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The Euro extended recovery on Thursday to 1.2352 but remains under initial barrier at 1.2361 (10SMA).

Profit-taking after four-day fall may boost the Euro further but no stronger recovery is seen.

Hawkish Fed minutes yesterday added to the greenback's recent bullish sentiment while mild tone from the minutes of ECB's latest policy meeting is expected to keep the Euro at the back foot.

That suggest that corrective phase from recent tops at 1.2537/55 may extend. Violation of key near-term supports at 1.2205 (09 Feb low which also marks the bottom of month-long range) and 1.2173 (Fibo 38.2% of Nov/Feb 1.1553/1.2555 ascend) would be strong bearish signal.

The pair is holding within the range and requires stronger signal which will be generated on break out of congestion and will also confirm double top, which would be good reversal signals.

Stronger bearish acceleration on break through 1.2205/1.2173 triggers would look for extension towards psychological 1.20 support.

Selling upticks remains favored near-term scenario, with upticks to be capped by 20SMA at 1.2372 (also Fibo 38.2% of 1.2555/1.2259 bear-leg.

Res: 1.2359; 1.2372; 1.2442; 1.2485
Sup: 1.2259; 1.2235; 1.2205; 1.2173

USDJPY turned to the downside yesterday, away from 107.89 high where a double top was found for black wave A. Current reversal can now be in five minor waves for blue sub-wave a as part of a three-wave pullback. Once sub-wave a unfolds, a new temporary correction as wave b may follow, followed by a new drop into final leg c of B. On that note the whole corrective decline from 107.9 level can find support near the 106.10/106.45 area.

USDJPY, 1H

Markets:

Global core bonds trade with an upward intraday bias, but gains remain limited. The Bund opened significantly below yesterday's official close in a catch-up move with the US Treauries' sell-off after hawkish FOMC Minutes. The Bund caught more intraday momentum when stocks dived lower on a bigger-than-expected setback in the German Ifo-indicator. It's the third such negative surprise this week after German ZEW and German/EMU PMI. All three indicators remain near historically high levels though. US weekly jobless continue to hover near multi-decade lows, confirming strength on the US labour market. Minutes of the previous ECB meeting showed that "Some members expressed a preference for dropping the easing bias regarding the APP programme from the governing council's communication as a tangible reflection of reinforced confidence in a sustained adjustment in the path of inflation". Markets didn't react, but it highlights the possibility of changes to the ECB's communication at the March meeting. Changes on the German yield curve range between -1.2 bps and 1.5 bps across the curve. US yields decline by 0.8 bps (2-yr) to 3.5 bps (10-yr). Peripheral bonds underperformed today, with Portuguese and Italian spreads adding 5 bps.

US yields and the dollar rose yesterday evening as the Minutes of the January Fed meeting reinforced market expectations that the Fed will continue policy normalization this year. However, both moves stalled today. The Ifo Business Climate indicator declined more than expected in February, in line with yesterday's EMU PMI's, but the report still indicates strong growth at the start of 2018. German yields declined after the release, but so did US ones. In the end, interest rate differentials were little changed. The reaction of the euro was negligible. With little other high profile news on the agenda, this week's USD rebound did ran into resistance. US jobless claims printed at 222 000, near the cycle low, but it didn't help the dollar. EUR/USD trades in the 1.2330 area. USD/JPY dropped back below the 107 handle (currently 106.80). This evening, FX traders will also keep an eye at the US 7-yr Treasury auction. However, after yesterday's decent outcome of the sale of 5-yr bonds, the risk of a sharp rise in US yields has probably eased. For the dollar, some more consolidation might be on the cards short-term.

Sterling traded with a tentative negative bias against the euro today. UK Q4 growth was downwardly revised to 0.4% Q/Q from and initial estimate of 0.5. Q4 2017 data are a bit old news for markets. The reaction of sterling was limited. The report raises questions whether the BoE should consider raising rates in the near future as BoE's Carney suggested of late. EUR/GBP gained a few ticks in the 0.88 big figure this morning, but the pair trades currently again in the 0.8840/50 area. In a broader perspective, sterling is still going nowhere as markets await more clarity on the Brexit approach of the UK government. Cable hovers in the 1.3940 area as the recent USD rally slows.

