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The forex markets are, generally speaking, rather quiet today. Dollar remains generally soft but no follow through selling is seen against it. Indeed, the greenback is trading mildly higher in the last few hours as consolidative trading extends. Canadian Dollar is the weakest one as weighed down by uncertainties over NAFTA renegotiations. Sterling takes over from Aussie and Kiwi as the strongest one for today but it's also bounded in recent range. The markets may continue to tread water until the batch of economic data and Fed Chair Jerome Powell's testimony tomorrow.

Merkel named cabinet ministers before coalition vote

German Chancellor Angela Merkel's Christian Democrats are set to meet to approve the coalition with the Social Democrats today. Ahead of the party conference, Merkel also announced her choice of six cabinet ministers. Merkel said that "it was my task to present a tableau of people that is future-oriented and that offers a good mix of experience and new faces." One particular member is Jens Spahn as health minister. The 37 year old Spahn is seen as an open critic who is viewed as Merkel's answer to the rise of the far right Alternative for Germany. Meanwhile, the SPD members are voting for the grand coalition too and results will be know on March 4.

UK Labour leader Corbyn backs customs union after Brexit

UK Prime Minister Theresa May is set to have a high profile speech this Friday regarding post Brexit relationship with EU. Her rival Labour leader Jeremy Corbyn expressed his backing of customs union member during the two year transition period. Corbyn said that "labour would seek a final deal that gives full access to European markets and maintains the benefits of the single market and the customs union... with no new impediments to trade and no reduction in rights, standards and protections."

He added that "we have long argued that a customs union is a viable option for the final deal. So Labour would seek to negotiate a new comprehensive UK-EU customs union to ensure that there are no tariffs with Europe and to help avoid any need for a hard border in Northern Ireland."

BoJ Kuroda dismissed review on policy framework

BoJ Governor Haruhiko Kuroda, recently reappointed for another five year term, dismissed the request by an opposition lawmaker to review the policy framework. Kuroda told the parliament that "it's unfortunate that achievement of our price target has been delayed. But thanks to the effect of our powerful monetary easing, Japan's economy is no longer in a state that can be described as deflation." He also pointed to recovery in the economy and said "things are proceeding smoothly". And therefore, "I don't have any plan at this stage to conduct another comprehensive review."

Fed Powell's testimony unlikely to deviate from the monetary policy report

New Fed chair Jerome Powell's testimony will be a major focus in the week ahead. As a prelude, Fed released its semi annual Monetary Policy Report last Friday. The report noted that "with inflation having persistently run below the 2% longer-run objective the Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal". It appears that similar reference had not been revealed in previous FOMC statement or minutes.

The Fed also warned of the elevated valuation of asset prices. As suggested in the report, "valuation pressures continue to be elevated across a range of asset classes even after taking into account the current level of Treasury yields and the expectation that the reduction in corporate tax rates should generate an increase in after-tax earnings. Leverage in the nonfinancial business sector has remained high, and net issuance of risky debt has climbed in recent months".

Powell's message in the testimony will likely not deviate much from the report regarding monetary policy. He's expected to reiterate the gradual path of monetary policy normalization. Yet, his comments about the growth outlook in light of the tax reform plan would be closely watched.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3912; (P) 1.3958; (R1) 1.4014; More....

GBP/USD rebounds today but upside is limited below 1.4144 minor resistance. Intraday bias neutral first. On the upside, break of 1.4144 will extend the rise from 1.3764 and target a test on 1.4345 resistance. Break there will resume larger up trend and target long term trend line resistance (now at 1.5056). On the downside, below 1.3764 will extend the correction from 1.4345 to 1.3651 resistance turned support instead.

In the bigger picture, as long as 1.3038 support holds, medium term outlook in GBP/USD will remains bullish. Rise from 1.1946 is at least correcting the long term down from 2007 high at 2.1161. Further rally would be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. However, GBP/USD fails to sustain above 55 month EMA (now at 1.4279) so far. Break of 1.3038 support, will suggests that rise from 1.1946 has completed and will turn outlook bearish for retesting this low.

