attempted to deliver a neutral to dovish message, so as not to cripple the recovery path – a lesson learnt after two consecutive rate hikes in July and September. Canadian dollar plunged after the announcement, with USDCAD jumping to as high as 1.2777, highest level in three days.

Dollar continues to trade with a mixed today as economic data released from US provide little inspiration. Sterling weakness remains the main theme in rather directionless markets. Misalignment within UK politicians remain the key issue in Brexit negotiation and Prime Minister Theresa is still struggling to put things back under control. Meanwhile, Australian Dollar stays as the second weakest one after today's GDP mixed. On other hand, Yen is extending its rebound, in particular against Europeans. Canada Dollar follow closely as markets await BoC rate decision. The Loonie would be given a boost if BoC signals that it's back in tightening path again.

The direction in the forex markets isn't too clear for the moment. Dollar firmed up mildly overnight and is maintaining broad based gains over the week. But there is clearly no follow through momentum while USD/JPY has indeed dipped notably in Asian session. Sterling continues to stay soft on Brexit dead lock but than the sellers are refusing to jump in yet. There are still hopes of a breakthrough in Brexit negotiation by the end of the week. Meanwhile, Aussie tumbles broadly today after GDP missed expectation and showed very weak consumption. BoC rate decision is the biggest feature today but could be a non-event. Instead, ADP job data from US could sparkle some moves in the greenback.

Sterling remains the weakest major currency today as traders are awaiting progress in Brexit negotiation. It probably takes a few more days for UK Prime Minister Theresa May to sort things out before she goes back to Brussels. Dollar regains some ground against Europeans and Yen. But commodity currencies are the ones who're shining today. In particular USD/CAD drops through 1.2665 support and is heading to 1.2598 key near term support level.

RBA left the cash rate unchanged at 1.5% in November, following the last reduction in August 2016. The accompanying statement contained little surprise. While staying confident over the employment situation, policymakers remained weary off the persistently soft inflation and wage growth. The RBA stance is largely unchanged from the previous meeting. We retain the view that the policy rate would stay unchanged for the entire 2018.

Sterling reversed earlier gains and weakened broadly overnight after the meeting between UK Prime Minister Theresa May and European Commission President Jean Claude Juncker failed deliver agreements on Brexit. Dollar also softened mildly as boost from tax bill faded. Traders are also cautious as there are still much work to be done to reconcile the House and Senate tax bills. And there are still lots of uncertainties on what the final versions would be. Investors in other markets were also cautious. DOW jumped to record high at 24534.04, but pared back much gain to close at 24290.05, up only 0.24%. S&P 500 rose to record high at 2665.19 too, but closed down -0.11% at 2639.44. Asian markets also trade with an undertone today with Nikkei losing -0.15% at the time of writing.

Sterling and Dollar remain the two strongest currencies today. The Pound surges further as boosted by comments from European Parliament's chief Brexit negotiator Guy Verhofstadt that there is a 50/50 chance of making "sufficient progress" today. Dollar, on the other hand, is firmly supported by optimism on getting the tax bill done before end of the year. Swiss Franc and Yen are trading broadly lower as risk appetites return. At the time of writing, DAX is trading up 1.4%, CAC up 1.0%. US futures point to sharply higher over as DOW will likely extend the record run.

Dollar opens the week generally higher as boosted by news that Senate has finally passed their tax bill. But strength is relatively limited firstly on concern that Russian probe is getting closer to President Donald Trump. Secondly, there are talks that the final version of the tax bill would just give very little lift to the economy. Sterling is also cautious bullish on optimism over Brexit negotiation. Swiss Franc and Japanese Yen are trading as the weakest one today. Looking ahead, the week is jam-packed with RBA and BoC meeting, plus many heavy weight economic data including non-farm payrolls.

Dollar took a back seat last week as traders were cautious ahead of the Senate's vote on the tax bill. Sterling took lead instead as boosted by positive Brexit news, as UK and EU seemed to have agreed on the divorce bill and Irish border. Canadian Dollar followed as the second strongest as stellar employment data raised the chance of more BoC hike next year. Meanwhile, Yen ended as the weakest one. It's followed by Euro, despite solid Eurozone data. Now, with the tax bill finally passed in Senate on Saturday, the greenback would likely come back to spotlight this week, with non-farm payroll also featured.

Canadian Dollar rebound strongly in early US session after stellar economic data. The employment market grew 79.5k in November, more than double of prior month's 35.3k and was well above expectation of 10k. Unemployment rate also dropped to 5.9%, down from 6.3%, way below expectation of 5.9%. USD/CAD reached as high as 1.2908 yesterday on Dollar strength. But the current sharp fall and break of 1.2804 support suggests rejection from 1.2916 key resistance. And consolidation from there is extending with another decline, possibly back to 1.2665 support. Also from Canada, GDP grew 0.2% mom in September, above expectation of 0.1% mom.

The Caixin manufacturing PMI for China slipped to 50.8 in November, from 51 in October. The reading also missed expectations of 51. Looking into the details, production and new orders increased at modest rates, while purchasing costs rose sharply. However, confidence towards the business outlook dropped to joint-lowest on record. As the agency noted, the manufacturing sector remained stable for most of November, despite 'some signs of weakness'. It forecast that the economy would remain stable for 4Q17. While growth should improve this year, when compared with 2016, it should decelerate in 2018. By contrast, the official manufacturing PMI rose +0.2 point to 51.8 in November this also beat expectations of a drop to 51.5. Non- manufacturing PMI increased +0.5 point to 54.8 last month. Divergence between official and private PMIs is nothing new. Part of the reason for the divergence is that the official data focus on large enterprises, while Caixin's focus on SMEs. This interpretation appears contradicting this month. Indeed, the official report suggests that SME PMI improved, while that for large companies slipped -0.2 point to 52.9 in November.