News Headlines:

German IFO business confidence declined more than expected in February from 117.6 to 115.4, the lowest level in 5 months. Still, the index stays at a high level, suggesting that Europe's biggest economy is set for solid growth despite a stronger euro clouding the outlook of exporters.

UK growth slowed more than expected at the end of last year. UK GDP rose only 0.4% Q/Q in Q4. Business investment and the contribution of net foreign trade to growth disappointed. The downward revision of Q4 growth (from 0.5%) also reduced the UK growth performance for the whole of 2017 to 1.7%, the slowest pace since 2012.

Canadian retail sales unexpectedly declined 0.8% M/M in December after climbing for the past three months as a pullback at electronics and appliance stores offset higher purchases of new cars. The consensus estimate forecasted a rise of 0.2%. The Canadian dollar weakened after the publication of the release. USD/CAD rebound north of 1.27.

NZDUSD is trading lower over the last four days after it created a double top at the 5-month high of 0.7435 on February 16. The double top reversal is a bearish pattern indicating further losses on the price action. When looking at the bigger picture the pair lacks a clear trend since it has been consolidating within 0.7175 – 0.7435 after its rally from 0.6780 stalled at 0.7435.

In the 4-hour chart, momentum indicators are also pointing to a continuation of the bearish bias. The MACD oscillator is standing below the trigger line in the bullish zone, suggesting a further downward correction. Also, the stochastic oscillator is moving lower approaching the oversold zone after it posted a bearish cross within its moving averages.

If prices extend to the downside, immediate support could come from the 23.6% Fibonacci retracement level of 0.7270 of the upleg from 0.6820 to 0.7435. Below that, the price could hit the 0.7175 support, which is the 38.2% Fibonacci mark. An aggressive drop below the latter level could confirm the bearish pattern and open the door to the 50.0% Fibonacci level of 0.7100.

On the flip side, in the event of an upside reversal, the next level to watch is the aforementioned 5-month high obstacle. A break above this level could see a re-test of the 0.7560 high taken from the peak on July 27.

Retail sales fell 0.8% in December in both value and volume terms. Despite this soft showing, sales rose 6.7% in 2017 as a whole, the strongest annual performance since 1997.

December sales fell in 6 of 11 major sectors, with the declines led by general merchandise stores (-5.3% m/m), health/personal care stores (-3.8%), and electronics and appliance stores (-9.1%). Conversely, sales at motor vehicle and parts dealers grew 2.1% on strength in new car sales, while spending at food and beverage stores rose 1.4%. As usual, e-commerce saw a strong performance, up 4.1% year-on-year on a seasonally unadjusted basis, outpacing the 3.2% y/y climb in overall retail sales.

On a provincial basis, sales declines were reported in 5 of the provinces. Ontario (-1.6%), Manitoba (-1.4%), Alberta (-0.5%) and B.C. (-0.6%) led the way lower.

Key Implications

Bah humbug! It seems that Canadians were once again stingy this past holiday season, as December retail sales volumes fell for a third straight year. The December numbers are only part of the story however, with prior months' sales revised upwards, perhaps reflecting a shift in shopping habits that may not be fully reflected in the seasonal adjustment – sales volumes for the quarter as a whole rose at a respectable 3.8% annualized pace. All told, too much should not be read into a single month's performance of this volatile series, and we continue to look for a roughly 2% (annualized) gain in fourth quarter GDP to close out the year.

Looking ahead, healthy aggregate income gains should support consumer spending going forward, but the strong gains in the first half of 2017 that led to the best sales performance of the past two decades are not expected to be repeated any time soon. The tailwind of income growth will be fighting against rising borrowing costs for already highly indebted households and near-term adjustments in key housing markets. The net result will likely be a more moderate growth of consumer spending in 2018.

