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After a strong rally in U.S. equity and bond markets on Friday, the upward trajectory resumed on Monday. The S&P 500 gained 1.18% and the Dow added an impressive 400 points, ending the day 1.58% higher. Both indices are now 3.4% away from their record highs, after regaining more than two-third of their correctionlosses.

Investor appetite forrisk has returned strongly in the past two trading days,thanks to stabilizing interest rates. Not only didU.S. Treasury yields fell further away from last week's highs, but even high yield bonds attracted some decent inflows. Volatility fell to a three-week low, with the VIX Index ending the day below 16, having declined 68% from its 6 February peak.

Having beenwelcomed to office by the steepest correction in more than six years, equity investors feel that the new Fed Chair, Jerome Powell, will restore confidence. However, the reaction in currency markets was muted, with the EURUSD and USDJPY trading in narrow ranges as traders appear to be sitting on the sidelines until Powell provides a new catalyst.

Powell's first semi-annual monetary policy testimony to Congress later today is likely to be the most significant risk event of the week. The new Fed Chair will likely downplay the latest market correction and show confidence in highlighting improvements in the economy, but the markets' reaction will depend on how the Fed reacts against such a development.

Investor focus should be on whether recent inflation and wage growth figures are starting to become a concern forthe central bank. If Powell stated that faster-than-expected inflation would lead to a more aggressive tightening policy (suggesting four rate hikes instead of three) in 2018, investors will go back onthe defensive, and risk appetite will be killed. Such a scenario will see a sharp rally in the U.S. dollar, and a steep selloff in equities and bonds.

However, financial markets believe that Powell will not be this transparent regardingthe path of interest rate hikes, and that a gradual policy normalization with three rate hikes this year is likely to be the base case scenario in today's message. There's likely to be some room for disappointment here, especially if Powell feels that the Fed is slightly behind the curve and isn't overly concerned about investor response.

In Europe, the focus will return to macro data, with the German preliminary CPI release likely to show that inflation abated in February. Meanwhile, speeches from the ECB Governing Council members Jens Weidmann and Yves Mersch will be of greater importance to the Euro, especially if they provide fresh insights on the ECB's monetary policy outlook.

The ECB's Coeure spoke in Frankfurt at a working group meeting regarding euro risk-free rates. He said that a reform of reference interest rate will help to underpin good functioning euro area money markets and trust in its related products. He also added that it is vital since monetary policy is initially transmitted through financial markets. He added that smooth and successful reform of reference interest rate is vital.

The US Fed's Bullard made a scheduled speech from Washington with the following comments: The natural rate of interest is low and not likely to change, and the Fed guidance ought to describe a relatively flat rate path. Substantial Fed hikes risk making policy too tight, and weak productivity is one factor holding down natural rate of unemployment. It's a good idea to periodically review inflation framework but it would require a ‘buy-in' from the political and financial community. High demand for safe assets is a global issue. Proponents of changing framework would have to prove it would add benefits. The rise in 10-year rates is partially driven by the rise in inflation expectations among investors. He says he's sceptical that 10-year yields will break out from here and inflation expectations have moved up some.

US Chicago Fed National Activity Index (Jan) was 0.12 v an expected 0.15, from a previous 0.27, with EURUSD moving lower from 1.23228 to a low of 1.23016.

ECB President Marion Draghi testified on monetary policy and the inflation outlook before the European Parliament Economic and Monetary Affairs Committee in Brussels. His comments were: Growth is stronger than previously expected and the Eurozone economy is expanding robustly. At the same time, inflation has yet to show more convincing signs of a sustained upward adjustment. Given the uncertainty surrounding the measure of economic slack, the true number might be larger than estimated. We anticipate that headline inflation will resume its gradual upward adjustment. The Labour market is expected to improve further. The relationship between growth and inflation remains largely intact, even if it was temporarily weakened. ECB guidance on interest rates is ‘very important' and US Tax Reform will reshape the global Tax landscape.

US New Home Sales (MoM) (Jan) was 0.593M v an expected 0.645M, from 0.625M previously, which was revised up to 0.643M. New Home Sales Change (MoM) (Jan) was -7.8% v an expected 3.2%, from -9.3% previously, which was revised up to -7.6%. EURUSD sold off from 1.23033 to 1.22862 as a result of this data.

