Mid-Day Report

Dollar Mixed Despite Upbeat Data and Fedspeaks

Typography

Dollar is trading mixed in spite of up beat US economic data and hawkish Fedspeaks. Empire state manufacturing index jumped to 30.2 in October, up from 24.4 and beat expectation of 20.7. That's also the highest level in three years. Boston Fed President Eric Rosengren sounded rather hawkish in an interview. He mentioned that Fed will need to hike interest rate December, and then three to four times "over the course of next year". He pointed out that unemployment rate, current at 4.2%, could drop below 4% when the economy is overheating. And in that case, Fed "might have to overshoot" interest rate to a level higher than expected in a healthy economy.

Over the weekend, Fed Chair Janet Yellen sounded quite upbeat on the economy. Yellen noted that "economic activity in the United States has been growing moderately so far this year, and the labor market has continued to strengthen."  Impact of the hurricanes were "quite noticeable in the short term". But she emphasized that "history suggests that the longer-term effects will be modest and that aggregate economic activity will recover quickly."

Euro softer on some political risks

Euro is trading generally softer, except against Aussie and Canadian. Catalan leader Carles Puigdemont didn't clarify his position regarding independence as requested by Spanish Prime Minister Mariano Rajoy. Instead, Puigdemont requested two months of communications over the status. Puigdemont emphasized that "the suspension on our side of the results that come out of the vote on 1 Oct, shows our firm commitment to find a solution, and avoid confrontation." However, Spain's Deputy Prime Minister Soraya Sáenz de Santamaría criticized that Puigdemont haven't made his position clear. And he offered Puigdemont an ultimatum to give a formal confirmation on independence or not by Thursday morning.

In Germany, Social Democrats defeated Chancellor Angela Merkel's Christian Democrats in an election in the northern state of Lower Saxony on Sunday. That is seen as a blow to Merkel as she's in preparation for coalition talks this week. The task is known to be difficult as her coalition partner of Afd and Greens are standing on different side of the spectrum. While Merkel acknowledged it, she tried to sound optimistic and said that "unusual combinations can of course bring the opportunity to find some solutions to things that had seemed unsolvable until now."

Released from Eurozone, trade surplus widened to EUR 21.6b in August. German WPI rose 0.6% mom in September.

Sterling firm as May meets Juncker

Sterling continues to trade as the strongest one for the week. Markets are keenly await inflation, employment and retail sales data. UK Prime Minster Theresa May will have a dinner with EU leaders in Brussels today, trying to rescue the Brexit negotiations. That include EU Commission President Jean-Claude Juncker and chief Brexit negotiator Michel Barnier. It came days after EU officials said the talks were deadlocked, as conclusion to the fifth round. It's believed that May would try to persuade the EU counter parts to start the talks on post-Brexit trade agreements. But so far, nothing is know about what May could offer in return. And it's clear that the EU side sees there isn't "sufficient progress" to move on, with key issues like the divorce bill unresolved.

Released from UK, Rightmove house prices rose 1.1%% mom in October.

Oil surged on Iran concerns, But CAD lags

Oil price surged today as geopolitical tensions have heightened concerns over Middle East exports. The Iraqi government has sent forces to the northeastern Kurdish region, trying to take control of the oil fields there. It is estimated that the conflict would cut the exports in the area by -75% to 0.15M bpd. Meanwhile, US President Donald Trump refused to certify the Iran has been complying with the nuclear deal. His plan to impose new sanctions against Iran is doomed to affect oil output there.

However, French President Emmanuel Macron has criticized Trump's threat to of tearing up the Iranian deal, while the EU has indicated that the US has no right to terminate the deal. China has also expressed the hope of keeping the deal in place. If the US were the only country that imposes new sanctions against Iran, the actual impacts on the oil market would be limited. Indeed, the major destinations of Iran's oil are European countries, China and India.

Canadian dollar, however, shows no reaction to oil price and trades broadly lower. Released from Canada, international securities transactions dropped to CAD 9.85b in August.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 111.57; (P) 111.94; (R1) 112.19; More...

Intraday bias in USD/JPY stays on the downside at this point, as 112.57 minor resistance remains intact. 113.43 is seen as a short term top. Decline from there should target 55 day EMA (now at 111.37) first. As whole rebound from 107.31 is likely completed, sustained trading below 55 day EMA will target 107.31 low and below. In that case, we'd expect strong support from 61.8% retracement of 98.97 to 118.65 at 106.48 to contain downside and bring rebound. On the upside, above 112.57 minor resistance will turn intraday bias neutral first. But risk will stays on the downside as long as 113.43 resistance holds.

In the bigger picture, rise from 98.97 (2016 low) is seen as the second leg of the corrective pattern from 125.85 (2015 high). It's unclear whether this second leg has completed at 118.65 or not. But medium term outlook will be mildly bearish as long as 114.49 resistance holds. And, there is prospect of breaking 98.97 ahead. Meanwhile, break of 114.49 will bring retest of 125.85 high. But even in that case, we don't expect a break there on first attempt.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
23:01 GBP Rightmove House Prices M/M Oct 1.10% -1.20%
01:30 CNY CPI Y/Y Sep 1.60% 1.60% 1.80%
01:30 CNY PPI Y/Y Sep 6.90% 6.40% 6.30%
04:30 JPY Industrial Production M/M Aug F 2.00% 2.10% 2.10%
06:00 EUR German WPI M/M Sep 0.60% 0.40% 0.30%
09:00 EUR Eurozone Trade Balance (EUR) Aug 21.6B 20.2B 18.6B 17.9B
12:30 CAD International Securities Transactions (CAD) Aug 9.85B 20.05B 23.95B
12:30 USD Empire State Manufacturing Index Oct 30.2 20.7 24.4
14:30 CAD BOC Business Outlook Survey