Action Insight

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.

Despite a retreat after breaching the 1.2 level against US dollar, the euro has still gained almost +2% since the last ECB meeting. Indeed, the single currency is the best performer so far this year, up13% against the greenback and +8% against the pound, whilst the trade-weighted index has appreciated over 7% since 2Q17. A non-eventful Jackson Hole failed to dampened euro's rally. Rather, it led EURUSD to surge to as high as 1.2069, a level not seen since early 2015.

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.

Recent weakness in Swiss franc against the euro has not yet boosted Switzerland's economic outlook in a meaningful way, evidenced by the disappointing KOF indicator and Credit Suisse (formerly conducted by ZEW) investor sentiment index for August. While, at the meeting on September 14, the SNB would certainly affirm the stance that the franc remains "overvalued" and the pledge the combat deflation, we are concerned that there would still be a long way to go for the country's economy to get back in shape, as the pass-through of exchange rate into inflation is subdued. Meanwhile, a recent study by the SNB suggests that its monetary policy would have to stay relatively more accommodative (than ECB's) for longer to push inflation higher. We believe this reinstates the central bank's commitment to leave the policy unchanged.

Dollar's rebound gathers additional steam in early US session after better than expected job data. AFP report showed 237k growth in private sector employment in August, beating expectation of 188k. Q2 GDP growth was also revised up to 3.0% annualized, up from 2.6% and beat expectation of 2.7%. Besides, US President Trump will finally kick-off his campaign on tax reform today. Trump will deliver a speech in Springfield, Missouri, and will likely tout the tax reform as a way to help the working class as well as the middle class. If the speech is consistent with Trump's usual rhetorics, it will likely focus on the "why" aspects of the reform. However, the markets would be more interested in know the "how" aspects of it. Nonetheless, for now, Dollar selling is likely past a climax and more upside is mildly in favor, at least until non-farm payroll release on Friday.

Risk appetite returned as DOW staged the a 200 points swing in the biggest intraday comeback in near nine months overnight. Major indices ended higher with DOW gained 0.26%, S&P 500 rose 0.08% and NASDAQ added 0.30%. 10 year yield dived to as low as 2.091 but pared back much losses to close down -0.023 at 2.136. Dollar also stabilized and recovered after intraday selloff. Some analysts attributed the rebound to the lack of escalation out of US regarding North Korea's firing of missile over Japan. US President just said that all options are on the table, without any follow up. Nikkei follows by gaining near to 100 pts in Asia at the time of writing. Gold also retreated from intraday high at 1331.9 and is back below 1320.

The two key phenomena, tightening in liquidity condition and renminbi strength, in the Chinese market have persisted. Last week, PBOC auctioned RMB 80B of 3-month Treasury deposits at 4.51%, the highest since December 2014. This came in after another auction of 3-month Treasury deposits on August 18, at 4.46%. Higher interest rates signaled that the government is trying to increase the borrowing cost, tightening money supply.

Risk aversion dominates the global financial markets as geopolitical tension in Korea Peninsula escalates to a tipping point. North Korea fired a missile over Japan to land in the Pacific Ocean. Japan condemned the act as "an unprecedented, serious and significant threat. US warned that "all options are on the table". Nikkei responded by closing down -0.45% at 19362.55. Major European indices are trading deep in red with FTSE down -1.1%, DAX down -1.7% and CAC down -1.3%. US futures also point to sharply lower open. Gold rides on the sentiment and extends this week's rally, accelerating to as high as 1331.9 so far. In the currency markets, Dollar trades as the weakest ones, followed by commodity currencies and Sterling. Swiss Franc is leading the way up, followed by Yen.

Yen surges broadly, together with Swiss Franc, on risk aversion as tension in the Koreas escalates again. North Korea fired a missile earlier today that flew over Japan and landed in the Pacific Ocean. South Korea military official said that the missile was fired around 5:57 a.m. local time, flew for about 2700 km and reached a maximum altitude of 550 km. US Pacific Command projected that the missile splashed down at around 6:29 a.m. local time. The news sent Yen higher as investors there repatriates their overseas investments on fear of market and exchange rate volatility. USD/JPY dives through 108.59 support to as low as 108.33 and recent selloff resumes. Commodity currencies are hit hardest while Euro is mixed. The news also sent gold sharply higher to 1330 after it takes out of 1300 handle firmly yesterday.

US President Donald Trump's renewed threat to withdraw from the North America Free Trade Agreement (NAFTA) reminds us that renegotiation of this 23-year-old deal has begun. While the US has accused Canada of both lumber and dairy trades, its focus is more on Mexico with Trump keeping demanding its third trading partner to pay the bill for construction of the wall along the border. In our opinion, the core of NAFTA renegotiation is to narrow US' trade deficit. With US' trade deficit with Canada on the fall, it would put harder pressure on Mexico in the negotiations.

Sterling recovers broadly today as markets are looking at the third round of Brexit negotiation between UK and EU in Brussels.. There are talks that selloff of the Pound is overdone, in particular against Euro. Technically that's a valid view as the cross, currently at 0.9240, is reasonably close enough to key resistance level at 0.9304 (2016 high). But the recovery in the Pound is so far rather weak and it's staying near term bearish against Euro, Dollar and Yen. There are still a lot of uncertainties over the outcome of Brexit and we believed that the worst is not priced in yet. There might be renewed selling in Sterling should there be no positive news coming our from the Brexit negotiators.

