January 18, 2017

Daily Observations:

The flight to haven assets eased following the biggest drop in the dollar since July with moves in the yen, Treasuries and gold steadying ahead of Donald Trump’s inauguration later this week. Equities in Asia erased earlier losses from the morning; the MSCI Asia Pacific Index added 0.3%.

US:

  • The US dollar fell against most major peers last night after President-elect Donald Trump told the Wall Street Journal the greenback was “too strong”, in part because China holds down its own currency.
  • The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slumped 1.3%, while the more-concentrated Dollar Index declined 0.8%. The dollar has pared some of its declines earlier today.
  • The yield on the benchmark 10yr Treasury note fell 7bps to 2.33%, declining in tandem with the US dollar.
  • The S&P 500 Index slid 0.3%, led by financial and industrial shares.
  • Federal Reserve Governor Lael Brainard said the US central bank may accelerate interest-rate hikes and measures to shrink its balance sheet if Congress approves a sustained, material increase in fiscal stimulus that pressures inflation without lifting productivity.
  • New York Fed President William Dudley commented that the risk the Fed will snuff out economic expansion any time soon “seems quite low because inflation is simply not a problem”.
  • San Francisco Fed chief John Williams said the US economy has reached its maximum employment goal and maintained that gradual interest rate increases will likely be appropriate.
  • With just days to go before President-elect Donald Trump officially assumes office, analysts from Morgan Stanley to Nomura are warning that bets on a return of inflation and a stronger US dollar may have run their course, according to a Bloomberg report.

UK:

  • Prime Minister Theresa May offered her most explicit vision of Britain’s future relationship with its EU neighbours, pledging to quit the single market and instead seek a customs agreement with the bloc to deliver a “smooth and orderly Brexit”. May also said she wanted the UK to be a “good friend and neighbour in every way” to its former partners and warned them not to reject the model she was proposing.
  • May offered a series of other aims for coming Brexit talks:
    • She wants to recast membership of Europe’s customs union by maintaining tariff-free, friction-less trade with the EU but without having to impose the same duties on non-EU countries.
    • The ability to negotiate new trade deals with countries outside the bloc.
    • She wants transitional arrangements for financial services and other companies so new rules are phased in over time.
    • No more “huge” UK contributions to the EU budget.

China:

  • China doesn’t plan to depreciate the yuan to boost trade competitiveness and no one would be a winner in a trade war, President Xi Jinping said in his speech at the World Economic Forum in Davos yesterday.

Singapore:

  • The Association of Banks in Singapore’s debt consolidation plan will help borrowers to reduce debt over time and help those affected by an industry-wide borrowing limit, the government body said in a media statement. The borrowing limit is being reduced from the current 24 times monthly income to 18 times and 12 times in June 2017 and June 2019 respectively.

Precious Metals:

  • Spot gold gained 1.2% to $1,217.12/Oz yesterday, before paring some of its gains today, falling by 0.5% to $1,210.76/Oz.
  • The next level of resistance above is expected to be around $1,230/Oz. $1,180/Oz represents the support level below.
  • Silver for immediate delivery briefly reached its key level of $17.20/Oz, before paring gains back towards the $17/Oz handle, little changed from its previous session’s close.

Oil:

  • Crude oil futures expiring in February gained 0.5% to $52.74/bbl, ahead of weekly government data due tonight which is expected to show US crude stockpiles declined by 1 million barrels last week.
  • The market is rebalancing as demand proves to be unexpectedly robust while OPEC’s Gulf members and Russia have cut output by more than promised, Saudi Arabia’s energy minister said in an interview.

 

USDSGD:

  • Spot 1.4204
  • USDSGD rebounded off its key support of 1.4150 overnight, and was 0.2% higher at 1.4210 earlier today.
  • The currency pair registered a 0.9% fall in its previous session, its steepest slide in more than 5 months.
  • The 1.4150 support should hold for the time being, failing which, a sharp drop back to the psychological 1.4000 handle could materialise.

 

AUDUSD:

  • Spot 0.7543
  • AUDUSD remained little changed, after paring earlier gains of as much as 0.3%.
  • The currency pair broke through the key resistance of 0.7500 yesterday, a level that has held firmly over the past 2 months.
  • Higher resistance price levels reside above at 0.7650 and 0.7750.

 

USDCAD:

  • Spot 1.3074
  • USDCAD rebounded from a 3-month low and gained 0.3% to a session high of 1.3078 earlier today. However, having broken below the key support of 1.3100 recently, the currency pair is likely to resume its downward momentum soon, with the 1.3000 psychological handle looming.
  • The Canadian dollar is off to its best annual start since it became a floating currency in 1970, gaining up to 3% this year against the US dollar.

 

USDCNH:

  • Spot 6.8640
  • The PBOC resumed its recent strengthening of its daily yuan fixing, raising it by 0.68% earlier today to 6.8525 to the US dollar.
  • USDCNH reversed an earlier decline below 6.8000, to gain 0.3% to 6.8287.

 

USDJPY:

  • Spot 113.30
  • USDJPY bounced off a 6-week low of 112.57, reversing overnight declines to gain 0.5% to 113.58 due a stronger US dollar in Asia today.

 

GBPUSD:

  • Spot 1.2348
  • GBPUSD rallied 2.1% to a high of 1.2416 overnight, after PM May promised a parliamentary vote on taking the UK out of the EU as she seeks to deliver a “smooth and orderly Brexit”.
  • The next support level below remains at 1.1841, while resistance above is expected at 1.2432.
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