Taking the Bank of Canada's perspective, today's report isn't likely to move the needle. More important will be what occurs over the coming months, as the impacts of mortgage underwriting changes and three policy rate hikes continue to work their way through the economy, while external risks remain. A wait and see approach to confirm that the Canadian economy remains on solid footing still favours July as the likely target for the next rate hike.

Daily Pivots: (S1) 1.2255; (P) 1.2307 (R1) 1.2335; More....

Intraday bias in EUR/USD remains neutral at this point as it's staying in range of 1.2205/2555. On the upside, break of 1.2555 will revive the bullish case of up trend resumption and target 100% projection of 1.0569 to 1.2091 from 1.1553 at 1.3075. However, break of 1.2205 will confirm rejection by 1.2516 key fibonacci level and trend reversal.

In the bigger picture, key fibonacci level at 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 remains intact despite attempts to break. Hence, rise from 1.0339 medium term bottom is still seen as a corrective move for the moment. Rejection from 1.2516 will maintain long term bearish outlook and keep the case for retesting 1.0039 alive. However, sustained break of 1.2516 will carry larger bullish implication and target 61.8% retracement of 1.6039 to 1.0339 at 1.3862.

Daily Pivots: (S1) 1.3876; (P) 1.3942; (R1) 1.3981; More....

Intraday bias in GBP/USD remains neutral as it's bounded in range of 1.3764/4144. On the upside, break of 1.4144 will extend the rebound 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 1.5105). 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.

Daily Pivots: (S1) 0.9356; (P) 0.9376; (R1) 0.9410; More...

No change in USD/CHF's outlook. Rebound form 0.9186 is seen as a corrective move. Intraday bias remains neutral and outlook stays bearish for another decline. Break of 0.9186 will extend the larger down trend to 0.9115 medium term projection level next. However, considering bullish convergence condition in 4 hour MACD, break of 0.9469 will indicate near term reversal and turn outlook bullish for 55 day EMA (now at 0.9541) and above.

In the bigger picture, fall from 1.0342 is developing into a medium term down trend. Deeper decline should be seen to 100% projection of 1.0342 to 0.9420 from 1.0037 at 0.9115. Break will target 161.8% projection at 0.8545. In any case, sustained trading above 55 day EMA is needed to be the first sign of medium term reversal. Otherwise, outlook will stay bearish even in case of strong rebound.

Daily Pivots: (S1) 107.39; (P) 107.64; (R1) 108.03; More...

USD/JPY's recovery was limited well below 108.27 and struggled to sustain above 4 hour 55 EMA. Nonetheless, it's staying in range above 105.54. Intraday bias remains neutral first. As noted before, price action from 105.54 are seen as a corrective move and outlook stays bearish. Break of 105.54 will extend the larger fall from 118.65 and target 100% projection of 118.65 to 108.12 from 114.73 at 104.20 next. However, break of 107.72 will be the first sign of near term reversal and will target 110.47 resistance for confirmation.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. The solid break of 61.8% retracement of 98.97 to 118.65 at 106.48. now suggests that the pattern from 125.85 high is possibly extending. Deeper fall could be seen through 98.97 key support (2016 low). This bearish case will now be favored as long as 110.47 resistance holds.

Daily Pivots: (S1) 1.2650; (P) 1.2676; (R1) 1.2728; More....

USD/CAD's rally continues to as high as 1.2757 so far today and intraday bias remains on the upside. Rebound from 1.2246 should be targeting 100% projection of 1.2246 to 1.2687 from 1.2450 at 1.2891, which is close to 1.2919 key resistance. We'd be cautious on strong resistance from there to limit upside. On the downside, below 1.2624 minor support will turn intraday bias neutral first. But further rally would be mildly in favor as long as 1.2450 support holds.

In the bigger picture, the rebound from 1.2246 is mixing up the medium term outlook. Nonetheless, USD/CAD is staying below falling 55 week EMA (now at 1.2776), hence, the bearish case is in favor. That is, fall from 1.4689 is not completed yet. Sustained break of 1.2061 key support will carry larger bearish implication and target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. However, firm break of 1.2919 will revive the case of medium term reversal and turn outlook bullish.