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Daily Pivots: (S1) 1.2512; (P) 1.2544; (R1) 1.2599; More...

Intraday bias in USD/CAD remains neutral at this point. On the upside, On the upside, firm break of 1.2589 resistance will indicate that pull back from 1.2919 has completed and would bring retest of this resistance. On the downside, below 1.2397 minor support will turn focus back to 1.2246 instead.

In the bigger picture, rebound from 1.2061 is likely completed completed at 1.2919, rejected by 55 week EMA and kept below 38.2% retracement of 1.4689 to 1.2061 at 1.3065. The development also suggests that long term fall from 1.4689 is not completed yet. Decisive break of 1.2061 low will target 61.8% retracement of 0.9406 to 1.4689 at 1.1424. This will now be the favored case as long as 1.2919 resistance holds.

Daily Pivots: (S1) 108.92; (P) 109.32; (R1) 109.72; More...

Intraday bias in USD/JPY remains neutral at this point. As noted before, larger decline from 114.73 is possibly still in progress. Break of 108.27 will also resume the medium term correction from 118.65. That will send USD/JPY through 107.31 to 106.48 fibonacci level. Nonetheless, above 110.47 will turn intraday bias back to the upside and bring stronger rebound.

In the bigger picture, current development argues that the corrective pattern from 118.65 is extending. There is risk of dropping further to 61.8% retracement of 98.97 to 118.65 at 106.48. But this level should provide strong support to contain downside and bring resumption of rise from 98.97. However, sustained break of 106.48 will now likely send USD/JPY through 98.97 to resume the corrective fall from 125.85 (2015 high).

Daily Pivots: (S1) 0.9362; (P) 0.9408; (R1) 0.9477; More...

Intraday bias in USD/CHF remains on the upside for the moment. The rebound from 0.9254 short term bottom should extend to 38.2% retracement of 1.0037 to 0.9254 at 0.9553 first. At this point, there is no clear sign of trend reversal yet. We'd be cautious on strong resistance from 0.9553 to limit upside and bring decline resumption. On the downside, below 0.9339 minor support will turn bias to the downside for 0.9254. Nonetheless, firm break of 0.9553 will bring stronger rebound to 55 day EMA (now at 0.9627).

In the bigger picture, the strong break of 0.9420 support suggests that fall from 1.0342 is developing into a medium term down trend. Deeper fall 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, break of 0.9640 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will stay bearish even in case of strong rebound.

Daily Pivots: (S1) 1.3820; (P) 1.3907; (R1) 1.3967; More.....

No change in GBP/USD's outlook. Intraday bias remains on the downside with 1.3999 minor resistance intact. Fall from 1.4345 short term top should extend to 1.3651 resistance turned support. For the moment, it's unsure whether the decline is correcting rise from 1.3038, or that from 1.1946, or it's reversing the trend. Break of 1.3651 will turn focus to key fibonacci level at 1.3429. On the upside, above 1.3999 minor resistance will turn intraday bias neutral first.

In the bigger picture, sustained break of 1.3835 key resistance level indicates that rebound from 1.1946 is at least correcting the long term down from from 2007 high at 2.1161. Further rise should now be seen back to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466. Medium term outlook will stay bullish 38.2% retracement of 1.1946 to 1.4345 at 1.3429, in case of deep pull back.

DXY Short Term Elliott Wave view suggests that the decline to 88.44 ended Intermediate wave (3). Up from there, correction in Intermediate wave (4) is in progress as a triple three Elliott Wave structure. Rally to 89.64 ended Minor wave W, decline to 88.55 ended Minor wave X, Minor wave Y ended at 90.03 and Minor second wave X ended at 89.48. Near term, while pullbacks stay above 89.48, Index has scope to extend higher to 90.67 – 90.95 area to end wave Z of (4) before the decline resumes. We don’t like buying the Index and expect sellers to appear from the above area for a 3 waves pullback at least

DXY 1 Hour Elliott Wave Chart

Daily Pivots: (S1) 1.2204; (P) 1.2305 (R1) 1.2364; More....

EUR/USD drops to as low as 1.2245 so far. Downside acceleration as seen in 4 hour MACD is raising the chance of trend reversal. But we'd prefer to see decisive break of 1.2222 support to confirm. Sustained break of 1.2222 will indicate rejection from 1.2494/2516 key fibonacci level, on bearish divergence condition in 4 hour MACD. That could also signal completion of medium term up trend from 1.0339. In that case, near term outlook will be turned bearish for 1.2091 resistance turned support first.

