Dollar move to be of interest

It was another action packed weekend that set a positive start to the week for Asian markets. 

US trader
Source: Bloomberg

The recent first order influence for markets, President Donald Trump, had also created favourable reasons for Asian bulls to charge on.

Politics continue to dominate market action at the start of the week. While the White House remains caught up on immigration matters, President Donald Trump had been bridging relations with his Asian counterparts. A seemingly constructive meeting between President Donald Trump and Japan Prime Minister Shinzo Abe, in addition to the US President’s backing of the ‘One China’ policy, could allay some of the trade concerns in Asia and set free into the market more bullish bets. While it remains to be hashed out, President Donald Trump’s mention of a “level playing field” on currency valuation also appears to reflect an amicable turn after the US President accused his visitors of currency manipulation.

US markets ended the previous week on a positive note with gains spread across sectors, supported since Thursday’s revelation of a “phenomenal” tax plan by President Donald Trump. This positive lead from the US coupled with improving trade sentiment provides the backing for a positive Monday for Asian markets.

However, grabbing attention for the week could instead be the course which the US dollar would chart, particularly in a week where Federal Reserve Chair Janet Yellen would be making an appearance. After four consecutive weeks of decline, the USD index inched up 0.93% in the previous week, with President Donald Trump inspiring reflation trade and Fed officials bumping up March as a ‘live’ meeting for an interest rate hike.

Fundamentally, there would be little reasons to change the longer term bullish view on the US dollar. However, we have been familiar with a situation where Fed Chair Yellen disappoints with a lack of insights. As things stand, there may be little imperative for the Fed’s number one to change the rhetoric given the lack of insights into fiscal policy. Moreover, the market is also clearly unconvinced of a March hike as reflected by the sub-30% conviction based on Fed Funds futures. Therefore risks to the downside for the US dollar this week should not be ruled out.

While EUR/USD has its own set of political woes, the rest of Asia could see its own influences this week. Notably, Japan’s Q4 GDP arrived this morning, disappointing at 1.0% quarter-on-quarter (QoQ) annualised against the market’s expectation of 1.1% QoQ annualised. USD/JPY up briefly at a 2-week high above $114.00, still riding on the post Trump-Abe meeting sentiment. Eyes on China loan conditions update, due between 13-15 February and OPEC monthly oil market report today.

Friday: S&P 500 +0.36%; DJIA +0.48%; DAX +0.21%; FTSE +0.40%

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