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GBP/USD continues bouncing, outreaching resistance at 1.4003 (23/01/2018) and distancing support at 1.3742 (16/01/2018 low). The technical structure suggests further upside move.

The long-term technical pattern is reversing. The Brexit vote had paved the way for further decline but the pair is moving to 2016 highs. Long-term support and resistance are given at 1.1841 (07/10/2017 low) and 1.5018 (24/06/2016 high).

EUR/USD maintains its rise, breaking resistance at 1.2537 (25/01/2017) and heading toward 1.26. Hourly support is maintained at 1.2165 (17/01/2018 low). The technical structure suggests further upside moves.

In the longer term, the momentum is turning largely positive. We favor a continued bullish bias. Key resistance is holding at 1.2886 (15/10/2014 high) while strong support lies at 1.1554 (08/11/2017 low).

Notes/Observations

New BOJ leadership likely seen as more dovish than the current leadership (Kuroda reappointed for another 5-year term which BoJ Exec Dir Amamiya and reflationist academic Wakatabe to be nominated BoJ Deputy Governors)

UK Retail Sales data disappoints for the 2nd straight month

Asia:

Japan government confirmed submission of nomination for Kuroda for another 5-year term as BoJ Gov (as speculated). BoJ Exec Dir Amamiya and reflationist academic Wakatabe to be nominated for positions as BoJ Deputy Governors.

BoJ Gov Kuroda reiterated domestic economy expanding moderately, but price growth remained low thus must maintain powerful easing

Japan Fin Min Aso reiterates G7 stance that sudden FX moves have big effects on economy, watching foreign exchange moves 'carefully'

RBA Gov Lowe: Did not see a strong case for a near-term adjustment of monetary policy but at some point it would be appropriate to have less monetary stimulus. Labor market is noticeably stronger than RBA expected; reiterates more likely that next interest rate move will be rate hike

Europe:

Germany EU budget contribution may rise €3.0-3.5B

Institute of Directors (trade body) leaders propose ‘hybrid’ Brexit deal

Kantar poll showed that two-thirds of SPD members supported the German grand coalition

Final polls ahead of Italy Mar 4th election shows no parties or coalitions able to form a majority

Americas:

Dec Total Net TIC Flows: -$119.3B v $33.5B prior; Net Long-term Tic Flows: $27.6B v $57.5B prior; China Treasury holdings steady in month but its holdings of US Debt rose in 2017 by most since 2010

Bank of Canada (BOC) Dep Gov Schembri: higher debt levels pose a challenge to BOC framework

Economic Data:

(DE) Germany Jan Wholesale Price Index M/M: +0.9 v -0.3% prior; Y/Y: 2.0% v 1.8% prior

(CZ) Czech Q4 Advance GDP Q/Q: 0.5% v 0.7%e; Y/Y: 5.1% v 5.3%e

(CZ) Czech Dec Export Price Index Y/Y: -2.8% v -2.7% prior; Import Price Index Y/Y: -4.2% v -3.3% prior

(PL) Poland Jan Employment M/M: 2.0% v 1.6%e; Y/Y: 3.8% v 3.4%e

(PL) Poland Jan Average Gross wages M/M: -7.7% v -7.9%e; Y/Y: 7.3% v 6.9%e

(UK) Jan Retail Sales Ex Auto Fuel M/M: 0.1% v 0.6%e; Y/Y: 1.5% v 2.4%e

(UK) Jan Retail Sales Inc Auto Fuel M/M: 0.1 v 0.5%e; Y/Y: 1.6% v 2.5%e

Fixed Income Issuance:

(ZA) South Africa sold total ZAR900M vs. ZAR900M indicated in I/L 2029, 2033 and 2050 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.9% at 380.0, FTSE +0.9% at 7296, DAX +1.1% at 12480, CAC-40 +1.0% at 5274 , IBEX-35 +1.1% at 9821, FTSE MIB +1.2% at 22764 , SMI +0.7% at 8978, S&P 500 Futures +0.4%]

Market Focal Points/Key Themes: European Indices continue to rally, following yet another strong close in Wallstreet overnight, with futures pointing to another higher open in the US. French large caps continued to dominated earnings with positive earnings from Renault, EDF, and Danone, while Air France and Faurecia trades lower. In Germany Insurance giant Allianz trades little changed after Q4 results. In Scandanavia Norsk Hydro reported a Rev beat, with Saab trading sharply lower after earnings. Looking ahead notable earners include Coca-Cola, Newell Brands, American Axle and Campbell Soup.