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

The global markets turned into consolidative mode, digesting recent losses. DOW attempted to rebound to 25293.96 but closed down -0.08% at 24893.35. Nikkei is trading up 0.35% at the time of writing but lacks follow through momentum. An important development to watch is that 10 year yield closed sharply higher by 0.076 at 2.845. Monday's high at 2.862 is now back in radar. And a strong break there will release recent up trend in yields, and could prompt another round of selloff in stocks. In the currency markets, Yen remains the strongest major currency for the week and is back pressing this week's low against Europeans. Dollar follow as the second strongest and has picked up from momentum overnight. New Zealand Dollar trades broadly lower after RBNZ stands pat and maintained a neutral stance. The Kiwi is so far the weakest one for the week.

RBNZ stands pat and maintained neutral stance

RBNZ left the Official Cash Rate unchanged at 1.75% today as widely expected. Kiwi tumbled as the central bank maintained a dovish stance. The accompanying statement noted that "monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly." RBNZ Governor Grant Spencer tried to talk down the recent global stock market crash.. He said in the press conference that "the bond market didn't really react, it's more of an equity market phenomenon. And now it's settled down, so that's not really going to have a long term effect." However, Spencer also warned that "it's been a warning sign because that volatility shows how nervous the market is about...the normalization of interest rates."

Separately, RBNZ Assistant Governor John McDermott said in a Reuters interview that "Core inflation is sitting a little bit below the midpoint... it still needs a little shove to get it towards the midpoint. That strategy hasn't changed." He reiterated RBNZ's "neutral stance". And he added that "there is a significant probability that the next rate move could be an increase sometime in the future, and there's also a substantial probability that the next move could actually be a cut."

Following up on NZD/USD, the decline from 0.7435 short term top extends to as low as 0.7181 so far today. It's on track to 55 day EMA (now at 0.7170). Sustained break there will confirm completion of the rebound from 0.6779 and pave the way to retest this low. Overall, medium term range trading is expected to continue inside 0.6779/7557 for a while.

Fed Williams: Economy can clearly handle gradual hikes

San Francisco Fed President John Williams said yesterday that "the economy clearly can handle gradually rising interest rates." And, he's "not really worried about the downside risks of the economy slowing too much." Also, regarding recent market crash, Williams said " I don't see any of the movements in asset prices of late to fundamentally change my view of the economy." He reiterated his expectation for three or four interest rate hikes this year. Chicago Fed President Charles Evans said that rising wages and inflation expectations suggested that inflation might be on the up. And, "if we get to that point and have more confidence that inflation is moving up sustainably, then further rate increases would be warranted,"

German grand coalition reformed

German Chancellor Angela Merkel formally announced the reformation of grand coalition yesterday, after marathon negotiation with SPD. Merkel said in a press conference that the agreement would create "the good and stable government that our country needs and that many in the world expect from us". Martin Schulz will step down as SPD leader and enter the government as Foreign Minister. Schulz is known for his pro-EU stance and his push for turning EU into a "United States of Europe". Another SPD member Olaf Scholz will likely take up the job of Finance Minister. But some analysts noted that Scholz is in the liberal wing of SPD and he's not too different from Wolfgang Schaeuble.

BoE Super Thursday: Voting and forecasts to watch

BoE rate decision and Inflation Report will be the biggest focus of today. There are rising speculations that BoE could pull ahead the next rate hike, to as soon as May. Traders will be very eager to get any hints on that. The vote split will be the first thing to watch. Markets generally expect an unanimous vote to keep interest rate unchanged at 0.50%. Any dissent and push for hike will show some impatience in the MPC. And, if someone would dissent, known hawks Ian McCafferty and Michael Saunders will be the likely candidate.

The Inflation Report will also bear much significance. Back in November, BoE projected 2018 GDP growth to be at 1.7%, CPI to slow to 2.4% and Bank Rate to be at 0.7% by the end of the year. There could be an upgrade in growth forecast as Brexit negotiation has finally entered into the second phase. But the key will be on whether BoE still expect CPI to slow from current 3.0% to 2.4%. And just a slight change in rate forecast could prompt much volatility in the Pound.

On the data front

Japan current account surplus narrowed to JPY 1.48T in December. China trade surplus narrowed sharply to CNY 136b, or USD 20.3b in January. Australia NAB business confidence dropped to 6 in Q4. German will release trade balance in European session while ECB will release monthly bulletin. Later in the day, Canada will release housing starts and new housing price index. US will release jobless claims on a Thursday as usual.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.2204; (P) 1.2305 (R1) 1.2364; More....