Economic Indicators Update

GMT	Ccy	Events	Actual	Forecast	Previous	Revised
09:30	GBP	BBA Loans for House Purchase Jan	40.1K	37.2K	36.1K
15:00	USD	New Home Sales Jan		646K	625K

Here are the latest developments in global markets:

FOREX: The dollar remained broadly weaker against a basket of currencies, with markets eagerly awaiting Jerome's Powell congressional testimony for positioning on the US currency moving forward. Euro/dollar was 0.3% up and pound/dollar traded higher by 0.5%, hitting a 10-day high of 1.4069 earlier on Monday. Sterling was supported by hawkish-perceived comments by BoE Deputy Governor Dave Ramsden over the weekend, as well as the Labour party's support for a customs union after Brexit. Meanwhile, dollar/yen was 0.1% down at 106.76. this compares to a one-week low of 106.36 recorded earlier in the day. The decline in US Treasury yields contributed to dollar weakness.

STOCKS: Bullish sentiment from Asian markets reverberated into Europe, with equities trading broadly in the green in the old continent. At 1213 GMT, the pan-European Stoxx 600 was up by 0.5%, recording a three-week high of 384.13 earlier on Monday, while the blue-chip Euro Stoxx 50 traded higher by a similar proportion. The UK's FTSE 100, German Dax and French CAC 40 were up by 0.5%, 0.25% and 0.5% respectively. Companies continue to release quarterly earnings reports, though the markets' attention seems to be increasingly turning to central bankers and politics. ECB President Mario Draghi will be speaking to the European Parliament's ECON committee at 1400 GMT, while - and likely more importantly - the new Fed chief Jerome Powell will be giving his first testimony before Congress on Tuesday at 1500 GMT. Powell's comments will be closely watched as they come at a time of increasing equity market volatility. In politics, Brexit developments, the Italian elections and the outcome of the German SPD's vote on whether to re-enter a coalition with Chancellor Merkel's conservatives are on the agenda as the week unfolds. Lastly, futures markets were pointing to a higher open on Wall Street; contracts on the Dow, S&P 500 and Nasdaq 100 were trading higher by 0.6%, 0.4% and 0.3% respectively.

COMMODITIES: WTI and Brent crude retreated after both reaching near three-week highs of $63.90 and $67.58 per barrel respectively. Despite the fall, both benchmarks traded not far below the aforementioned levels. Gold was 0.7% higher at around $1,338 per ounce. The dollar-denominated metal was benefitting on the back of a broadly weaker greenback and potentially the uncertainty ahead of key political and central banking developments.

Day ahead: US new home sales and New Zealand trade data due

The economic calendar is light on Monday, with some data out of the US and New Zealand attracting attention.

US new home sales for the month of January will be made public at 1500 GMT. Sales are expected to increase by 3.2% after declining by 9.3% m/m in December, this constituting their largest drop in around 1½ years. It should be mentioned though that December's fall was likely attributed to a fading out of the boost in sales from the replacement of flood-damaged houses in parts of the US hit by the hurricanes.

New Zealand trade data - on January's imports and exports - are scheduled for release at 2145 GMT. Kiwi/dollar last traded 0.5% higher at 0.7325. It would be interesting to see if the figures lend additional support to the pair.

The DAX index has posted gains to kick off the week. Currently, the index is trading at 12,533.00, up 0.40% since the Friday close. On the release front, it’s a light day, with no data releases. The markets will be all ears as ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee. On Tuesday, Germany releases Preliminary CPI and the head of the German central bank, Jens Weidmann will speak in Frankfurt. In the US, Federal Chair Jerome Powell will testify before the House Financial Services Committee.

On Thursday, the ECB released the minutes of its January meeting. The markets were looking for some hints regarding future monetary policy, and policymakers indicated that they could re-examine the Bank’s monetary policy “early this year”. The ECB is keeping a close eye on inflation, which has been moving upwards. Still, with inflation below the ECB target of just below 2%, there is little talk about raising interest rates. Policymakers also indicated concern with exchange rates, a theme which has been addressed by Mario Draghi in recent weeks, given the appreciation of the euro – EUR/USD has climbed 2.8% since the start of the year. The minutes voiced “concerns about the recent volatility in the euro exchange rate, which represented a source of uncertainty that had to be monitored with respect to its implications for the medium-term outlook for price stability”. The euro has seen plenty of volatility in February, and currency volatility will likely be high on the agenda of the next policy meeting in March.

