The financial markets reacted differently to the FOMC minutes overnight. Stocks seemed to have taken the more optimistic view of the minutes. DJIA closed up 60.4 pts, or 0.30%, at 19942.16. S&P 500 also gained 12.92 pts, or 0.57%, to close at 2270.75. Both indices are heading back to historical high with DJIA set to take on 20000 handle again. However, Dollar and yields seemed to pay more attention on the "consider uncertainties" that policy makers believed would alter the policy path. In particular, Dollar index drops sharply to as low 101.86 so far today and is threatening a near term reversal. Gold rides on dollar weakness and is back above 1170.

The FOMC minutes for the December meeting unveiled that the members incorporated the assumption of a more expansionary fiscal policy in their economic growth forecasts as well as monetary policy outlook. The latter was also driven by unemployment staying below the "longer-term normal level". As noted in the minutes, the forecast for real GDP growth over the next several years was "slightly higher, on balance, largely reflecting the effects of the staff’s provisional assumption that fiscal policy would be more expansionary in the coming years". It also added that "about half of the participants incorporated an assumption of more expansionary fiscal policy in their forecasts".

Notwithstanding the better-than-expected employment situation, the members remained concerned about the undershooting of the natural unemployment rate. While most members judged that unemployment rate would be "only modestly below" the estimated longer-run normal rate over the next few years, "several" were worried over "a more substantial undershoot". As such, many participants "emphasized that, as the economic outlook evolved, timely adjustments to monetary policy could be required to achieve and maintain the dual mandate.

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On the data front, Japan monetary base rose 23.1% yoy in December. Swiss CPI will be featured in European session. Also, Eurozone will release PPI, retail PMI and ECB monetary policy accounts. UK will release services PMI. Canada will release IPPI and RMPI later today. But focus will be on US ADP employment and ISM services.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3234; (P) 1.3345; (R1) 1.3409; More

USD/CAD’s decline from 1.3598 accelerates to as low as 1.3261 so far and intraday bias remains on the downside for 1.3080. As noted before, price actions from 1.2460 are viewed as a corrective move. Decisive break of 1.3080 will indicate that it’s completed and turn outlook bearish for retesting 1.2460 low. On the upside, above 1.3383 minor resistance will turn bias neutral again with focus back on 1.3588/98 resistance zone.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is possibly finished at 1.3588 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3005 would likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We’d start to look for reversal signal below 1.2460 to complete the correction. In case of another rise, we’ll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
23:50 JPY Monetary Base Y/Y Dec 23.10% 22.30% 21.50%
1:45 CNY Caixin PMI Services Dec 53.4 53.3 53.1
8:15 CHF CPI M/M Dec -0.10% -0.20%
8:15 CHF CPI Y/Y Dec 0.00% -0.30%
9:10 EUR Eurozone Retail PMI Dec 48.6
9:30 GBP Services PMI Dec 54.7 55.2
10:00 EUR Eurozone PPI M/M Nov 0.20% 0.80%
10:00 EUR Eurozone PPI Y/Y Nov -0.10% -0.40%
12:30 EUR ECB Monetary Policy Meeting Accounts
12:30 USD Challenger Job Cuts Y/Y Dec -13.00%
13:15 USD ADP Employment Change Dec 175k 216k
13:30 USD Initial Jobless Claims (DEC 31) 260k 265k
13:30 CAD Industrial Product Price M/M Nov 0.20% 0.70%
13:30 CAD Raw Materials Price Index M/M Nov -1.60% 3.30%
15:00 USD ISM Non-Manufacutring Composite Dec 56.7 57.2
15:30 USD Natural Gas Storage -237B
15:30 USD Crude Oil Inventories 0.6M

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