EUR/USD drops to as low as 1.2245 so far. Downside acceleration as seen in 4 hour MACD is raising the chance of trend reversal. But we'd prefer to see decisive break of 1.2222 support to confirm. Sustained break of 1.2222 will indicate rejection from 1.2494/2516 key fibonacci level, on bearish divergence condition in 4 hour MACD. That could also signal completion of medium term up trend from 1.0339. In that case, near term outlook will be turned bearish for 1.2091 resistance turned support first.

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

Economic Indicators Update

Key Highlights

• The US Dollar traded higher this week and moved above 1.2400 against the Canadian Dollar.
• There was a break above a major declining channel with resistance at 1.2380 on the 4-hours chart of USD/CAD.
• The Building Permits in Canada in Dec 2017 increased 4.2%, more than the forecast of +2.0%.
• A lot of high risk events are lined up today, including German Trade Balance, BoE interest rate decision, Canadian Housing Starts and US Initial Jobless Claims.

USDCAD Technical Analysis

There were solid gains in the US Dollar from the 1.2250 swing low against the Canadian Dollar. The USD/CAD pair is back in a bullish trend with a close above 1.2400.

Looking at the 4-hours chart of USD/CAD, the pair formed a major support near 1.2250 and started an upside move. It gained a lot of momentum and broke a major declining channel with resistance at 1.2380.

There was also a close above the 1.2400 resistance and the 100 simple moving average (red, 4-hours). The upside move was strong and the pair traded as high as 1.2567. Later, a downside correction was initiated and the pair tested the 23.6% Fib retracement level of the last wave from the 1.2248 low to 1.2567 high.

It seems like the pair is back in a bullish trend and dips towards 1.2460 and 1.2400 remain supported. On the upside, a break above the 1.2560-70 zone could trigger a push above the 1.2600 level.

On the downside, an immediate support sits at 1.2480, followed by 1.2460 and 1.2400.

Canada's Building Permits

Recently, the Canadian Building Permits report for Dec 2017 was released by Statistics Canada. The forecast was slated for an increase of 2.0% in Dec 2017 compared with the previous month.

The actual result was much better as there was an increase of 4.8%, but there no major downside reaction in USD/CAD. Overall, the greenback is gaining bullish momentum.

EUR/USD broke a major support at 1.2400 and GBP/USD declined below the 1.4000 pivot level. However, the US Dollar is still struggling to move higher versus the Japanese Yen, as USD/JPY is trading below the 110.00 level.

There are many important and high risk events lined up during the European and NY session, including German Trade Balance, BoE interest rate decision, Canadian Housing Starts and US Initial Jobless Claims. Therefore, there could be swing moves in pairs such as EUR/USD, GBP/USD, USD/CAD and EUR/GBP.

STOCKS

Dow (24893.35, -0.08%) moved up to test almost levels near 25500. Near term is likely to see some ranged-trade in the 25500-24000 region. A break above 25500 if seen over today and tomorrow could take the index higher towards 26000.

Dax (12590.43, +1.60%) moved up from 12200 but a rise above 12700 is needed to take the index to higher levels in the near term. While below immediate resistance near 12700, there could be another chance of a fall back towards 12400-12300.

Nikkei (21700.94, +0.26%) may move up towards 22600 while important support near 21000 holds in the coming sessions. Near term looks ranged to bullish while above 21000.

Shanghai (3282.74, -0.80%) broke below the channel support seen on the 3-day candles. If the index comes back above 3300, then it could move up towards 3450 in the near term; else a fall towards 3250 or lower looks likely while below 3300.

Nifty (10476.70, -0.21%) and Sensex (34082.71, -0.33%) came off in the second half of the session yesterday to close at lower levels. Weakness in the indices may not have ended yet but while it remains in a pause mode just now, we may look for a re-test of 10380 and 33750 levels again. Watch price action near mentioned support levels.

COMMODITIES

Brent (65.36) and WTI (61.62) are down sharply. Brent has broken below immediate support level while WTI is testing one just at current level. A bounce if not seen immediately could lead to further fall in the crude prices to 64 and 60 respectively.

Gold (1313.64) has come off below 1320 and may now be headed towards 1300 in the next couple of sessions. 1280-1300 is an important near term support region which is likely to hold and produce a bounce back in the medium term. View is bearish for the coming sessions.