Jerome Powell will be on center stage this week, when he testifies before the House of Representatives and the Senate this week. After the recent stock markets volatility, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.

The British pound has continued to press higher against the U.S dollar during the European trading session, with price-action so far finding interim resistance around the 1.4060 technical region. The GBPUSD pair currently trades around the 1.4050 level, with the greenback under heavy selling pressure across board in early week trading. Moving into today's U.S trading session, the bullish sentiment behind the sterling recent rise is likely to remain intact whilst price-action holds above the key 1.4008 level.

The GBPUSD pair is strongly bullish whilst trading above the 1.4008 level, further upside towards 1.4079 and 1.4144 seems possible.

Should GBPUSD price-action move below the key 1.4008 level, a sharp decline towards the 1.3968 and 1.3938 levels appears likely.

The U.S dollar remains under heavy selling pressure against the Japanese yen on Monday, as the U.S dollar index again failed to find buying interest above the key 90.00 technical level. The USDJPY pair currently trades around the 106.60 support level, with bearish selling momentum set to increase below this key area. Moving into today's U.S trading session, financial markets are likely to focus on the release of monthly U.S New Sales data and a key speech from Fed member Bullard.

The USDJPY pair remains strongly bearish while trading below the 106.60 level, further losses towards the 106.18 and 105.90 levels appear likely.

Should price-action on the USDJPY pair move above the key 106.60 level for a sustained period, buyers may test towards 107.00 and 107.30 resistance areas.

The euro has started the week with gains. In the Monday session, EUR/USD is trading at 1.2342, up 0.38% on the day. There are on data releases in the eurozone. Later in the day, ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee. In the US, New Home Sales is expected to jump to 655 thousand. On Tuesday, Germany releases Preliminary CPI. The US will release durable goods and consumer confidence reports. As well, Federal Chair Jerome Powell will testify before the House Financial Services Committee.

On Thursday, the ECB released the minutes of its January meeting. The markets were looking for some hints regarding future monetary policy, and policymakers indicated that they could take re-examine the Bank’s monetary policy “early this year”. The ECB is keeping a close eye on inflation, which has been moving upwards. Still, with inflation below the ECB target of just below 2%, there is little talk about raising interest rates. Policymakers also indicated concern with exchange rates, a theme which has been addressed by Mario Draghi in recent weeks, given the appreciation of the euro – EUR/USD has climbed 2.8% since the start of the year. The minutes voiced “concerns about the recent volatility in the euro exchange rate, which represented a source of uncertainty that had to be monitored with respect to its implications for the medium-term outlook for price stability”. The euro has seen plenty of volatility in February, and currency volatility will likely be high on the agenda of the next policy meeting in March.

Jerome Powell will be on center stage this week, when he testifies before the House of Representatives and the Senate this week. After the recent stock markets volatility, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.

Spot Gold rallied on Monday, extending recovery from $1320 (22 Feb low), driven by fresh weakness of US dollar at the beginning of week.

Bullish acceleration improved near-term structure as metal's price gains fresh bullish momentum and the price broke above a cluster of daily MA's (10/20/30), laying between $1334 and S1338, hitting session high at $1341 (Fibo 50% of $1361/$1320 bear-leg).

Bullishly-aligned daily techs are supportive for further advance, as rising daily cloud continues to underpin, but traders are cautious ahead of tomorrow's congressional testimony of Fed Chairman Powell, who could bring more light on central bank's next steps regarding monetary policy, minutes of the last FOMC meeting, released last week, showed hawkish tone which could result in increasing pace of rate hikes this year.

Broken 20SMA marks solid support at $1334 which should contain dips and keep fresh bulls in play for extension towards pivots at $1346/48 (Fibo 61.8% of $1361/$1320 bear-leg / 20Feb high).

Conversely, loss of 20SMA handle would soften near-term tone and keep the downside vulnerable.