US Dallas Fed Manufacturing Business Index (Feb) was 37.2 v an expected 28.4, from 33.4 previously.

US FOMC Member Quarles delivered a speech titled “An Assessment of the US Economy” at the National Association of Business Economics Policy Conference, in Washington DC. Audience questions followed and some of the comments made were: “With my current economic outlook, I anticipate that further gradual increases in the policy rate will be appropriate to both sustain a healthy labor market and stabilize inflation around our 2 percent objective”. He also said that “Some of the factors that have been holding back growth in recent years could shift, moving the economy onto a higher growth trajectory” and “I currently see this shift more as a clear possibility than an unarguable reality.”

New Zealand Trade Balance (MoM) (Jan) numbers were released at $-566M and were expected to be $-2710M. The prior number was $640M, which was revised up to $596M. Imports (Jan) were $4.87B v an expected $4.60B, from $4.91B previously, which was revised down to $4.89B. Trade Balance (YoY) (Jan) was $-3.220B v an expected $-2.711B, from $-2.840B previously, which was revised down to $-2.880B. Exports (Jan) were $4.31B against an expected $4.58B, from $5.55B previously, which was revised down to $5.49B. AUDNZD moved higher from 1.07364 to 1.07847 after this data release.

EURUSD is up 0.05% overnight, trading around 1.23236.

USDJPY is down -0.03% in early session trading at around 106.870.

GBPUSD is unchanged this morning trading around 1.39632.

Gold is unchanged in early morning trading at around $1,332.92.

WTI is down -0.28% this morning, trading around $63.81.

For the 24 hours to 23:00 GMT, the AUD declined 0.2% against the USD and closed at 0.7849.

LME Copper prices rose 0.5% or $37.5/MT to $7111.0/MT. Aluminium prices declined 1.0% or $21.5/MT to $2188.5/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7842, with the AUD trading 0.09% lower against the USD from yesterday’s close.

The pair is expected to find support at 0.7814, and a fall through could take it to the next support level of 0.7787. The pair is expected to find its first resistance at 0.7881, and a rise through could take it to the next resistance level of 0.7921.

Moving ahead, traders would keep a close watch on Australia’s private sector credit data for January, scheduled to release overnight.

The currency pair is trading below its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the EUR marginally declined against the USD and closed at 1.2311, after the European Central Bank's (ECB) President, Mario Draghi, stuck to his pledge of pouring money into the Euro-zone economy.

The ECB Chief cautioned that the slack in the Euro-zone's economy may be wider than initially estimated and this could act as a temporary drag on inflation growth. Further, Draghi emphasised the need to maintain the central bank's ultra-loose monetary policy support despite acknowledging the robust and broad based economic growth across the Euro-zone.

In the US, data showed that new home sales unexpectedly fell by 7.8% on monthly basis to a level of 593.0K in January, hitting its lowest level since August 2017, thus stoking concerns that the nation's housing market is losing momentum. New home sales had registered a revised reading of 643.0K in the prior month, while markets were anticipating for an increase to a level of 647.0K.

Other economic data revealed that the US Dallas Fed manufacturing business index surprisingly advanced to a level of 37.2 in February, defying market consensus for a drop to a level of 30.0. The index had registered a reading of 33.4 in the previous month. On the other hand, the nation's Chicago Fed national activity index registered an unexpected drop to a level of 0.12 in January, compared to a revised reading of 0.14 in the previous month. Markets were expecting the index to rise to a level of 0.20.

In the Asian session, at GMT0400, the pair is trading at 1.2326, with the EUR trading 0.12% higher against the USD from yesterday's close.

The pair is expected to find support at 1.2285, and a fall through could take it to the next support level of 1.2243. The pair is expected to find its first resistance at 1.2361, and a rise through could take it to the next resistance level of 1.2395.

Going ahead, traders would closely monitor the Euro-zone's final consumer confidence index for February, slated to release in a few hours. Moreover, Germany's flash inflation numbers for February, set to release later in the day, will be on investors' radar. Later in the day, market participants would look forward to the Federal Reserve Chairman, Jerome Powell's first congressional testimony to get better insights on the future pace of monetary policy tightening. Moreover, the US advance goods trade balance, flash durable goods orders, both for January as well as the CB consumer confidence index for February, would keep investors on their toes.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the GBP declined 0.26% against the USD and closed at 1.3963.

