Action Insight

Euro surges broadly today as incoming economic data is in line with a brighter outlook. Some attributes that rally in Euro to the weakness of Dollar. The greenback is pressured as the markets are getting more doubtful on US President Donald Trump's implementation of economic policy. For the very least, he is constantly being distracted by other issues, like currently, his firing of former FBI director James Comey and subsequent sharing of sensitive information with Russia. But it should be noted that both DAX and FTSE 100 hits record highs today. The moves in the markets are clearly driven by optimism. Released in US, housing starts dropped to 1.17m annualized rate in April while building permits dropped to 1.23m.

While oil prices and Canadian Dollar took headlines, it's indeed the Euro that's the outstanding one in the early part of the week. The common currency resumed recent rally against dollar is back above 1.1 handle. Markets are getting more optimistic that subsiding political risks in the Eurozone clear up uncertainties over economic outlook. And recent solid economic data also pointing to better momentum in the recovery. If the developments continue, it's more likely that finally see the start of the end of ECB's stimulus after the current asset purchase program ends at the end of the year. But for sure, it's still too early to confirm anything, at least not before new staff economic projections from ECB to be published in June.

The RBA minutes for the May meeting contained little news but reiterated policymakers' the importance of the property market and the labor market conditions in its policy decision. The stance to leave the monetary policy unchanged was obviously due to the perceived uncertain outlook in these two areas. As noted in the concluding statement in the minutes, 'the board continued to judge that developments in the labour and housing markets warranted careful monitoring'.

The surge in oil price is the main focus today after Saudi Arabia and Russia agreed to extend production cut. WTI crude oil is now having 50 handle back in sight. Meanwhile, rise in oil price takes FTSE 100 to new record high at 7460.20. DAX also follow to record high at 12832.29. But both indices cannot ride on the initial strength and quickly pare back gains. Nonetheless, in the forex markets, commodity currencies follow and trade broadly higher. USD/CAD's dip is now putting near term support at 1.3534 in focus. Elsewhere in the FX markets, Euro strengthens clearly against Dollar, Sterling and Yen.

The forex markets open the week rather steadily. New Zealand Dollar trades mildly higher after better than expected retail sales data. Canadian Dollar is also lifted mildly by rebound in oil price, which sees WTI back at 48.60, comparing to this month's low at 43.76. The Japanese Yen shows little reaction to another missile launch by North Korea while markets await the result of an emergency UN security meeting. Euro also shows little reaction to German CDU's win in an important state election. Meanwhile, UK is stepping up its rhetoric ahead of the Brexit negotiation. The focus of the week, though, will be on data from UK, Eurozone, Canada and Australia.

There are a couple of developments to note in the forex markets last week. Firstly, Dollar ended as the strongest major currencies as markets firmed up the expectation of a June hike by Fed. However, the greenback tumbled sharply against Euro and Swiss Franc before close after weaker than expected inflation data. The dollar index was rejected from 55 day EMA and closed lower at 99.19. That was also accompanied by steep decline in 10 year yield which closed at 2.335. Overall development suggests that the greenback would turn weaker against Euro again as the post French election pull back ends.

Dollar weakens broadly in early US session after disappointment from economic data. While the greenback is still trading at the strongest major currency for the week at the time of writing, it could end the week mixed. Headline CPI slowed to 2.2% yoy in April, down from 2.4% yoy, and missed expectation of 2.3% yoy. Core CPI slowed to 1.9% yoy, down from 2.0% yoy and missed expectation of 2.0% yoy. Headline retail sales rose 0.4%, below consensus of 0.6%. Ex-auto sales rose 0.2%, also below consensus of 0.5%. Elsewhere, Eurozone industrial production dropped -0.1% mom in March. German GDP rose 0.6% qoq in Q1. CPI was finalized at 2.0% yoy in April. Japan M2 rose 4.3% yoy in April, New Zealand business NZ manufacturing index dropped to 56.8 in April.

Dollar remains the strongest major currency for the week as markets await a bunch of key economic data from US. The list include CPI which is expected to slowed to 2.3% yoy in April. Core CPI is expected to be unchanged at 2.0% yoy. Retail sales is expected to show 0.6% growth while ex-auto sales would show 0.5% rise. U of Michigan consumer sentiment and business inventories will also be released.

BOE left the Bank rate unchanged at 0.25% and the QE program at 435B pound. While this had been widely anticipated, BOE's downgrade of GDP growth outlook was disappointing. Policymakers also raised its inflation forecast for this year, warning that rising inflation begins to hurt consumers, but lowered the forecasts for 2018 and 2019. Expectations of a "smooth" Brexit led members to believe that interest rate may need to go up around the time the UK leaves the EU in 2019.

Sterling drops sharply after BoE left monetary policies unchanged as widely expected. The updated projections are mixed at best. And more importantly, they were based on the assumption of a "smooth" Brexit, which isn't clearly defined by the central bank. Markets are clearly unhappy with the announcement and the pound suffers steep selloff. Focus will now be on 1.2830 in GBP/USD and a firm break there will indicate near term reversal. On the other hand, the greenback is trying to extend this week's rebound against Euro after solid economic data including PPI and jobless claims. But momentum in Dollar is unconvincing so far. New Zealand Dollar remains the weakest one after RBNZ disappointment.

New Zealand Dollar tumbles sharply today after RBNZ left official cash unchanged at 1.75% but issued a dovish statement. There were anticipations that the central bank would raise the outlook on inflation after Q1's figure. But instead, RBNZ Governor Graeme Wheeler said in the statement that the increase in headline inflation in Q1 was "temporary", mainly due to "higher tradables inflation, particularly petrol and food prices." Meanwhile, "non-tradables and wage inflation remain moderate but are expected to increase gradually." That will bring future headline inflation to midpoint of target band "over the medium term". And, longer-term inflation expectation remained "well anchored at around 2 percent". The OCR outlook was basically unchanged from the February MPS. And the implication is that OCR will be unchanged till at least early 2019 with chance of a rate hike later in that year.

