American FX Outlook: North American trade balances in spotlight

What you need to know before markets open:

• The global equity markets turned sour, as the US equities saw its biggest daily selloff in since August 2011. The Asian equities selloff continued on Tuesday with Nikkei closing 10% below its peak.
• German economy continues to produce a streak of very positive economic news even with key political parties struggle to form the coalition.

Tuesday’s market moving events

• The US trade balance is expected to reach a deficit of $52.0 billion in December.
• Canada’s trade balance is expected to reach a deficit of C$2.2 billion in December.
• St. Louis Federal Reserve President James Bullard is scheduled to present on the US Economy and Monetary Policy at the 29th Annual Gatton College of Business and Economics Economic Outlook Conference in Lexington, Kentucky at 13:50 GMT.
• Canada’s Ivey PMI is set to rise to 61.0 in January.
• NZ employment is expected to rise 0.2% Q/Q in the final quarter of 2017 with the unemployment rate dwelling at 4.6%.

Major market movers

• The US Dollar is trading slightly lower on Dollar index basis with mild loses against EUR and GBP.
• VIX index measuring the market volatility jumped by the highest degree both in nominal and relative terms in its history and it is unlikely for relative change to persist in such tone for long with signs of market stabilisation already apparent on Tuesday, especially with the benchmark 10-year US Treasury yields easing off from 2.8% territory to trade back at around 2.72%

Earlier in Asia/Europe

• ECB’s Draghi was dovish on his annual report to the EU parliament saying “the aim of close to 2% target has strengthened, but we cannot yet declare victory.” In terms of monetary policy Draghi confirmed data-dependent approach saying “….patience and persistence with regard to monetary policy is still warranted for underlying inflation pressure to build up.”
• The Reserve Bank of Australia kept the Cash Rate unchanged in line with expectations.
• German factory orders rose strong 3.8% m/m in December.
• German Bundesbank President Jens Weidmann said at the Bundesbank Lecture, in Frankfurt that the greatest risk now is to assume that all problems are solved as shocks in specific regions or sectors of the economy can still put Eurozone to an "endurance test".