Mon, Nov 29, 2021 @ 10:48 GMT
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Weekly Report

Dollar and Yields Tumbled on Sluggish Inflation, Sterling Emerged as Strongest after a Week of Roller-Coaster Ride

It has been a rather volatile week. We were partly correct in expecting strong impact from politics on the markets. But the reactions to central bank news and economic data surprised us. Dollar was clearly weighed down by FOMC minutes and CPI miss and ended as the weakest one. Meanwhile, Euro reversed early gains and ended mixed on rumors about ECB's tapering plan. There was practical no impacts from US President Donald Trump, North Korea and not even Catalonia. Markets also ignored UK Prime Minister Theresa May. Nonetheless, politics did play a role in the extraordinary volatile in Sterling, which ended as the strongest one. Aussie and Kiwi followed as boosted by China data.

Dollar Rally Clouded by North Korea Risk, Politics Might Overshadow Economic Data Again

Dollar ended as the strongest major currency last week as economic data released affirmed a December Fed hike. The surprised contraction in non-farm payroll was offset by strong wage growth. However, the greenback pared back some of its gain on resurgence on North Korea risk. On the other hand, the British Pound suffered broad based heavy selling as there were increasing calls for Prime Minister Theresa May to step down, in the crucial time of trade negotiations with the world. In spite of political uncertainties in Catalonia, Euro showed much resilience and ended the week mixed only. North Korea, Catalonia, Theresa May, Japan election, are the key things to watch ahead. Politics might overshadow economic data again.

Risk Apettite Surged, Conflicting Movements in Currency Markets Due to Quarter End Trading

There were some conflicting movements in the markets last week. Risk appetite was clearly strong in US and Europe. S&P 500 and NASDAQ ended at record highs and DOW was not far from it. Dollar was firm as investors finally got some more details about the long awaited tax reform. Treasury yield also jumped as markets were getting more confident on the bet of December Fed hike. However, the greenback was overshadowed by Swiss Franc, which ended as the strongest one for the week. Dollar was only the second best performer. Yen also ended the third strongest ones. The decoupling of risk sentiments with Swiss Franc and Yen could be partly seen as the results of quarter end position squaring. Or, it's a sign that Dollar strength was indecisive due to lack of confidence over the tax plan.

Euro Resilient after an Eventful Week, Focus Stays on Politics ahead

There were a lot of happenings in the financial markets last week. The more hawkish than expected FOMC announce was supposed to give Dollar a strong boost. But it was the resilience of Euro that's much more convincing. New Zealand Dollar ended as the strongest one leading up to Saturday's election. Kiwi traders should be given a relief after the ruling National Party won the election, even though without outright majority. On the other hand, Canadian Dollar ended as the weakest as recent consolidation continued. Yen and Swiss Franc followed as the next weakest in an era of global monetary stimulus exit.

Sterling Surged on Speculations of November Hike, Dollar Rebound Unconvincing, Yen Free Fall

British Pound ended as the strongest major currency last week as boosted by hawkish BoE announcement. A November rate hike by BoE is now a real possibility. Kiwi ended as the second strongest in spite of some volatility ahead of generally election. Dollar followed on revived speculations of a December Fed hike. Meanwhile, Yen ended as the weakest as markets on return of risk appetite. US equity indices made records highs while strong rebounds were seen in DAX and CAC. FTSE was the exception due to BoE rate expectation. Yen is also additionally pressured as markets are back looking at diverging global interest rates.

Dollar Selling Picked Up Again on Geopolitical Tensions, Trump and Fed Uncertainties

Dollar ended the weak as the weakest major currency as weighed down by a number of factors. Judging from the fact that Yen and Swiss Franc were the strongest ones, risk aversion was a key factor in driving the greenback down. There is so far no resolution to the geopolitical tension between the US and North Korea yet. While US is calling for United Nations Security Council to vote on fresh sanctions against North Korea, it's effectiveness is in heavy doubt. There were also fears that North Korea will launch another missile to celebrate its foundation day on September 9, that is today. Also, not long after hurricane Harvey left, another one Irma is expected to land this weekend too. Some estimated the dame of Irma to be as much as USD 200b, topping Katrina that slammed into New Orleans back in 2005.

