Action Insight

There wasn't a unified theme in the forex markets last week. Movements in the major currencies were driven by different factors. But a trend to note is that markets attentions were generally back to central banks, from politics. The divisions in Fed and BoE boards were very apparent and showed that the overall policy stances of both central banks could be shifting. Euro was mixed as it's awaiting economic data to push ECB officials to recede from being too dovish. Meanwhile, Canadian Dollar failed to extend the BoC inspired rally as rate hike bets cooled after tame inflation readings. The extended rout in oil price also added some weight to the Loonie and Aussie. New Zealand Dollar, on the other hand, ended as the second strongest one, next to Swiss Franc, on a mild RBNZ hawkish turn.

Canadian Dollar weakens notably in early US session after inflation data missed expectation. Headline CPI slowed to 1.3% yoy in May, down from 1.6% yoy, below consensus of 1.5% yoy. CPI core - common was unchanged at 1.4% yoy, CPI core - median slowed to 1.5% yoy from 1.6% yoy. CPI core - trim slowed to 1.2% yoy from 1.3% yoy. The Loonie has been lifted recently by the hawkish turn of BoC Governor Stephen Poloz. And it tried to resume the rally yesterday after solid retail sales data. Today's tamer than expected inflation reading could now keep USD/CAD in range in near term. The real test will come when BoC announce rate decision again on July 12, when quarterly forecasts will also be released.

Dollar trades broadly lower today and markets' focuses turn back to economic data. Eurozone PMIs will be closely watched in European session. EUR/USD dipped to we low as 1.1118 earlier this week but is holding above 1.1109 near term support. While some point to topping in EUR/USD after failing 1.1298 key resistance. There is no confirmation of rejection and trend reversal yet. Thus, the pair is staying bullish and upside surprises in today's Eurozone data will put focus back to 1.1298. Canadian CPI will be another key focus. USD/CAD dropped sharply overnight as the Canadian dollar was boosted by strong retail sales. It's likely that near term consolidation from 1.3164 has already completed at 1.3346. And strong consumer inflation data should give the fuel for USD/CAD to power through 1.3164 support. Also, from US, PMIs and new home sales will be featured.

Canadian Dollar regains some strengthen in early US session after solid economic data. Headline retail sales rose 0.8% mom in April. well above expectation of 0.3% mom. Ex-auto sales rose even more by 1.5% mom, beating expectation of 0.7% mom. Loonie has retreated much this week after oil rout continued with WTI hitting the lowest level this year at 42.05. Nonetheless, USD/CAD is held well below 1.3387 near term resistance and maintains bearish outlook. Deeper decline could now be seen back to 1.3164 support.

While there was some volatility, the forex markets are generally staying in last week's range as most pairs engage in consolidative trading. New Zealand Dollar firms up slightly today as markets view RBNZ's statement as a mild hawkish turn. Meanwhile, that is followed by rebound in the Japanese Yen as oil rout continues. WTI crude oil dived further to as low as 42.05 overnight and stays soft at around 42.5. The development dragged stocks and 30 year yield down as DOW lost -0.27% and S&P 500 dropped -0.06%. Canadian Dollar is also under some pressure with oil and will try to get some support from retail sales data to be released today.

Sharp volatility in Sterling continues today as hawkish comments from BoE chief economist Andy Haldane propels it higher. Haldane said today that partial removal of monetary stimulus would be "prudent relatively soon". And he noted that "risks associated with tightening too early, on the one hand, and too late, on the other, has swung materially towards the latter in the past six to nine months." He pointed out that "the risks of tightening too early have shrunk as growth and, to lesser extent, inflation have shown greater resilience than expected. And if policy tightened too late, this could result in a much steeper path of rate rises later on."

Dollar trades broadly higher this week so far, but strength is limited by weakness in treasury yields and risk aversion. WTI crude oil dropped as low as 42.75 yesterday before recovering mildly to 43.5. DOW and S&P 500 retreated after hitting records highs on Monday and closed lower by -0.29% and -0.67% respectively. Nikkei followed and is trading down -0.48% at the time of writing. Notable weakness is seen in 30 year yield while extends this year's decline and lost -0.053 to close at 2.735. 10 year yield also closed lower by -0.037 but stays above last week's low at 2.103 so far. In other markets, Gold remains weak and struggles to regain 1250 after dipping to 1242.4.