The forex markets are pretty steady in range as another week starts, as usual. Euro surged to highest in more than two years against Dollar last week as aftermath of Jackson Hole symposium. The common currency retreats mildly today but remains firm across the board. Focus will turn back to economic data this week first, in particular job data from US. So far, EUR/USD is in health up trend to take on 1.2 handle next. Attention will be on UK and EU and another round of Brexit negotiation starts. In response to the criticism on lack of clear positions, Prime Minister Theresa May's government released seven policy papers ahead of the meeting. And officials on both sides would have to expedite their work in order to make enough progress to start the talks on post Brexit trade agreements in October. EUR/GBP is facing 0.9304 key resistance for the moment. Negative news out of the negotiation could power the cross through this level.

Dollar ended the week as a big loser after the highly anticipated Jackson Hole Symposium. It was pointed out before that there were little expectations for comments on monetary policies from Fed Chair Janet Yellen and ECB President Mario Draghi. And the reactions indeed showed that traders were relieved by the lack on cover on monetary policies. And business returned to usual with EUR/USD resuming recent up trend while Dollar was back under pressure. While Dollar still managed to end higher against Yen, near term outlook remained bearish in USD/JPY and it's just a matter of time to see downside breakout in the pair. Focus will now turn to key economic data including non-farm payroll from US but it's unlikely to safe the Dollar. Another focus to watch this week is another round of Brexit negotiation.

Trading remains relatively subdued as markets await speeches of Fed chair Janet Yellen and ECB President Mario Draghi at Jackson Hole symposium today. Yen is trading generally lower following mild come back in risk appetite. Major European indices are in positive zone while US futures point to higher open. On the other hand, dollar is trading broadly lower as comments from Fed officials in the symposium continue to show division on views on December hike. Sterling is trading mildly higher today but remains one of the weakest over the week. Released in US, durable goods orders dropped -6.8% in July, below expectation of -5.8%. Ex-transport orders, however, rose 0.5%, above expectation of 0.4%.

The financial markets are generally holding their breath as speeches of Fed Chair Janet Yellen and ECB President Mario Draghi at the Jackson Hole Symposiums are awaited. The occasion is seen in recent years as a platform to launch monetary policy shifts. But this time, neither Yellen nor Draghi is expected to deliver anything drastic regarding monetary policy in near term. At the same time, this could also be Yellen's last address at Jackson Hole since it's uncertain whether she will be granted another term by US President Donald Trump, after the current one expires in February. Yellen might make use of the speech on financial stability to lay down from ground work for the future and leave some legacy.

After breaking several technical levels, New Zealand dollar looks vulnerable to further fall against both Australian dollar and US dollar. We believe the selloff over the past few days is driven by several factors, including weakness in soft commodity prices, unwinding of net speculative long positions, government's GDP growth downgrade and uncertainty in the upcoming parliamentary election.

The markets are lacking a clear direction for the moment as traders await the highly anticipated Jackson Hole symposium of global central bankers. Sterling is the notably weaker one this week but there is no follow through selling seen today. The pound is trying to recovery against Dollar, Euro as well as Yen. EUR/USD is still staying in range below 1.1908 as recent consolidation extends. Some strength is seen in Canadian Dollar today as USD/CAD dips through 1.2525 temporary low. That could be thanks to WTI oil's recovery back above 48. Gold is also hovering in tight range below 1300.

While markets are awaiting speeches of Fed Chair Janet Yellen and ECB President Mario Draghi in the annual Jackson Hole symposium, they are unsettled by US President Donald Trump's comments on shutting the government. DOW gave up some of the gains on revived hope on tax reform and closed down -87.8 pts or -0.40% at 21812.09. S&P 500 dropped -8.47 pts or -0.35% to close at 2444.04. Dollar index is heading back to 93 handle and is kept well below near term resistance at 94.28, and thus maintaining bearishness. More notable movement is seen in 30 year yield which recent recent fall and closed down -0.04 at 2.749. 10 year yield also lost 0.044 to close at 2.171 but it kept above last week's low at 2.163. In the currency markets, Sterling and Kiwi are trading as the weakest one for the week and there is no sign of a rebound.

Recent comments from US Treasury Secretary Steven Mnuchin and Senate Majority Leader Mitch McConnell appeared to have lifted market confidence that the government will eventually be able to raise the debt ceiling and avoid default. While our base case is that a debt ceiling would be suspended or raised, and the government would avoid a shutdown, we do not expect things to go smoothly and it would likely be a last-minute deal. US' politics has been under the spotlight since Donald Trump has become the president. At over 200 days in office, Trump's Russia scandal probably caught most attention, followed by the war of words with North Korean leader Kim Jongun. More recently, Trump dissolved several business advisory councils after resignations of a number of CEOs. On economic achievement, Trump has failed to pass the healthcare reform bill and was unable to kick start any pro-growth or tax policy. The government's debt issue is close watched and volatility of the stock markets could increase as we approach the deadline.