On the macro front, data showed that UK's BBA mortgage approvals jumped more-than-expected to a level of 40.12K in January, rising for the first time in 4 months. In the previous month, mortgage approvals had recorded a revised reading of 36.09K, while investors had envisaged for an advance to a level of 37.00K.

In the Asian session, at GMT0400, the pair is trading at 1.3958, with the GBP trading slightly lower against the USD from yesterday's close.

The pair is expected to find support at 1.3901, and a fall through could take it to the next support level of 1.3843. The pair is expected to find its first resistance at 1.4043, and a rise through could take it to the next resistance level of 1.4127.

Moving ahead, investors would eye UK's GfK consumer confidence index for February, set to release overnight.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.47% against the JPY and closed at 107.04.

In the Asian session, at GMT0400, the pair is trading at 106.96, with the USD trading 0.07% lower against the JPY from yesterday’s close.

The pair is expected to find support at 106.53, and a fall through could take it to the next support level of 106.09. The pair is expected to find its first resistance at 107.25, and a rise through could take it to the next resistance level of 107.53.

Looking forward, traders would keep a close watch on Japan’s flash industrial production, retail trade and large retailers’ sales, all for January, slated to release overnight.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.45% against the CHF and closed at 0.9384.

On the data front, Switzerland’s total sight deposits inched up to a level of CHF576.0 billion in the week ended 23 February, compared to a level of CHF575.1 billion reported in the previous week.

In the Asian session, at GMT0400, the pair is trading at 0.9376, with the USD trading 0.09% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9338, and a fall through could take it to the next support level of 0.9299. The pair is expected to find its first resistance at 0.9403, and a rise through could take it to the next resistance level of 0.9429.

Amid no macroeconomic releases in Switzerland today, investors would focus on global macroeconomic events for further direction.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.4% against the CAD and closed at 1.2684.

In the Asian session, at GMT0400, the pair is trading at 1.2686, with the USD trading slightly higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.2631, and a fall through could take it to the next support level of 1.2575. The pair is expected to find its first resistance at 1.2727, and a rise through could take it to the next resistance level of 1.2767.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

Short Term Elliott Wave view in Gold suggests the decline to $1306.8 ended Intermediate wave (X). However, the yellow metal needs to break above Intermediate wave (W) at $1366.06 to rule out the possibility of a double correction in wave (X). Up from $1306.8, the rally is proposed to be unfolding as a double three Elliott Wave structure where Minute wave (w))) ended at $1357.12 and Minute wave ((x)) is proposed complete at $1320.60. Near term, while pullbacks stay above there, and more importantly above $1306.8, expect Gold to extend higher. We don’t like selling the yellow metal. If Gold breaks below $1306.8, then the yellow metal is doing a double correction in Intermediate wave (X) and opens extension lower towards $1228.27 – $1302.28 where buyers should appear for at least a 3 waves bounce.

Gold 1 Hour Elliott Wave Chart

Headlines/Economic Data

(KR) BANK OF KOREA (BOK) LEAVES 7-DAY REPO RATEUNCHANGED AT 1.50%; AS EXPECTED

(KR) South Korea Jan Department Store Sales Y/Y: -9.6% v 3.2% prior; DiscountStore Sales Y/Y: -20.2% v 2.2% prior

(KR) South Korea Prosecutor said to seek 30-year term and KRW118.5B fine for former President Park - South Korea Press

China/Hong Kong

Hang Seng opened +0.9%, Shanghai Composite +0.1%

Hang Seng Materials Index -2%, Property/Construction -1%, Financials -0.4%; Industrial Goods +0.7%

AIA Group, 1299.HK Reports FY17 Op $4.65B v$3.98B y/y; Annualized new premiums $6.09B v $5.12B y/y

(CN) According to China Securities Journal the PBOC is likely to raise its reverse repo rates in response to a Fed rate hike expected in March; increases will probably be small ~5bps

(CN) China Securities Regulator (CSRC) is review more companies forrestructuring - China Securities News