Res: 1341, 1346, 1348, 1351
Sup: 1336, 1334, 1330, 1326

Notes/Observations

Possible appointment of Lui He as PBoC Gov might be a further signal of the Chinese government’s resolve in addressing financial and economic imbalances

New Fed Chair Powell’s inaugural testimony before the House Financial Services and Senate Banking Committees on Tuesday and Thursday

Asia:

Communist Party had moved to repeal language from the constitution that stated the head of state “shall serve no more than two consecutive terms”, which would allow China President Xi to stay in power indefinitely (**Note: Xi’s second term was due to end in 2023)

China Politburo statement reiterated China to continue proactive fiscal policy and prudent monetary policy in 2018

China President Xi top economic advisor Liu He said to be a front runner to be next PBOC Gov (**Note: would assume both the role of PBoC Governor as well as vice-premier in charge of overseeing economic and financial matters, including regulatory bodies. Should this be confirmed, it would be the first time in over two decades hat a Chinese official has held both offices simultaneously)

China Jan Home Prices: rose in 52 out of 70 cities m/m (compared to 57 in Dec)

China CIRC orders three insurers to fix overseas investment rule breaches

PBOC Advisor Huang Yiping: China still faces systemic risks as implicit guarantees from Govt become unsustainable; “bad leveraging" is on the rise while “good leveraging" is falling

BoJ Gov Kuroda reiterated stance to persistently continue powerful monetary easing to achieve price goal

Europe:

EU said to be prepared publish a draft Brexit withdrawal agreement that leaves out key compromise language secured by UK PM May. Draft omitted language to say no new regulatory barriers would be introduced between the UK mainland and Northern Ireland

Labour Leader Corbyn expected to confirm in a speech his support for permanent membership of a customs union after the UK leaves the EU next March

BOE Dep Gov Ramsden reiterated MPC view that interest rates might need to be raised sooner than previously thought due to signs of accelerating wage growth

ECB's Coeure (France): Not eager to engage in early normalization

Americas:

Fed's Williams (moderate, voter): economy in US is improving broadly across sectors. Fed's guidance was for gradual rate hikes, and he expected that to happen; would have to reanalyze view if inflation came in stronger than expected

Energy:

Saudi Oil Min al-Falih: Cuts by OPEC and its allies may be phased out in 2019 in a way that won’t disturb the market

Economic Data:

(FI) Finland Jan PPI M/M: 0.7% v 0.2% prior; Y/Y: 2.4% v 3.0% prior

(FI) Finland Jan Preliminary Retail Sales Volume Y/Y: 4.0% v 3.0% prior

(TW) Taiwan Jan Unemployment Rate: 3.7% v 3.7%e

(CZ) Czech Feb Business Confidence: 17.1 v 16.4 prior, Consumer Confidence: 9.5 v 9.8 prior,

(AT) Austria Feb Manufacturing PMI: 59.2 v 61.3 prior (25th month of expansion)

(UK) Jan BBA Loans for House Purchases: 40.1K v 37.0Ke

Fixed Income Issuance:

(BE) Belgium Debt Agency (BDA) opened its book to sell EUR-denominated Apr 2033 green bond; guidance seen -13bps to mid-swaps

(UK) Bank of England (BOE) to sell $2.0B in 3-year notes; guidance seen 0bps (flat) to mid-swaps

(IT ) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 6-month Bills; Avg Yield: -0.407% v -0.417% prior; Bid-to-cover: 1.57x v 1.39x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.5% at 383.0, FTSE +0.5% at 7268, DAX +0.6% at 12554, CAC-40 +0.6% at 5348 , IBEX-35 +0.4% at 9861, FTSE MIB +0.3% at 22739 , SMI +0.3% at 8976, S&P 500 Futures +0.4%]

Market Focal Points/Key Themes:

European Indices trade higher across the board tracking a strong close on Wallstreet on Friday, stronger futures this morning as well as strong gains in Asia overnight.
Corporate news flow has been relatively muted with notable downside in shares of PostNL after earnings and cut outlook, while shares of Associated British Foods trades higher after their trading update, and upbeat outlook for Primark.
Elsewhere share of SES rebounds after their results on Friday, with shares of VW also trading higher after preliminary results on Friday.

Looking ahead notable earners include Dean Foods, Boise Cascade and Intelsat.

