Dollar index stays firm above 98 in Asian session today after extending recent rise. Fed chair Janet Yellen point out that there was an unusual tendency of weak demand against strong supply in the economy. And, to reverse the "adverse supply-side effects", Fed could considering running a "high-pressure economy" temporarily. That is, an economy with robust aggregate demand and a tight labor market. Some economists pointed out that while the comments were a signal on December rate hike. Fed fund futures are still pricing in around 70% chance of that. Rather, the comments signaled that Fed is considering to allow inflation to shoot over inflation to shoot over 2% target temporarily. 30 year yield responded strongly to the comments and closed at 2.555, up from prior close at 2.474. 10 year yield rose 0.056 to close at 1.794 but was held below weekly high at 1.801. The greenback is supported by surge in yields.
The week ahead is rather busy with two central bank meeting scheduled. BoC and ECB are expected to keep policies unchanged. Fed will also release Beige Book report. In addition to that, regional Fed surveys, housing data and CPI will be released from US. UK will release CPI, retail sales, and job data. Canada will release CPI and retail sales. Meanwhile, it could also be a volatile week for down under as RBA minutes, Australia job data, New Zealand CPI will be released. And more importantly, China will release GDP as well as other growth data. Here are some highlights for the week ahead:
- Monday: Eurozone CPI final; US Empire state manufacturing, industrial production
- Tuesday: New Zealand CPI; RBA minutes; UK CPI, PPI; Canada manufacturing sales; US CPI, NABH housing
- Wednesday: China GDP, industrial production, retail sales, fixed asset investment; UK employment; US housing starts, Fed Beige Book; BoC rate decision
- Thursday: Australia employment; Swiss trade balance; German PPI, Eurozone current account; UK retail sales; ECB rate decision; US Philly Fed survey, jobless claims, existing home sales
- Friday: UK public sector net borrowing; Canada CPI, retail sales
Regarding trading strategies, our GBP/USD shorts are all closed now after the dip to 1.22 last week. Sterling bearish is expected ahead but ore consolidations are likely in near term. So, we'll hold our hands off the pound for a while and look for selling opportunity later. On the other hand, EUR/USD's dive last week argues that Euro could be overtaking Sterling as the theme for sell in near term. We're also staying bullish in WTI crude oil for a break through 51.67 resistance (currently at 50.2). USD/CAD continues to be rejected by 1.33 level, suggesting that reversal is imminent. Development in EUR/CAD also argues that the down trend from 1.6103 is possibly ready to resume. Hence, we'll try to sell EUR/CAD on recovery to 1.4550 this week. We expect the cross to break through 1.4378 for a test on 1.4173 low at least.
