Issue#: 330/2017

Spot values at a glance:

USDSGD

USDCNH

AUDUSD

USDJPY

USDCAD

GBPUSD

Daily Observations:

Asian equities, taking the lead from US indices overnight, advanced with government bonds after Janet Yellen signalled the Federal Reserve won’t rush to tighten monetary policy. The US dollar and Treasury yields extended losses while gold advanced.

US:

  • Fed Chair Janet Yellen struck a subtly different tone on the inflation outlook during her first of two days of testimony before Congressional committees, prompting traders to pare their bets on an additional interest rate increase this year. Yellen on Wednesday altered the language she used to describe recent softness in inflation, expressing deeper concerns over how persistent that weakness may prove.
  • In written testimony to lawmakers, Yellen noted declines in “certain categories of prices”, in a reference to drops in prices for mobile telecommunications services and pharmaceuticals. However, she called lower inflation “partly the result” of those factors.
  • According to Bloomberg news, the shift in language suggests Yellen has grown more concerned about downward pressures on inflation that can’t be explained by visible price drops in specific sectors. In her testimony, she went on to say that uncertainty surrounds the question of “when — and how much — inflation will respond to tightening resource utilization”.
  • Yellen’s testimony helped fuel a retreat in the US dollar and Treasury yields. The Bloomberg Dollar Spot Index fell again, bringing its year-to-date decline to 6.77%. The latest Commodity Futures Trading Commission data, released late Friday, showed that hedge funds and other large speculators have amassed the biggest net short position against the greenback since February of 2013.
  • Yields on benchmark 10yr Treasuries fell the most in almost a month as bond prices jumped, falling 4bps to 2.32% in New York.
  • The odds of a September hike, based on the implied rate of federal fund futures, fell to about 10%, while the probability of an increase by year-end dropped to around 43%, according to Bloomberg pricing data.
  • The Dow Jones Industrial Average closed at a record high amid Yellen’s remarks, which investors interpreted as dovish all in all. The S&P 500 Index and Nasdaq Composite rallied as well, ending 0.7% and 1.1% higher respectively.

Canada:

  • Canada on Wednesday became the first G-7 member to join the US in tightening amid growth that’s forecast to be the fastest in the developed world. While the move was anticipated by most economists surveyed by Bloomberg, traders were surprised when policy makers downplayed weak inflation and said the output gap will close earlier than previously projected.
  • The Bank of Canada raised its benchmark rate to 0.75% from 0.50%, while adding an element of prudence by warning future rate hikes will be “guided” by the data. Canadian government bond yields and the country’s currency rose after the hike, on expectations the Bank of Canada will follow with a second increase this year.
  • Governor Stephen Poloz said “monetary policy is not on a predetermined path”, and added that interest rate hikes “will remain highly data-dependent” moving forward.
  • Inflation, however, has been sluggish, weakening with consumer prices in May up 1.3% on an annual basis – the slowest pace this year, some distance off from the central bank’s target of 2%. Another reason for concern may be the Canadian dollar’s sudden assent, which could add as a headwind to growth.

UK:

  • The UK’s public spending watchdog said there is no guarantee the government’s new customs system will be operational by the time of Brexit, potentially complicating the country’s future trade with the European Union.
  • The report highlighted the pressure Prime Minister Theresa May’s government is under both to strike a new trade deal with the EU and to ready the borders for life outside of the bloc. No agreement by March 2019 would leave the UK an outsider, its exporters facing increased bureaucracy and tariffs and the government needing to police imports from the EU.

Singapore:

  • Retail sales in May fell 1.0% from a month ago reversing from a prior month gain of 1.7% and poorer than the median estimate of a 0.4% increase. On a year-to-year basis, retail sales rose 0.9%, less than the 2.2% expected and markedly slower than April’s rise of 2.7%.

Precious Metals:

  • The gold market rendered a quick dovish read on Federal Reserve Chair Janet Yellen’s prepared testimony to Congress. Spot gold rose by as much as 0.7% to $1,225.80/Oz last night, although it has since pared some of its gains.
  • The next resistance region lies around $1,230/Oz, where the precious metal’s 200-day moving average roughly resides as well. An upside breakout above the resistance would render the downtrend line since the early June broken, and signal more upside potential.
  • Silver for immediate delivery rebounded as well, climbing 1.2% to $16.0295/Oz last night.
  • Silver bulls remain cautious, however, as following its break below the $16.25/Oz level last week, the metal has completed a technical breakout to the downside from the multiyear wedge pattern formed since end 2015; momentum continues to remain biased to the downside with the next support coming in around $15/Oz.

Oil

  • Crude oil futures expiring in August rose 1.0% in New York to settle at $45.49/bbl, bringing its rise over the past 3 sessions to 2.9%.
  • Crude inventories fell by 7.6 million barrels last week, the most since September, according to government data Wednesday. The decline was more than triple the median estimate in a Bloomberg survey.
  • OPEC first assessment of world oil markets in 2018 showed that, despite cutting output, the group is still pumping too much crude.

Solar Energy:

  • The US Energy Department has awarded $46.2 million in research grants to improve solar energy technologies and reduce costs to 3 cents per kilowatt-hour by 2030.
  • The money will be partly matched by the 48 projects awarded to laboratories and universities, including Arizona State, which plans to use $1.6 million to develop an X-ray test to evaluate the performance of thin-film modules under harsh conditions, according to a emailed statement Wednesday

USDSGD:

  • Spot 1.3772
  • USDSGD shed 0.4% to 1.3762, testing a 3-week low. Investor focus now shifts to Friday’s second quarter GDP data, which is expected to have eased to 2.4% year-on-year, from 2.7% in the first quarter this year.

 

AUDUSD:

  • Spot 0.7686
  • AUDUSD advanced 0.5% to 0.7690 earlier, and looks poised to test the 0.7700 handle again for the second time in a month.
  • The pair is threatening to break out, to the upside, of an 18-month long wedge formation. A move past 0.7750 should confirm the breakout, and signal more upside potential for AUDUSD.

 

USDCAD:

  • Spot 1.2741
  • USDCAD tanked 1.9% to 1.2681, a 1-year low for the pair after the Bank of Canada raised interest rates for the first time since 2010.
  • The next support levels come in at 1.2680, followed by a major one at 1.2460.

 

USDCNH:

  • Spot 6.7783
  • The PBOC weakened its fixing to 6.7802 per US dollar earlier, versus yesterday’s fixing of 6.7868.
  • The USDCNH declined 0.3% to 6.77964 earlier, on the back of broad USD weakness today.

 

USDJPY:

  • Spot 113.03
  • USDJPY fell 0.5% to 112.93 earlier, erasing a gain 1-week gain in the space of 2 days, following a more dovish than expected comments from Fed Chair Yellen last night.

 

GBPUSD:

  • Spot 1.2900
  • GBPUSD erased its previous session’s decline, rebounding 0.4% to 1.2907 earlier on the back of a weaker US dollar. The pair looks likely to continue consolidating between the 1.2800 and 1.3000 handles.
© Jachin Capital Pte Ltd

UEN: 201419754M


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