Copper (3.1180) broke sharply on the downside indicating more of upcoming bearishness in the price. The fall is likely to continue and price could move down towards important long term support near 3.05. That if holds could thereafter produce a bounce back to higher levels in the longer run.

FOREX

As per expectation, Dollar Index (90.244) has moved past 90 and has been trading in the 90.2-90.4 range. There should be some resistance just below 91 as seen on the daily candles and weekly line charts. A test of 91 could however be postponed to next week.

Euro (1.2278) has seen a test of support near 1.2275 (on the weekly candles) earlier than expected. It is however still to be seen if this acts as a decent support or not. There is lower support near 1.22 on the 3 day line chart and near 1.215-1.22 on the daily candles, which could prove to be strong support levels leading to a bounce.

Dollar-Yen (109.34) seems to be struggling to move up beyond 109.5 as 21-day and 13-day moving average lines on the daily line chart continue providing some resistance. On the weekly line chart, it might again come down to test support near 108.5, which is an important level. Near term for Dollar Yen looks bearish for now and further directional clarity might come about in the next few days.

Euro Yen (134.25) dropped to levels near 133.87 but is again trading above 134, indicating that support near 134 on the daily, 3 day and weekly candles might hold for some more time. However, if Euro goes down towards 1.22 without Dollar Yen breaking below 108.5, Euro Yen could break this support at 134.

Pound (1.3894) has been on a downtrend for the last 5 days and as mentioned yesterday, could test support near 1.36-1.37 on the daily candles in a week’s time.

Dollar Rupee (64.28) is likely to remain ranged within 64.30-64.00 region this week. Only on a break above 64.30, we may consider a re-test of 64.40/45 on the upside.

INTEREST RATES

US 10 Year Yield (2.7865), US 30 year Yield (3.0592), US 5 year yield (2.5227), US 2 year yield (2.0930) have again moved up after the dramatic fall yesterday. However we might see all of them stay below 2.85, 3.15, 2.6 and 2.2 respectively as there are long term resistances near those levels. The global equity selloff in favour of safer debt is still underway and we might have to wait and watch till we are certain of a narrower range in which US yields could move for the next few days. The volatility phase might just be ending for now. The next rate hike is supposed to be in March when the volatility could again return.

Japan 10 year yield (0.081) continues its oscillation between the broad 0.07 and 0.088 level which might continue for now.

USD/CAD is in the midst of a second week of gains and with two important events before the weekend, the highs of the year are within reach. The yen was the top performer on Wednesday while the New Zealand dollar lagged. The RNBZ left rates unchanged in early Asia-Pacific trade. The EURUSD trade was allosed to be stopped out. A new short in a key equity index has just been posted to susbcribers. Dow futures are currently -260 pts. S&P500 futures -26 pts.

The market remained jittery on Wednesday and that's likely to continue for some time. After spending most of the day in positive territory, the S&P 500 closed 0.5% lower and full further after hours. Recoveries are rarely V-shaped unless central banks or governments take dramatic action.

What's increasingly clear is that the FX market has been shaken out of its recent paradigm and the dollar is a beneficiary. We need only to look to the bond market to see why. Yesterday we highlighted the quick rebound in yields after the VIX-termination. More evidence came in a soft Treasury auction Wednesday and another 3.4 bps rise in yields. It's difficult to envision a scenario when 10s aren't trading at 3% soon.

One spot where the dollar is having success is against commodity currencies. Oil slid Wednesday after a 300K jump in US production to above 10mbpd for the first time since the 1970s. The US is now producing more oil than Saudi Arabia – something that's sure to irk OPEC, and something that threatens the recent oil climb.

That makes the Canadian dollar particularly vulnerable. What adds to that vulnerability is the uncertainty of the path of the BOC. Some clarity might come on Thursday in a speech from Wilkins that will be watched very closely. The market is pricing in a 22% chance of a March hike and a 56% chance in April.

Two critical factors determining BoC hikes are NAFTA discussions late this month and and Friday's Canadian jobs report. The prior two reports were sensational but a minimum wage hike and some mean revisions are downside risks to the +10K consensus.

A near-term level to watch in USD/CAD is 1.2620, which is the confluence of the 55 and 100 DMAs.

Another commodity currency to watch is NZD. The RBNZ left rates at 1.75% and added a note to the statement saying inflation is projected to remain subdued through the forecast period. Spencer also said he expected the kiwi to weaken.