RBNZ left the OCR unchanged at 1.75% in May. Policymakers shrugged off the recent NZD depreciation and the rise in inflation, indicating that the monetary policy would likely stay unchanged for the rest of the year and probably until 2020 before tightening. The market was disappointed by the lack of hawkish comments and the unchanged forward guidance. Down -1.85, NZDUSD slumped to an 11-month low of 0.6816 after the announcement.

Dollar rally lost some momentum as markets are concerned that US President Donald Trump's firing of FBI Director James Comey could delay his tax reform. In a controversial move, Trump abruptly fired Comey who oversaw an FBI investigation into Trump's tie with Russia during last year's election campaign. Trump's tax reform was originally targeted at approval by the Congress by August. It was already delayed after the healthcare act failure. Markets are concerned that there will be more distraction to Trump ahead and further slow down the progress on tax reforms.

China's headline CPI accelerated to +1.2% y/y in April, from +0.9% a month ago, as mainly driven by the recovery of food disinflation. Food price contracted -3.5% y/y, following a -4.4% drop in March. Nonfood inflation rose to 2.4% y/y in April from +2.3% a month ago. Core inflation (excluding food and energy) improved to +2.1% y/y from +2% in March. Such level should be in line with the government's target. PPI moderated to +6.4% in April from +7.6% in March. The deceleration came in more than expectations. A key contributor to the slowdown was commodity prices which slowed further in April as low base effects dissipated. Global prices also pulled back after the strong rally earlier in the year.

Dollar retreats mildly today but remains the strongest major currency for the week. The greenback is firmly supported by expectation of a June Fed hike. And comments from Fed officials indicate that they are looking through the weakness in Q1 and maintain their preference on the policy path for the year. A total of three rate hikes is the base case and Fed will start shrinking the balance sheet by the end of the year. This expectation is also reflected in treasury yields. 10 year yield rose 0.031 to close at 2.407 overnight, above 2.391 near term resistance. The development now opens up the case for a retest of March high at around 2.62. Meanwhile, Swiss Franc and Japanese Yen remain the weakest ones as political risks in Europe eased.

Dollar jumps sharply today as markets responded positively to comments from Fed official. Also, as political risks in Europe subsides, traders are getting more certain that Fed will hike in June. Indeed, Fed fund futures are now pricing in 87.7% chance of a June hike, comparing with 67.5% a week ago. Dollar index reaches as high as 99.55 so far today and the break of 99.46 resistance is seen as an indication of near term reversal. Meanwhile, the Japanese yen is trading as the weakest major currency, together with Swiss Franc, as markets are back into risk seeking mode. FTSE, DAX and CAC are all trading mildly higher after yesterday's brief pull back. US futures also point to higher open as NASDAQ and S&P 500 could extend the record runs.

Dollar followed US stocks and yields higher overnight but it's losing momentum in Asian session. 30 year yield was back above 3.0 handle and closed at 3.014, up 0.025. 10 year yield also reached as high as 2.390 before closing at 2.376, up 0.024. 10 year yield is now close to 2.391 near term structure resistance. Meanwhile, Dollar index staged a solid rebound and is back above 99, comparing to last week's low at 98.54. But it will take a break of 99.46 resistance in the Dollar index to confirm near term reversal. In other markets, Gold dipped to as low as 1221 yesterday and is staying soft at around 1227. WTI crude oil's rebound from 43.76 lost steam after failing to take out 47.01 near term resistance.

After initial spike on news of French presidential election, Euro quickly retreated. While weakness in the common currency is limited so far, the price actions suggest that it's now in a near consolidation phase. And focus will move away from Euro to others. Two major focuses of the week are BoE Super Thursday and RBNZ rate decision. In particular, Sterling could ride on cross buying in EUR/GBP and a hawkish twist in BoE inflation report to extend recent rise. Meanwhile, Loonie and Aussie will look into development in energy and commodity markets. Canadian Dollar rebounds today with the help of recovery in oil price. However, WTI is starting to feel heavy again ahead of 47 handle. Overall, Dollar recovers broadly but the outlook is mixed so far as it's not in focus.

The global financial markets react little to the highly expected win of pro-EU centrist Emmanuel Macron's in the French presidential election. Euro trades generally lower with Swiss franc as the expectation became news. Dollar on the other hand, trades mildly higher. Strength in the greenback is mildly overwhelmed by New Zealand dollar. The Kiwi is lifted on expectation that RBNZ would sound more upbeat in this week's policy statement. Canadian Dollar follows as oil price stabilized after last week's steep selloff. Meanwhile, Aussie is weighed down by weaker than expected import growth in China.

Centrist independent Emmanuel Macron has won the French presidential election in a decisive victory. With virtually all votes counted, Macron has taken 66% of votes in the second round runoff, compared with far-right populist Marine Le Pen's 34%. While the election outcome had been suggested in the pre-election opinion polls, financial markets still reacted positively as defeat of Le Pen signaled a diminished risk of Frexit, a real concern haunting politicians and investors across the globe after the surprising Brexit referendum and Donald Trump's victory in US presidency. Despite her loss, it is the highest number of votes that far-right parties have ever received in modern French history. As she noted in the concession speech, she was 'designated the leading opposition force in this second round', Turnout of this election was 65.4%, 6.6 percentage points lower than that in the 2012 runoff and the lowest since the second round of the 1981 election. The total number of abstentions and spoiled votes, at 12 million, was greater than 10.7 million received by Le Pen, underpinning the general public's discontent over the current political and economic environment in France.