Action Insight

Dollar recovers in general today as markets turned into consolidation mode. Euro is treading water while markets await ECB rate decision and press conference. Traders would be eager to hear how ECB President Mario Draghi would clarify his comments in the past few weeks. Or Draghi will just let markets' perceived ECB hawkishness be an assumed base case. Meanwhile, Yen is steady as BoJ delivered what are expected, keeping policies unchanged, raising growth forecast and lowering inflation forecast. Aussie was lifted briefly by solid job data but quickly retreated.

The forex markets are in rather dull mode today with lack of new drivers. Sterling remains the weakest currency for the week and markets continue to pare back expectation of a near term BoE hike. Dollar follows closely as there are talk emerging that US President Donald Trump would achieve nothing this year after the collapse of the health care bill. Euro also trades generally lower today as markets await ECB rate decision and press conference. But some volatility could be see in the upcoming Asian session first, with Australia employment data and BoJ policy decisions featured.

Dollar index continues to hover around 10 month low as the greenback stays generally weak, except versus Sterling. Treasury yields also extended recent pull back overnight. 10 year yield dropped -0.046 to close at 2.263, comparing to this month's high at 2.396. Markets saw the collapse of the second healthcare bill in US Senate as another sign of US President Trump's failure in pushing through his agenda. And it's doubtful when Trump would finally start working his pro-growth policies, including tax reforms, through the Congress. On the other hand, stocks were resilient on receding expectation of more policy tightening by Fed. Indeed, both NASDAQ and S&P 500 closed at record highs at 6344.31 and 2460.61 respectively.

Sterling is sold off sharply after slowdown in inflation reading dents hope of a near term BoE hike. The violent move in the Pound makes it the weakest currency today, overtaking Dollar and Kiwi. The greenback tumbles broadly after another failure of Trump care and stays generally weak as traders pare back expectations of another Fed hike this year. Kiwi was sold off sharply earlier as CPI miss suggests that RBNZ was right not to turn hawkish. Meanwhile, Australian Dollar remains the strongest one today as RBA minutes raised hope of a hawkish turn in the central bank. Trading in other currencies are mixed. In other markets, Gold again rides on Dollar weakness and is back pressing 1240. WTI crude oil also firms up mildly and is back above 46.

Dollar tumbles sharply as two Republicans senators announced their rejection of the US President Donald Trump's health care bill. The current version is short of at least two votes to advance and is seen as effectively dead by analysts. The development will further delay the work on tax and fiscal reforms, which are scheduled to come after health care. Markets continue to questioned the ability of Trump on pushing through his economic agenda and delivering his election promises. That adds to doubt of whether the economy could sustain another rate hike by Fed this year. Meanwhile, New Zealand Dollar follows as the second weakest currency after lower than expected CPI reading. On the other hand, Australian Dollar leads other currencies high as boosted by hawkish RBA minutes.

RBA minutes for the July meeting suggested that policymakers acknowledged the economic growth and the improvement in the labor market recently. The members also discussed the appropriate neutral rate which they believed should be at +3.5%, well above the current cash rate of 1.5%. This heightened market expectations of a potential rate hike in the near-term. As such, Aussie jumped to a 2-year high after the release of the minutes.

The forex markets remain generally range-bound except that Swiss is attempting for a recovery. Meanwhile Aussie is extending last week's rally ahead of RBA minutes. Gold rides on Dollar's weakness and is extending last week rebound to 1234.7 so far. On ther other hand WTI crude oil is losing momentum again as it's struggling around 55 day EMA. Economic data released today triggered little reactions. Empire State manufacturing in US dropped to 9.8 in July, down from 19.8, below expectation of 9.8. Canada international securities transactions came in at CAD 29.5, above expectation of CAD 9.78b. Eurozone CPI was confirmed at 1.3% yoy in June while core CPI was unrevised at 1.1% yoy. Trading could remain subdued in US session. But events in upcoming Asian session from Australia and New Zealand might trigger some volatility.

The forex markets are pretty steady today with Japan on holiday. Upbeat economic data from China didn't trigger much reactions. Traders are having their mind on the upcoming central bank events in the week, most notably ECB rate decision and press conference. In addition, there will be quite a number of key economic data to watch including UK CPI, Australia employment and Canada CPI. As for today Eurozone CPI final for June will be released. Canada will release international securities transactions while US will release Empire State manufacturing index. Also, some attention will be on EU and UK as the second round of Brexit negotiations starts.

China's macroeconomic data for 2Q17 surprised to the upside. China's GDP expanded +6.9% y/y in 2Q17, same pace as the prior quarter but above consensus of +6.8%. Economic activities in June continued to improve. Industrial production growth accelerated to +7.6% y/y in June, beating consensus of and May's +6.5%. Retail sales expanded +11% y/y in June, up from +10.7% a month ago. The market had anticipated mild deceleration to +10.6%. Fixed asset investment in urban areas grew +8.6% y/y in the first half of the year, same pace as in the first five months of the year. The government acknowledged that the country's economy continued to improve. It appears that the country's growth is on track to meet the government target of “around +6.5%”.

Dollar ended last week as the weakest currency as markets took Fed Chair Janet Yellen's testimony as a dovish one. Traders further pared back bet on a rate hike in September. And the development was accompanied by surge in stock indices to record highs. Canadian Dollar ended as the second strongest as lifted by BoC rate hike and rebound in oil prices. But it was outshone by Australian dollar which soared on iron ore prices. Sterling followed as markets continued to adjust their expectations on a near term BoE hike after central banker comments. Euro and Swiss Franc followed Dollar as the weakest ones ahead of ECB meeting this week. Meanwhile, Yen traded mixed as focus is turning to BoJ meeting.

