Action Insight

Focus of the market will turn back to US economic data today. Economists expect non-farm payroll to show 180k growth in the US job markets in July, down from prior month's 222k. Unemployment rate is expected to drop to 4.3%. Average hourly earnings are expected to grow solidly by 0.3% mom. Looking at other employment related data, ADP private job growth slowed to 178k in the same month, down from 191k. Nonetheless, the three month average of ADP rose 10k from 191k to 201k. Employment component of ISM manufacturing dropped to 55.2, down from 57.2. Employment component of ISM services also dropped to 53.6, down from 57.8. Initial jobless claims were steady though, with four month average improved from 244k to 242k. Conference board consumer confidence also rose from 117.3 to 121.1. Other employment related data were mixed in general. Also from US, trade balance will be released.

The BOE left the Bank rate unchanged at 0.25%, the government bond purchases at 435B pound and corporate bond purchases at 10B pound. As we had anticipated, the members voted 6-2 to leave the interest rate unchanged with the newcomer Silvana Tenreyo supporting to maintain the status quo. Ian McCafferty and Michael Saunders continued to believe a +25 bps rate is needed. Sterling slumped after the announcement as the central bank downgraded the growth and wage forecasts. Governor Mark Carney warned that Brexit uncertainty is weighing on the country's economic outlook.

Sterling tumbles sharply as markets perceive BoE announce as a rather dovish one. BoE left monetary policy unchanged at widely expected. Bank rate is held at 0.25% and asset purchase target at GBP 435b. The rate decision came with 6-2 vote as generally expected. Ian McCafferty and Michael Saunders maintained their push for a 25bps hike. Chief economist Andy Haldane, who sounded hawkish recently, didn't vote for a hike. New comer Silvana Tenreyro didn't follow her predecessor Kristin Forbes and, voted for unchanged.

An increasingly provocative North Korea is testing the limit of US' patience. Following another test of ICBM missile last Thursday, US President Donald Trump has accelerated sanctions against the hermit Kingdom. He has also pledged to give China a difficult time on trade amidst the latter's lack of pressure against North Korea's nuclear developments. Although intensifying geopolitical tensions might increase volatility of the financial markets, we believe the chance of war remains remote as the provocations-sanctions-negotiations process is indeed a routine of the Korean Peninsula problem over the past decades.

Sterling is trading as the second strongest currency for the week so far, next to Euro, as markets await BoE Super Thursday. While monetary is widely expected to be unchanged, the vote split and inflation report will catch all attention from the markets. Meanwhile, commodity currencies are generally lower even though risk appetite remains firm in the stock markets. DOW extended its record run and closed up 0.24% at 2201.24, above 22k handle. US treasury yields were mixed with 10 year yield closed up 0.011 at 2.262. In other markets, Gold dipped notably and is trading below 1270. WTI crude oil recovered after a steep dip earlier this week to below 48.50. WTI is currently trading at 49.4 and struggles to regain 50 handle.

Dollar is steady in early US session and is little affected by job data miss. The ADP employment report showed 178k growth in private sector jobs in July, below expectation of 190k. DOW futures also stay steady and the index could have a go at 22000 handle today as recent rally extends. Non-farm payroll to be released on Friday is a key event to watch. And it's expected to show 180k growth overall in July.

Yen falls sharply in Asian session on risk appetite flows. Strong earnings from Japanese companies lifted Nikkei back above 20000 handle as the index is trading up 0.6% at the time of writing. That followed another record close in DOW overnight, at 21963.92, up 0.33%. Euro is benefiting most from the developments, in particular, with EUR/JPY finally taking out 130.76 resistance to resume recent rally. Markets will have an eye on German DAX today, which rebound by 1.1% yesterday. That mark the complete of a recent correction and if that's the case, strength in DAX would likely support the Euro further. Meanwhile, Dollar also recovers mildly today, against most except Euro as markets await ADP private employment data from US. Talking about employment, New Zealand Dollar is trading as the weakest one as dragged down by Q2 job data.

We expect BOE to leave the Bank rate unchanged at 0.25% and the asset purchase program at 435B pound at the upcoming meeting. The vote split might probably come in at 6-2 from 5-3 in June, as Silvana Tenreyro, successor of Kristin Forbes appears less hawkish and noted that the monetary policy decision would be data-dependent. Members favoring a rate hike were mainly hinged on the fact that inflation has been overshooting the central bank's target. However, there was a sign of slowdown on the consumer price level in June, offering room for policymakers to stand on the sideline amidst lackluster economic growth and wage, as well as uncertainty in Brexit negotiations.

European majors are generally the strong ones this week so far. While Euro and Sterling lost some intraday momentum after yesterday's rally, they're both remain firm as supported by solid economic data. ON the other hand, While data from US are not too back, the greenback is being pressured by the political drama in the White House. Aussie is leading commodity currencies down as RBA warned of its recent appreciates in the rate decision statement.

Dollar suffered another round of selloff against Euro, Sterling and Yen yesterday as the political drama in White House continued. Australian Dollar jumps earlier today as lifted by better than expected data from China. But there is no follow through buying after RBA stands pat and warns of recent appreciation in the exchange rate. Sterling is also trading mildly higher as markets await UK manufacturing data. Euro also stays strong ahead of Q2 GDP. WTI oil price surged through 50 handle overnight but provides little boost to Canadian Dollar, as USD/CAD is struggling in tight range around 1.2460 key support level

As widely anticipated, the RBA left the cash rate unchanged at 1.5%. Policymakers acknowledged that June inflation drifted back below the +2% target but remained confident it would improve gradually alongside the pickup of the economy. Policymakers, however, warned of Australian dollar's appreciation, suggesting that it would limit economic growth. A reference of the negative impact of strong currency on economic developments reappeared as AUDUSD has risen +5.7% from July's low of 0.7567.