Sterling dives broadly today after BoE Governor Mark Carney tried to talk down rate hike expectations and said it's not the time yet. Meanwhile, Canadian dollar was also pressured as WTI crude oil tumbles through 43.76 support to as low as 42.93, hitting the lowest level since November. The Japanese Yen rebounds as risk appetite recedes. Meanwhile, Dollar and Euro are trading mixed. Technically, key focuses in US session will be on whether GBP/USD would take out 1.2633 support, and whether EUR/GBP would take out 0.8865 resistance.

Dollar rose mildly overnight but strength was so far limited. Comments from Fed officials were mixed and provided little guidance to the greenback. Meanwhile, Japanese Yen trades broadly lower on solid risk appetite and recovery in yields. DOW and S&P 500 surged to record close at 21528.99 and 2453.46 respectively. Nikkei followed and gains 0.81% to 20230.41. US 10 year yield recovered by adding 0.033 to 2.190, but it's still limited below 2.229 resistance. Similarly, dollar index is held below 97.77 resistance. EUR/USD is also staying above 1.1109 support. There is no change in Dollar's bearish trend yet.

Dollar strengthens mildly in early US session after positive comments from New York Fed President William Dudley. He didn't sound much concerned with low inflation. Instead, he noted that the US is "pretty close to full employment. And if labor market continues to tighten further "wages will gradually pick up". And with that "inflation will gradually get back to 2%". Regarding the economy, Dudley also expressed that he is "confident" that the expansion has "quite a long way to go". USD/JPY could be revisiting last week's high at 111.41. But the EUR/USD is holding well above 1.1109 support which keeps it mildly bullish. Overall, the forex markets are staying inside Friday's range.

Yen's weakness continue in quiet trading today and trades a touch softer after trade balance release. But overall, the markets are trading in tight range. The only exception is New Zealand Dollar which is resuming this month's broad based rally ahead of RBNZ rate decision on Thursday. Sterling recovers mildly as Brexit negotiations are finally starting today. Dollar and Euro are mixed. In other markets, gold is trading in tight range between 1250/60 for the moment. WTI crude oil is also range bound below 45 handle.

Central banks were back in the driving seats in the forex markets last week. Four central banks, Fed, BoE, SNB and BoJ, delivered their monetary policy decisions. But they were all overshadowed by comments from BoC that indicated the next move would be a hike. Canadian dollar ignored the extended selloff in oil price and ended the week as the strongest major currency. Aussie and Kiwi closely followed and took the second and third places. Sterling was boosted by the surprise that three policy makers voted for a rate hike in BoE MPC meeting and closed the week up against Dollar, Euro and Yen. Dollar followed as Fed, after raising interest rate by 25bps, maintained the forecast of a total of three hikes this year. Meanwhile, Yen and Swiss Franc ended as the weakest major currencies as markets were starting to price in an era of monetary policy stimulus exit.

Commodity currencies are set to end the week as the strongest ones, but not because of commodity prices. Canadian dollar is the largest gainer for the week after the hawkish twist in BoC comments. Meanwhile, Aussie was boosted by unemployment data and receding bet on RBA cut. Sterling and Dollar followed as supported by hawkishness of respective central banks. Meanwhile, Yen tumbled across the board as the global economy is starting to exit the era of ultra-loose monetary policies. In other markets, gold suffered steep selloff this week and is now trying to find support around 55 day EMA at 1257. WTI crude oil dropped to as low as 44.22 and couldn't find buying to recovery back above 45 handle yet.

BoJ left monetary policies unchanged today as widely expected. Benchmark interest is kept at -0.1%. Meanwhile, under the yield curve control framework, the central bank continues to target 10 year JGB yield at around 0%. Annual pace of asset purchase is held at JPY 80T. Locally, BoJ noted that "private consumption has shown increased resilience against a background of steady improvement in the employment and income situation". Globally, BoJ said that overseas economies were "continuing to grow at a moderate pace as a whole". Overall tone in the central's statement was slightly more upbeat than the previous one.