Dollar's decline accelerates in early US session after weak economic data. Headline CPI slowed to 1.6% yoy in June, down from 1.9% yoy and below expectation of of 1.7% yoy. Core CPI was unchanged at 1.7% yoy, in line with consensus. Meanwhile, headline retail sales dropped -0.2% in June, below expectation of 0.2%. Ex-auto sales dropped -0.2%, also missed expectation of 0.2%.

Dollar stays soft on cautious comments from Fed officials. Testifying before the Senate Banking Committee, Fed CHair Janet Yellen indicated that risks from inflation are two-sided, and it was premature to conclude that the underlying inflation trend would continue to fall below the 2% target, despite the slowdown in the price gains in recent months. Dallas Fed President Robert Kaplan advocated a cautious approach to rate hike and said that "future removals of accommodation should be done in a gradual and patient manner."

Dollar trades generally weaker today except versus Yen and Canadian Dollar, where it's consolidating in oversold conditions. The greenback, nonetheless, continues to feel the weight added by dovish testimony of Fed Chair Janet Yellen. Yellen will have the second round of her testimony today but that will likely bring little news. Meanwhile, overwhelming strength is seen in Aussie and Kiwi today, as lifted by rebound in commodity prices and solid Chinese trade data. Euro, on the hand, is also struggling as traders start to turn cautious on ECB policy bets. Sterling is believed to be saved by comments from BoE hawk Ian McCafferty and rebounds against most others.

Dollar trades broadly lower as markets generally percevied Fed chair Janet Yellen's testimony as a dovish one. DOW ended up 123.07 pts, or 0.57% at record high of 21532.14. Meanwhile, 10 year yield closed sharply lower by -0.035 at 2.327. A focus today is on 112.88 in USD/JPY which could trigger further selling of the greenback on breaking. EUR/USD retreated quite sharply overnight but is holding on to 1.1382 minor support, and thus maintains near term bullishness. And of course, USD/CAD is set to extend it's near term down trend towards 1.2460 low as the Loonie is boosted by BoC's neutral rate hike and rebound in oil price.

As the market had widely anticipated, BOC has increased the overnight rate target, for the first time in 7 years, to 0.75%, from the historical low of 0.5%. The Bank Rate and the deposit rate rose to 1% and 0.5% respectively. Policymakers acknowledged the improvement in macroeconomic data, noting that the central bank's confidence in its outlook for above-potential growth and the absorption of excess capacity in the economy had been improved. Although inflation has remained soft, BOC judged that it is temporary and would reach the target by the middle of 2018.

Canadian Dollar surges broadly as BoC delivered the highly anticipated rate hike as widely expected. The overnight rate target was raised by 25bps to 0.75%. More importantly, the central bank delivered a upbeat outlook and adopts an open stance to further policy adjustments. USD/CAD extends recent decline to as low as 1.2824 and is still on course to retest 2016 low at 1.2460. EUR/CAD drops through recent support at 1.4649 and is heading to 1.4597 key near term support level.

Dollar trades mixed in early US session as Fed chair Janet Yellen sounds balanced in her prepared speech for the testimony to Congress. The greenback is trying to rebound against Euro at the time of writing. Though, that's mainly due to Euro's own weakness after yesterday's rally. And the greenback is staying weak against Yen and Aussie. Sterling rebounds today on better than expected job data and is firm against Dollar too. Canadian Dollar is treading water as markets await BoC rate decision.

The set of June data released so far has pointed to a steady growth trend in China, the world's second largest economy. Released earlier in the week, headline CPI stayed unchanged at +1.5% y/y in June, shy of consensus of +1.6%. Persistently soft food price (on deflation) continued to put downward pressure on the headline reading. For instance, pork plummeted -16.7 and egg price fell -9.3%.PPI, upstream price levels, steadied at +5.5% in June, in line with expectations. Subdued inflation offers the government room to maintain its targeted tightening measures, focusing on cracking down overheating asset prices. Yet, soft PPI suggested that growth in industrial profits would be limited.

Euro surged broadly overnight, with the help from selloff in Sterling and then Dollar. Strength in the common currency carries on in Asia session today. Fed Governor Lael Brainard's cautious comments regarding rate hike is seen a a factor triggering the decline in the greenback. Fed chair Janet Yellen's testimony to Congress today will be the key to decide whether the greenback will suffer more selling. Meanwhile, Sterling tumbled as markets continued to price out a near term BoE hike. BoE Deputy Governor Ben Broadbent's lack of comments on interest rates was taken as a sign of neutral stance. Meanwhile, Canadian Dollar is staying in range against Dollar as markets are awaiting the highly anticipated BoC rate hike.

The financial markets lack a general theme today. DOW opens flat and is set to extend recent range trading. European indices are trading mixed at the time of writing with FTSE and CAC in red. The strong rebound in Nikkei earlier today had no follow through in other markets. Gold is struggling in tight range between 1210/5 while WTI crude oil is bounded between 44/45. In the currency markets, Sterling dips notably as markets are disappointed by the lack of hints on monetary policy from BoE deputy. New Zealand Dollar remains the weakest for today, followed by Swiss Franc and Yen. Technical development in Sterling will be closely watched in the US session. Key levels are 1.2849 in GBP/USD, 0.8879 in EUR/GBP and 146.03 in GBP/JPY.