US dollar Index rebounded sharply to 91.9 area after touching three-month low of 91.5 yesterday. This rebound was driven by better-than-expected US Manufacturing PMI readings, followed by an uncertain statement from the Fed minutes with regards to Trump’s tax cut.

Technically, momentum indicators RSI and DMI have both shown signs of dollar oversold; therefore, this could provide an opportunity of a technical rebound in the days to come.

The US manufacturing PMI registered 59.7 in December, up from 58.2 in the previous month and beat market expectation of 58.1. A string of positive readings over the past 16 months suggested that US manufacturing sector is riding strong upward momentum, and the rate of expansion accelerating to a 10-month high, which gave the US dollar a boost. PMI reading is widely considered as a leading indicator of overall economic health as businesses in the manufacturing sector react quickly to market fluctuations. A figure above 50 reflects industry expansion, below 50 indicates the opposite.

The Fed minutes released last night showed that the FOMC members are unsure about the potential impact of Trump’s tax overhaul to the economy. The Fed members predicted a more modest impact to real GDP growth of just 2.2-2.6 percent this year, which contrasts with Trump’s ambitious forecast of 4 percent or higher as a surge in business investments and wage rises as a result of tax cut will significantly boost US economy in the years to come.

Nonetheless the likelihood of a March rate hike rose to 67.5% from 62% after the release of Fed minutes according to CME’s FedWatch tool.

EUR/USD retraced back to key support level of 1.200 area to re-test this support. Momentum indicator RSI has retraced from overbought zone of 70% to 68%, suggesting that upward momentum is depleting. Leading momentum indicator DMI also gives a bearish signal as the recent bull-run seems out of steam.

Singapore equities rallied nearly 1% on the second day of 2018, with banks, offshore & marine and property sectors contributing the most gains in the Straits Times Index. Market participants continue to digest and react to positive 4Q GDP readings and funds are flowing back to the market after the holiday break chasing for yield and value. Despite a 20% gain in 2017, Singapore’s blue chips are still among the cheapest in Asia when it comes to valuation. The Straits Times Index is trading at around 11 x trailing Price-to-Earnings, comparing to 14 x Hang Seng and 17 x Shanghai Composite.

Stronger dollar paused the rally of precious metals, with gold and silver prices retracing to US$ 1,307 and US$17.03 respectively from their recent peaks. If the dollar continues to strengthen, we will expect gold and silver prices to enter into technical corrections due to their negative correlation.

EUR/USD

Market Calendar – US Manufacturing PMI

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