Yen and Dollar trade mildly firmer today as markets are staying consolidation mode ahead of the key events ahead, including RBA, BoE and US NFP. Economic data from Eurozone are positive but provide little inspiration to the common currency. Meanwhile, commodity currencies are trading generally lower even though WTI crude oil extends recent rise and breaches 50 handle briefly. Released from Canada, IPPI dropped -0.1% mom in June, below expectation of -0.3% mom. RMPI dropped -3.7% mom, below expectation of -2.2% mom.

Dollar recovers mildly today but momentum has been weak. There is no change in it's general down trend against Euro, Yen and Sterling. And, not the mention the greenback's weakness against Canadian and Aussie. Political uncertainty in US is one of the key factors in limiting any rebound attempt in the greenback. Fed fund futures are now pricing in less than 50% chance of another rate hike by end of the year. And indeed, markets are starting to question that even if Fed does hike, the sluggish inflation outlook will keep it standing pat next year. The drama in the White House seems never-ending with US President Donald Trump replacing his chief of staff Reince Priebus last Friday. Retired General John Kelly was installed in the place. Some analysts noted that could be a turning point for Trump as he's now shaking up his top team.

While there were quite a number of key events last week, Swiss Franc came up as the surprised biggest mover. The Franc tumbled broadly as safe haven funds flowed out in accelerated pace. Franc has indeed ended the week down over -3% against Sterling, Aussie, Canadian, Kiwi and Euro. Against Yen and Dollar, Franc closed down -2.8% and -2.4% respectively. Dollar ended as the second weakest one as FOMC statement was taken as a dovish one while GDP price data missed. Also, continuous political drama in the White House means that there is still no clear light on when US President Donald Trump's tax reform would be implemented. Commodity currencies closed generally higher as supported by surge in energy and metal prices. Nonetheless, another surprise was that Sterling ended as the strongest one as it recovered on position squaring ahead of BoE Super Thursday.

Dollar is set to end the week as the second weakest currency as slightly better than expected growth data provides little support. Q2 GDP grew 2.6% annualized, up from prior 1.4% and versus consensus of 2.5%. However, GDP price index slowed to 1.0%, down from 1.9% and below expectation of 1.3%. Employment cost index rose 0.5% in Q2, also below expectation of 0.6%. Subdued inflation will affirm the case for Fed to starting shrinking the balance in September first, and leave another rate hike to December. This will give Fed more time to assess inflation and growth outlook before raising interest rates. Also from US session, Canada GDP rose 0.6% mom in May, much stronger than expectation of 0.2% mom.

Selloff in Swiss Franc continued overnight and weakness extends into Asian session. EUR/CHF is trading up over 300 pts, or 2.75% for the week. As we noted before, the strong break of 1.12 handle is now setting up the stage for EUR/CHF to head back to prior SNB floor at 1.2. USD/CHF's break of 0.9699 resistance also argues that the down trend from 1.0342 has completed and reversed after defending 0.9443 key support level. Oversold condition could start to limit selling in the Swiss Franc and we might see Franc crosses slow down a little bit before ending the week. Focus will be turned back to US with Q2 GDP data featured.

The spotlight moves back to the Swiss Franc today as EUR/CHF surges past 1.12 key resistance level. The cross is now setting up the momentum to regain 1.2 handle in medium term, which is the prior SNB imposed floor. Back in January 2015, SNB shocked the market by removing the floor and EUR/CHF dived to as low as 0.86, depending that what chart you read. With all the improvements in Eurozone, fundamentally, politically and system-wise, it now looks like there is no longer the need of safe haven parking in the Franc, with negative interest rates. The surge in commodity and energy prices would also help lift Eurozone inflation which keep ECB on course for stimulus exits.

Dollar's broad based selloff resumed overnight after Fed kept monetary policies unchanged. The move was seen as reaction to Fed's slight tweak in description of inflation. Also, Fed's indication that balance sheet normalization would start very soon suggest that it will push another rate hike, if any to December. While the greenback is weak, it's still slightly better than the Swiss Franc. The Franc dived yesterday in catch up to recent developments in the financial markets and there is no sign of halting yet. Commodity currencies are the best performer this week as markets are on full risk-on mode.

The July FOMC meeting came in as widely anticipated. The Fed left its monetary policy unchanged, maintaining the federal funds rate target at 1-1.25%. The Fed made two tweak in the statement, though. First, it noted that balance sheet reduction would begin 'relatively soon', signaling that the official announcement would come in September. Second, policymakers revised lower the outlook on core inflation. US dollar plunged, with the weighted index falling to a 13-month low as the market interpreted the inflation assessment as dovish.

Dollar bulls are clearly unhappy with the FOMC statement today. Fed kept target range for the federal funds rate at 1 to 1.25% as widely expected. The new FOMC statement was almost a carbon copy of the May's one. The exceptions are firstly, Fed indicated that it will start the "balance sheet normalization program relatively soon". Secondly, Fed took the part that "job gains have moderated" and just described that "job gains have been solid". It's clear that markets are taking the message that Fed is going to announce the plan to shrink the balance sheet in September. And Fed will hold it cards for another rate hike till December to see how the economy evolves.