Movers

Consumer Discretionary [ Air France [AF.FR] -6% (Earnings)]

Consumer Staples [ Danone [BN.FR} +1.5% (Earnings)]

Industrials [Faurecia [EO.FR] -3.5% (Earnings), Renualt [RNO.FR] +3.0% (Earnings), Saab [SAABB.SE] -8.2% (Earnings)]

Financials [Segro [SGR.UK] +6.5% (Earnings)]

Energy [EDF [EDF.FR] +5% (Earnings), Norsk Hydro [NHY.NO] +3.1% (Earnings)]

Speakers

ECB’s Coeure (France): Rebound in trade mainly reflects cyclical factors

EU chief Brexit negotiator Barnier: On the way to an orderly UK withdrawal; not heading toward a disorderly exit. Secured citizens’ rights until Brexit Day

UK Govt said to be prepared to set out its vision for financial services in the post Brexit environment which favors an ambitious mutual recognition of regulations to preserve the City’s access to the EU

Germany Chancellor Merkel reiterated optimism that CDU ad SPD parties will approve the coalition agreement

Russia Central Bank: Inflation seen moving closer to 4% target in 2019. Forecasts 2018 inflation to be below 4.0%

Turkey Foreign Minister Cavusoglu: Agreed to normalize relations with US after establishing mechanisms on issues US Secretary of State Tillerson stated that lots of work yet to be done on relationship with Turkey and found ourselves a bit at a crisis poin. Called on Turkey to release NASA scientist Golge, paster Brunson and others

Turkey President Chief Adviser Ertem: An overvalued Euro currency is a positive for Turkey's exports

Japan Chief Cabinet Sec Suga reiterated view that carefully watch FX market moves to determine if price action is one-sided

Japan Currency Head Asakawa: Have been excessive and one-sided moves in FX; will take appropriate action in line with G7

Currencies

USD remained on soft footing and hit fresh cycle lows against key pairs. One analyst noted that the higher US yields was working against the greenback as it led to less investor demand for fixed income products (aka less flows into the US). Interest rates have risen sharply in recent months as fiscal stimulus has boosted growth expectations

EUR/USD was back above the 1.25 level with market pricing remaining consistent with Q2-19 ECB lift-off. Despite expectations of a steady and gradual tightening cycle, there remains scope to price a faster initial pace of hikes

GBP/USD saw its session gains drift away after - UK Retail Sales data disappointed for the 2nd straight month. Pair holding above the 1.41 level

USD/JPY stayed below the 106 level despite a ‘dovish’ reappointment of BoJ Gov Kuroda for another five year term with Amamiya and Wakatabe for the deputy posts. Japanese official note that they continue to watch the markets for one-sided moves but dealers pointing out that despite the JPY rally the Japanese equity markets has been rising (contrary to its historical relationship). Overall the market believes that JPY currency was not strong enough to warrant intervention at this time

Fixed Income

Bund Futures trades up 27 ticks at 158.03 amid a quiet end to the week .Upside targets 158.85, while a continued move lower targets the157.25 level.

Gilt futures trade at 120.98 up 38 ticks following disappointing UK retail sales and as the bearish trend takes a break. Support continues to stand at 120.75 then 120.15, with upside resistance at 121.75 then 122.25.

Friday's liquidity report showed Thursday's excess liquidity rose to €1.895T from €1.890T prior. Use of the marginal lending facility rose to €53M from €15M prior.