We have got a more hawkish FOMC and BOE this week. For the former, policymakers raised the policy rate by +25 bps, as expected, and laid out detailed plans to unwind the balance sheet. For the latter, BOE left the Bank rate unchanged at a record low of 0.25%. Yet, the members' division on the monetary policy widened the most in 6 years with Michael Saunders and Ian McCafferty joining Kristin Forbes in support of a rate hike of +25 bps. The tug of war on interest rate differential results in higher volatility in GBPUSD. After BOE's announcement, GBPUSD erased earlier loss from an intra-day low of 1.2688 and rallied to 1.2795, before retreating again. The selloff of EURGBP widened with the pair plunging to a one-week low of 0.8721. ECB earlier this month refrained from talking about tapering and reaffirmed that it would extend QE purchases, if necessary.

Dollar extends post FOMC rebound in early US session after positive economic data. Initial jobless claims dropped 8k to 237k in the week ended June 10, below expectation of 241k. Four-week moving average rose 1k to 243k. That's the 119 straight weeks initial claims stayed below 300k handle, last seen in early 1970s. Continuing claims rose 6k to 1.935m in the week ended June 3 staying below 2m handle for the 9 straight week, last seen back in 1973. Empire State manufacturing index rebound to 19.8, up from -1. Philly Fed survey though, retreated to 27.6 but beat expectation of 25.0. Industrial production, rose 0.0% in May while capacity utilization dropped to 76.6%.

Dollar recovered overnight as Fed delivered the widely expected rate hike. The overall announcement, including new economic projections, was not as bad as some anticipated. Fed maintained the projection of a total of three rate hike this year. Downward revision in 2017 inflation forecast was somewhat offset by the upward revision in GDP forecast and downward revision in unemployment rate forecast. On other hand, both growth and inflation forecasts for 2018 and 2019 were held unchanged. While the greenback was lifted, it's clearly not out of the woods yet as markets seem not fully convinced by what Fed said.

Dollar recovers after Fed doesn't disappoint the market and raised federal funds rate by 25bps to 1.00-1.25%. Minneapolis Fed President Neel Kashkari dissented and voted for standing pat this time. But the greenback is supported by the fact that Fed didn't change inflation forecast for 2018 and 2019. Also, Fed maintained interest rate projections unchanged for 2017 and 2018. Fed released an "addendum to the political normalization principles" laying down the guidelines to shrink its balance sheet. Overall, even though the greenback was sold off after CPI disappointment earlier today, it's kept above key support level around 1.13 handle against Euro and more stimulus is needed to trigger sustained breakout.

Dollar is under some renewed selling pressure in early US session after poor economic data. Headline CPI dropped -0.1% mom, rose 1.9% yoy in May. The annual rate was notably slower than prior month's 2.2% and missed expectation of 2.0%. Core CPI rose 0.1% mom, 1.7% yoy. The annual rate was also slower than prior month's and expectation of 1.9% yoy. Headline retail sales dropped -0.3% in May, below expectation of 0.1%. Ex-auto sales dropped -0.3% versus expectation of 0.2%. The weakness against Canadian Dollar is particularly clear as USD/CAD is now clearing 1.3222 key near term support firmly. There is prospect of EUR/USD revisiting 1.1298 key resistance level even before FOMC announcement.

US markets regained strength overnight with DOW and S&P 500 closed at record highs as selloff in tech stocks stabilized. DOW gained 92.8 pts, or 0.44% to end the day at 21328.47. S&P 500 rose 10.96 pts, or 0.45% to close at 2440.35. However, no strength was seen in treasury yields as 10 year yield lost -0.006 to close at 2.207, staying well below 2.297 resistance and maintains near term bearish outlook. In the currency markets, Canadian Dollar remains the strongest one as boosted by hawkish twist in BoC officials' rhetorics. Meanwhile, Dollar is trading as the weakest major currency for the week. The development argues that traders could be quite concerned with a dovish FOMC hike today.