Dollar Survived Negative Factors to End Mixed; ECB, BoC and RBA Watched

Dollar survived the geopolitical risks in Korea peninsula, damage of hurricane Harvey, and a set of disappointing non-farm payroll data, to end the week "mixed". While the pull back in EUR/USD caught much attention, we'd like the point out that Dollar ended the week lower against Canadian Dollar, Australian Dollar and Sterling. Indeed, the pound ended as the third strongest major currency, next to Canadian Dollar, even though the third round of Brexit negotiations ended with no concrete progress but more verbal exchanges between EU and UK officials. On the other hand, as risk aversion came and went quickly, Yen and Swiss Franc ended as the weakest ones, just next to Kiwi. Traders could take a brief rest on Monday as US and Canada will be on holiday. But three central bank meetings, RBA, BoC and ECB promise much volatility ahead.

Business Back to Usual after Jackson Hole, EUR/USD Surged to New High

Dollar ended the week as a big loser after the highly anticipated Jackson Hole Symposium. It was pointed out before that there were little expectations for comments on monetary policies from Fed Chair Janet Yellen and ECB President Mario Draghi. And the reactions indeed showed that traders were relieved by the lack on cover on monetary policies. And business returned to usual with EUR/USD resuming recent up trend while Dollar was back under pressure. While Dollar still managed to end higher against Yen, near term outlook remained bearish in USD/JPY and it's just a matter of time to see downside breakout in the pair. Focus will now turn to key economic data including non-farm payroll from US but it's unlikely to safe the Dollar. Another focus to watch this week is another round of Brexit negotiation.

Risk Aversion to Stay as Politics, Geopolitics and Central Bankers in Focus

Risk aversion was again the main theme in the financial markets last week. But this time, commodity currencies ended as the strongest ones. Sterling was hardest hit as disappointing inflation reading further killed the chance of an early BoE hike. Euro followed on report that ECB President Draghi won't address monetary policy in the upcoming Jackson Hole symposium this week. Also, the common currency was pressured as ECB minutes showed worries on Euro overshooting its strength. Dollar suffered much on the political turmoil in the White House but it ended slightly higher against most except Canadian Dollar and Australian Dollar. Meanwhile Yen and Swiss Franc failed to capitalize on risk aversion and ended the week mixed.

Global Selloff on US-North Korea Tensions, Markets Starting to Price in Fed Cut

Risk aversion dominated the markets last week as tension between US and North Korea suddenly intensified on verbal exchanges of the leaders. DOW initial made new record high at 22179.11 but ended the week down -234.49 pts or -1.06% at 21858.32. S&P 500 closed down -35.51 pts or -1.43% at 2441.32. European indices were harder hit with DAX closed down -283.66 pts or -2.31%. FTSE closed down -201.75 pts or -2.69%. Japan was on holiday on Friday but Hong Kong HSI closed the week down -2.46%. US yields was further hit by tame CPI and PPI data with 10 year yield closed at 2.189, taking out 2.225 near term support decisively. In the currency markets, Yen and Swiss Franc ended as the strongest ones on risk aversion. Commodity currencies ended as the weakest ones, followed by Sterling. Gold surged on risk aversion and Dollar weakness and closed up 2.4% at 1295. WTI crude oil traded like a passerby and struggled to regain 50 on another attempt.

More Upside in Dollar With Short Term Bottom Formed, Euro Rally Looks Tired

Dollar staged a strong rebound towards the end of the week as boosted by an overall set of solid job data. While the greenback still ended lower against Euro for the week, it's now looking likely that the greenback has found a short term bottom already. It's still early to confirm a trend reversal for Dollar yet. And we believe the key lies in the yet to be confirmed fiscal policy of US President Donald Trump. But for now, Dollar will probably gyrate higher in the early part of this week until CPI release on Friday. On the other hand, while Euro ended the week as the strongest currency, its rallies against Dollar, Yen and even Swiss Franc are starting to look tired. Sterling ended the week generally lower after markets perceived the BoE Super Thursday as a dovish one. But commodity currencies were even weaker with Canadian Dollar starting to pare back the strong gains in the past two months.