Corporate issuance saw 3 issuers raise $4.6B in the primary market

Looking Ahead

(ZA) South Africa President Ramaphosa State of the Nation speech

06:00 (BR) Brazil Dec IBGE Services Sector Volume Y/Y: No est v -0.7% prior

06:00 (UK) DMO to sell combined £3.0B in 1-month, 3-month and 6-month Bills (£0.5, £0.5B and £2.0B respectively)

06:30 (CL) Chile Central Bank Meeting Minutes

06:30 (IN) India Weekly Forex Reserves

06:45 (US) Daily Libor Fixing - 08:00 (IN) India announces upcoming Bill auction (held on Wed)

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Jan Housing Starts: 1.225Me v 1.192M prior; Building Permits: 1.300Me v 1.300M prior (revised from 1.302M)

08:30 (US) Jan Import Price Index M/M: 0.6%e v 0.1% prior; Y/Y: 3.0%e v 3.0% prior; Import Price Index ex Petroleum M/M: +0.1%e v -0.2% prior

08:30 (US) Jan Export Price Index M/M: +0.3%e v -0.1% prior; Y/Y: No est v 2.6% prior

08:30 (CA) Canada Dec Int'l Securities Transactions (CAD): No est v 19.6B prior

08:30 (CA) Canada Dec Manufacturing Sales M/M: 0.3%e v 3.4% prior

10:00 (US) Feb Preliminary University of Michigan Confidence: 95.3e v 95.7 prior

11:00 (EU) Potential sovereign ratings after European close (Egypt Sovereign Debt to Be Rated by Moody's; Greece Sovereign Debt to be rated by Fitch and Hungary Sovereign Debt to be rated by S&P)

13:00 (US) Weekly Baker Hughes Rig Count data

The euro rally is steady in the Friday session. Currently, the pair is trading at 1.2503, down 0.02% on the day. On the release front, the German Wholesale Price Index climbed 0.9% in January, rebounding from a reading of 0.3% in December. In the US, Building Permits is expected to inch lower to 1.30 million, and Housing Starts are projected to improve to 1.23 million. As well, UoM Consumer Sentiment is expected to rise to 95.4 points.

The euro continues to trade above the 1.25 level this week. Earlier on Friday, EUR/USD touched its highest level since December 2014, as the US dollar remains under broad pressure. The euro has posted winning sessions every day this week, and the currency has gained 2.1% this week. US inflation indicators pointed upwards this week, but investors chose to focus on soft retail sales reports for January – Retail Sales posted a flat reading of 0.0%, and Core Retail Sales declined 0.3%, marking its first decline in five months.

The recent volatility in the currency markets has not gone unnoticed by Mario Draghi & Co. Last week, the ECB head expressed confidence that eurozone inflation is moving closer to the Bank’s target of just below 2 percent, due to improving economic growth. However, Draghi listed currency market volatility as an obstacle to the inflation target, and added that the ECB would carefully monitor the euro’s exchange rates. The ECB tapered its massive stimulus program from EUR 60 billion to 30 billion/mth in January, and the markets are on the lookout for hints as to whether the ECB will normalize policy and wind up stimulus in September. Any hints from ECB policymakers about a change in policy could have a strong impact on the movement of the euro.

The Australian dollar rose to new two-week high on Friday in extension of recovery rally from 0.7758 (09 Feb low).

Broader weakness of US dollar drives the Aussie higher to pressure pivotal 0.80 resistance zone (Fibo 61.8% of 0.8135/0.7758 pullback / psychological barrier), break of which would generate strong bullish signal.

The Aussie showed mild reaction on remarks from RBA Governor Lowe late Thursday. Lowe said that the central bank doesn’t see case for increasing interest rates soon as high unemployment and low inflation would keep interest rates at record lows until situation improves.

Positive setup of daily techs is supportive and firm break above 0.80 pivotal zone would open way towards 0.8046 (Fibo 76.4%) and expose key barrier at 0.8135 (26 Jan peak).

However, strongly overbought slow stochastic requires caution but no firmer bearish signal being generated so far.

Broken 20SMA offers solid support at 0.7957 with stronger dips to be contained by 10SMA which reversed higher and currently lies at 0.7876.

Res: 0.8000, 0.8046, 0.8100, 0.8135
Sup: 0.7957, 0.7933, 0.7902, 0.7876

The pair stays firmly in red and extends weakness below 106 handle on Friday to post new low at 105.54 (the lowest since early Nov 2016).

Strong bearish signal was generated on Thursday’s close below key double-Fibonacci supports at 106.66/51 (Fibo 38.2% of 75.65/125.84, Oct 2011/June 2015 ascend / Fibo 61.8% of 98.99/118.66, Jun/Dec 2016 rally), suggesting that bears may extend further.