(CN) China to face tight balance in liquidity in March - China SecuritiesJournal

(CN) China PBoC Open Market Operation (OMO): Skips v CNY150B prior injection in7-day, 28-day and 63-day reverse repos prior

USD/CNY(CN) PBOC SETS YUAN REFERENCE RATE AT 6.3146 V 6.3378 PRIOR

Looking Ahead: China Feb Official Manufacturing and Non-Manufacturing PMIs due to be released on Wed

Australia/New Zealand

ASX 200 opened +0.1%; closed +0.2%

ASX 200 Financials Index +0.4%; Utilities -0.5%, Telecom -0.9%

(NZ) NEW ZEALAND JAN TRADEBALANCE (NZD): -566M V 0ME; YTD -3.22B V -2.7BE

(NZ)New Zealand Jan milk production -7.4% y/y

Caltex,[+6%], CTX.AU Reports FY17 (A$) RCOP Net621M v 619Me; RCOP EBIT 935M v 945Me; Rev 21.4B v 19Be

(AU) Reserve Bank of Australia (RBA) Paper: Data suggests medium to long-termexpectations for real interest rates have declined in recent years

(NZ) New Zealand sells NZ$100M in 1-yr bills at 1.84%

(AU) Australia sells A$150M v A$150M indicated in Aug 21, 2040 1.25% indexedbonds, avg yield 1.0266%, bid to cover 2.37x

North America

US equity markets ended higher: Dow +1.1%, S&P500 +0.7%, Nasdaq +0.7%, Russell 2000+0.3%

S&P500 Technology +1.6%, Financials +1.5%

Apple[AAPL]: Reportedly plans to announce 3 new iPhones this fall: its largest ever high-end phone, an update of the iPhone X, and a lower priced model – press

Qualcomm [QCOM]: US CFIUS said to have started review of Broacom's bid; Senator Cornyn (R) said to favor the review before Qualcomm's proxy vote on March 6 - financial press

MicrosemiCorp [MSCC]: M Microchip Technology said to be near agreement to acquire the company in deal worth in the 'mid$60s/share' - US financial press

ProShare to reduce target exposure to certain VIX ETFs

(US) Fed's Quarles (hawk, FOMC voter): expects further gradual rate hikes will be appropriate

(US) Treasury Sec Mnuchin: Reiterates long term a strong dollar is good for the US and we do not set policy to impact the dollar

IEA chief Birol: Do not expect decline in US oil production in the next 4-5 years

MSCC Microchip Technology said to be near agreement to acquire the company in deal worth in the 'mid $60s/share' - US financial press

Looking Ahead: US Jan Durable Goods and first day of Fed Chair Powell’s Testimony expected later today, along with the Weekly US API Crude Oil Inventories

Europe

(EU) Spain Fin Min de Guindos (potential ECB VP): forward guidance is highly effective in lowering rates

(GR) Greece Economy Min Papadimitriou said to resign - local media

(UK) BOE's Cunliffe: Does not discuss monetary policy in prepared remarks

Standard Chartered [STAN.UK] Reports FY17 adj Pretax $3.0B v $3.1Be; Op $14.3B v $13.8B y/y; Resumes dividend of $0.11

Luxottica [LUX.IT]: ReportsFY17 €2.45 v €1.96 y/y, net €970M v €950Me, rev €9.2B v €9.1B y/y; Guides initial FY18 Rev +2-4%, adj Op 0.8-1.0x sales, Adj Net 1-2x sales, net debt/EBITDA 0.3-0.4x

Philips Lighting [LIGHT.NL]: Share offering said to price at €32.10/share

Looking Ahead: Feb Prelim CPI data due to be released for Germany and Spain

Levels as of 01:00ET

Nikkei225 +1.1%, Hang Seng -0.2%; Shanghai Composite -1.3%; ASX200 +0.2%, Kospi +0.2%

Equity Futures: S&P500 -0.2%; Nasdaq100 -0.2%,Dax -0.2%; FTSE100 -0.1%

EUR 1.2309-1.2342; JPY107.10.-106.78; AUD 0.7868-0.7840;NZD 0.7305-0.7274

Apr Gold +0.2% at $1,334/oz; Apr Crude Oil -0.1%at $63.83/brl; May Copper +0.1% at $3.22/lb