Movers

Consumer Discretionary [Bunzl [BNZL.UK] +0.5% (Earnings), ABF [ABF.UK] +1.7% (Trading update, Primark outlook)]

Industrials [ PostNL [PNL.NL] -1% (Earnings), Volkswagen [VOW3.DE] +1.4% (Earnings)]

Telecom [SES [SESG.FR] +9.3% (Rebound), Nokia [NOKIA.FI] +2.7% (5G commentary)]

Financial [ Provident Finl -12.4% (Mulls rights issue)]

Speakers

China FX Regulator SAFE reiterated its view that two-way price action for the CNY currency (Yuan) would be the norm. Reiterated Yuan to keep its basic stability at a balance level

North Korea said to be open to dialogue with US

Currencies

USD was softer as US yields drifted lower. Dealers were focusing on the new Fed Chair Powell’s inaugural testimony before the House Financial Services and Senate Banking Committees on Tuesday and Thursday this week.

The GBP was firmer aided by weekend commentary by BOE Dep Gov Ramsden (dove) who reiterated MPC overall view that that interest rates might need to be raised sooner than previously thought due to signs of accelerating wage growth. Market currently saw almost 85% change of a rate hike in May. Focus was on UK Labour leader Corbyn (opposition) speech on Brexit where he was expected to seek a bespoke deal with the EUthat would include a customs union

EUR/USD higher by 0.5% at 1.2350 while USD/JPY was off by 0.3% at 106.55 just ahead of the NY morning.

Fixed Income

Bund Futures trades down 13 ticks at 159.40 ahead of Draghi's testimony on monetary policy and the inflation outlook before the European Parliament Economic and Monetary Affairs Committee, in Brussels. Upside targets 159.75, while a return lower targets the157.75 level.

Gilt futures trade at 121.93 down 12 ticks as Gilts drop from open after BOE's Ramsden. Support continues to stand at 120.75 then 120.15, with upside resistance at 122.00-122.25 zone then 122.85.

Monday's liquidity report showed Friday's excess liquidity rose to €1.834T from €1.831T prior. Use of the marginal lending facility rose to €37M from €0M prior.

Corporate issuance saw the primary market finish last week with ~$18.3B sold.

Looking Ahead

(BR) Brazil Jan Total Federal Debt (BRL): No est v 3.559T prior

(DE) German Chancellor Merkel’s CDU party holds Party Convention to Vote on Coalition

05:30 (IL) Israel to sell Bonds

06:00 (RO) Romania to sell Bonds

06:25 (BR) Brazil Central Bank Weekly Economists Survey

06:45 (US) Daily Libor Fixing

08:05 (UK) Baltic Dry Bulk Index

08:00 (ES) Spain Debt Agency(Tesoro) announces size of upcoming auctions

08:00 (IN) India announces details of upcoming bond sale (held on Fridays)

08:00 (US) Fed's Bullard (dove, non-voter) speaks on US Economy and Monetary Policy

08:30 (US) Jan Chicago Fed National Activity Index: 0.20e v 0.27 prior

08:30 (BR) Brazil Jan Current Account: -$5.0Be v -$4.3B prior; Foreign Direct Investment (FDI): $3.8Be v $5.4B prior

08:55 (FR) France Debt Agency(AFT) to sell combined €5.2-6.4B in 3-month, 6-month and 12-month BTF Bills

09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.10%

09:00 (MX) Mexico Dec Retail Sales M/M: -0.3%e v -0.3% prior; Y/Y: -0.4%e v -1.5% prior

09:00 (EU) ECB’s Draghi in EU Parliament

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

10:00 (US) Jan New Home Sales: 648Ke v 625K prior

10:30 (US) Feb Dallas Fed Manufacturing Activity: 30.0e v 33.4 prior

11:30 (US) Treasury to sell 3-Month and 6-Month Bills

13:00 (UK) BOE’s Cunliffe at event at Warwick University

15:15 (US) Fed’s Quarles (hawk, FOMC voter) on US economy

Crude oil upward trend is maintained and broke resistance given at 63.67 (10/01/2018 high). Heading for hourly resistance at 64.77 ( repproaching hourly resistance found at 63.67 (10/01/2018 high). Crude oil hourly support remains at 58.07 (09/02/2018 low). The technical structure suggests short-term upside moves.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being, the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver is showing sings of strength, approaching hourly resistance at 16.83 (28/12/2018 high). Hourly support is given at 16.27 (07/02/2018 low). The technical structure suggests further short-term upside moves.

In the long-term, the trend remains negative/ sideways. Further downside is very likely. The pair is trading below its 200 DMA. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009).