The pair is on track for strong bearish weekly close (the biggest weekly loss since July 2016) which adds on mounting downside pressure, as the dollar remains under strong pressure due to various factors and hit the lowest in three years against its major counterparts on Friday, with no signs of any stronger recovery for now.

Yen reacted mildly on reappointment of Haruhiko Kuroda as BoJ governor, although Kuroda and his team is expected to maintain central bank’s ultra-loose policy.

Firmly bearish daily/weekly techs are supportive, however, oversold daily studies warn of correction, but without firmer bullish signal being generated so far.

Bears could travel towards 103.63 (Fibo 76.4% of 98.99/118.66 ascend), with psychological 100 zone expected to come in focus on further bearish acceleration.

Broken lower 20-d Bollinger band marks initial resistance at 106.31 (also session high), followed by broken key Fibo supports at 106.51/66, with stronger upticks to be capped by falling daily Tenkan-sen (currently at 107.66).

Res: 106.31, 106.51, 107.00, 107.31
Sup: 105.54, 105.00, 104.48, 104.00

The Euro cracked key near-term barrier at 1.2537 and hit new high at 1.2555 (the highest since Dec 2014) on Friday.

Eventual push through 1.2537 pivot marked full retracement of 1.2537/1.2205 corrective phase and signaled continuation of broader uptrend from 1.0340 (2017 low).

Bulls now eye target at 1.2597 (Fibo 61.8% of larger 1.3992/1.0340, May 2014 / Jan 2017 fall) to generate another strong bullish signal on break.

The pair is also on track for strong weekly bullish close which would add on bullish outlook.

However, corrective easing could be anticipated on profit-taking at the end of week and strongly overbought slow stochastic, with bearish signal to be generated on indicator’s reversal.

Deeper dips could be seen as positioning for fresh advance and should find support at rising 20SMA (currently at 1.2378).

Res: 1.2555, 1.2597, 1.2643, 1.2718
Sup: 1.2496, 1.2447, 1.2400, 1.2378

EUR/USD

Current level - 1.2529

The violation of 1.2540 peak signals, that the general uptrend has been renewed on the daily frame, with a projection target at 1.2870. On the lower frames the outlook is bullish as well, for 1.2650 zone. Initial intraday support lies at 1.2517 and crucial on the downside is 1.2450.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.2560	1.2650	1.2517	1.2380
1.2650	1.2870	1.2450	1.2210

USD/JPY

Current level - 105.92

The slide has reached 105.40 support area and next more significant support is projected at 102.40. Crucial on the upside is 106.80 and only a violation of that level will signal a reversal of the current downtrend from 108.70.

Resistance		Support
intraday	intraweek	intraday	intraweek
106.80	108.30	105.40	105.40
108.30	110.40	103.50	102.40

GBP/USD

Current level - 1.4103

The uptrend is intact, heading towards 1.4340 peak. Initial support lies at 1.4020.

Resistance		Support
intraday	intraweek	intraday	intraweek
1.4175	1.4280	1.4020	1.3760
1.4280	1.4340	1.3920	1.3620

The euro has climbed to a new 2018 trading high against the U.S dollar, with price-action trading towards the 1.2550 level during the Asian trading session. The EURUSD pair easily broke through the former 2018 trading high, at 1.2537, as we see a continuation of broad-based selling in the U.S dollar index. Going forward, euro buyers are now firmly focused on the 1.2600 area, with the 1.2610 resistance level the most relevant historical resistance point of note to the upside.

The EURUSD pair is strongly bullish on an intraday basis, further upside towards the 1.2610 and 1.2655 levels appears likely.

Should EURUSD price-action trade back below the 1.2500 level, we may see a move back towards and 1.2470 and 1.2430 support levels.

The British pound has continued to press higher against the greenback overnight, with price-action moving towards the 1.4150 level as the recent sell-off in the U.S dollar accelerates. The GBPUSD looks set to target the 1.4200 region on Friday, with bullish momentum building across medium-term RSI and Momentum technical indicators. Traders now look towards key United Kingdom Retail Sales during the European trading session, with the market expecting a solid figure for the month of January.

The GBPUSD pair is strongly intraday bullish whilst trading above the 1.4100 level, further upside towards the 1.4199 and 1.4278 levels seems possible.

Should GBPUSD price-action start to move below the 1.4110 support level, we may see a correction back towards the 1.4078 and 1.4036 levels.