Swiss Franc Weakness to Persist, Risks Skewed to the Downside for Dollar and Sterling

While there were quite a number of key events last week, Swiss Franc came up as the surprised biggest mover. The Franc tumbled broadly as safe haven funds flowed out in accelerated pace. Franc has indeed ended the week down over -3% against Sterling, Aussie, Canadian, Kiwi and Euro. Against Yen and Dollar, Franc closed down -2.8% and -2.4% respectively. Dollar ended as the second weakest one as FOMC statement was taken as a dovish one while GDP price data missed. Also, continuous political drama in the White House means that there is still no clear light on when US President Donald Trump's tax reform would be implemented. Commodity currencies closed generally higher as supported by surge in energy and metal prices. Nonetheless, another surprise was that Sterling ended as the strongest one as it recovered on position squaring ahead of BoE Super Thursday.

Euro Surged to Two Year High on ECB, Dollar Looks to FOMC for Rescue

Another week of much volatility in the forex markets. Euro surged to two year high against Dollar as markets took ECB's message as a nod to stimulus withdrawal down the road. The common currency ended as the second strongest one, just next to it's cousin Swiss Franc. On the other hand, Sterling fell broadly as rate hike speculations were dented by much lower than expected CPI reading. Dollar followed closely as markets were getting more dissatisfied with US President Donald's lack of progress in tax reforms. Much volatility was also seen in Australian Dollar on RBA rhetorics. Canadian Dollar also gained against the greenback but is seen as losing momentum.

Dollar Broadly Lower after Dovish Yellen, Loonie Outshone by Aussie

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.

Canadian Dollar Shone as BoC Expected to Hike This Week, Dollar Recovered in Corrective Way

Central bank comments and rate expectations continued to be the main drivers in the global financial markets last week. However, the developments reminded us that no matter how hawkish central bankers sound, monetary policies have to be supported by data. Canadian Dollar being an example that BoC Governor Stephen Poloz's hawkish comments were supported by strong employment data. And the Loonie ended as the strongest major currency as markets are generally expecting a BoC rate hike on July 12 this week. Dollar ended as the second strongest one after solid ISM indices and non-farm payroll headline number even though markets are not convinced of a September Fed hike. Meanwhile, Euro was the third strongest as markets perceived the ECB monetary policy meeting accounts as a hawkish one.

Global Central Banks Turned Hawkish, Yen Carry Trades to Come Back

Sterling, Canadian Dollar and Euro surged broadly last week on hawkish comments from central bankers. The turn in BoE Governor Mark Carney was the most drastic as just a week a go, he said it's not the time of rate hike yet. But then, he indciated the BoE MPC will start debating raising interest rate in the coming months. BoC Governor Stephen Poloz repeated his comments that prior rate cuts in 2015 have already done their job. But this time, Poloz hinted that BoC is approaching a new interest rate decision. That tremendously raised the odds of a July hike by BoC. There were some jitters on Euro on report that markets misinterpreted ECB President Mario Draghi's comments. But after all, it's generally convinced that, with improvements in Eurozone inflation and growth, ECB is transiting into a phase of stimulus withdrawal. And there would likely be tapering announcement in September or by latest October.

Divisions in Fed and BoE Boards Might Signal Changes in Monetary Policy Stances ahead

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.

Dollar Lifted by Fed, Sterling by BoE. But Momentum in Both Currencies Unconvincing

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.

Sterling to Stay Pressured on Political Uncertainty, Dollar’s Fate Depends on FOMC

Sterling ended last week as the weakest major currency. The Conservatives' losing of majority in the parliament created much uncertainty on politics, economic policies and Brexit negotiation. While the selloff in the Pound was steep, it's so far holding on to key support level against Dollar, Euro and Swiss Franc. And it seems like traders are still holding some of their bets to watch the developments in near term. Euro ended as the second weakest major currency for the week as traders were not satisfied with the tiny hawkish move in ECB's language. And the general weakness in European majors also dragged the Swiss Franc.

All Eyes on Thursday – UK Election, ECB and Comey

Risk appetite in the global financial markets was pretty strong last week. DOW, S&P 500 and NASDAQ shrugged off the much weaker than expected non-farm payroll report from US and all closed at record highs. Strength was also seen in other markets with FTSE 100 in UK and DAX in Germany hitting records too. In Japan, Nikkei also closed above 20000 handle for the first time since 2015. The sharp fall in US yields following NFP argues that markets could be starting to bet on a relatively slower tightening path by Fed and that could be a reason for the strength in US stocks. Eurozone sentiments, on the other hand, was lifted by optimism on easing political risks and improving economic outlook. Meanwhile, UK stocks are riding on the weakening Pound, in particular against Euro.