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USD/JPY is slightly decreasing but still trades above 109. Hourly resistance remains at 111.50 (18/01/2018 high). The technical structure suggests further short-term downside moves.

We favor a long-term bearish bias. Support is now given at 107.32 (08/09/2017 low). A gradual rise towards the major resistance at 125.86 (05/06/2015 high) seems unlikely. Expected to decline further support at 101.20 (09/11/2016 low).

GBP/USD's bearish pressure pushed the pair at the range of 1.40. The technical structure suggests further potential downside move. Hourly support at 1.3916 (23/01/2018 low) is now broken.

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

EUR/USD is trading mixed. The pair lies in the 1.24 range. Hourly support is given at 1.2223 (23/01/2018 low). The technical structure suggests further short-term 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).

FX market is relatively unaffected by equity sell-off

The FX market has been only slightly affected by the equity market rout of the last few days; the same cannot be said of the bond market. Indeed, it seems that investors’ panic reaction has been contained to the equity and bond market as investors dumped stocks to rush into bonds.

On Monday, US Treasury bonds rallied sharply – not matter the maturity – as equities were on fire sale. The US 2-year sovereign yield dropped 20bps to around 1.95%, the 5-year one slid 26bps to around 2.35%, while the longer-end of the curve the 10-year fell 23bps to 2.65%. On the equity side, the S&P 500 was off more than 5%, while the Dow Jones fell 6%.

Meanwhile, the FX market reacted in a very limited manner. Obviously, the Japanese yen strengthen as the risk-off sentiment spread but the rise was quite limited as USD/JPY fell only by 1.60%, down to 108.50, before stabilizing at around 109.20.
On Wednesday, financial markets are still in recovery mode with European equities trading in positive territory and Treasury yields grinding higher. The VIX is still hanging around 31, suggesting that investors have not let their guard down yet. In the FX market, the greenback is better bid against all of its peers, with the exception of the Japanese yen. We believe this is just a matter of time before investors give up their risk-off stance.

After all, the US inflation outlooks great and the solid jobs report, released last Friday, only add fuel to this rhetoric. We think that the US dollar is oversold right know and that it is just a matter of time before the greenback catches up.

RBNZ Meeting

With markets focused on global yield, curves and risk environment RBNZ policy meeting will increase in relevance. There is growing faith in the reflation and central bank “normalization” story, which, counter to economic data has drifted to New Zealand. We suspect markets have getting way ahead of themselves with hawkish bets. The RBNZ meeting is the final before Adrian Orr undertakes the governorship in March. The RBNZ is expected to hold policy unchanged. As with other G10 countries domestic inflation has disappointed as economic improvement has not translated into price pressures. Jobless rate fell to a fresh nine-year low in the December quarter but an influx of workers has kept wage inflation from accelerating.

Inflation pressures have unexpectedly slowed annual inflation rate to 1.6% from the prior quarter's 1.9% as cheaper food as consumer discretionary all but offset higher cost fuel and housing. The RBNZ is priced to remain on hold this year and a dovish message will dampen speculation for earlier lift off. The net result will likely be a weaker NZD on dovish central bank messaging.

South African President Zuma’s to resign smoothly as the economy is growing

Six weeks after his replacement by new leader Cyril Ramaphosa of his party, the African National Congress (ANC) who was expected to meet today in order to decide whether it would force President Zuma to leave his functions is finally postponed later this month. According to internal sources, Zuma and Deputy President Ramaphosa came closer to an agreement and were “discussing formalities” of current President’s exit. On the schedule was also expected Zuma’s speech as part of the State of the Nation Address at the parliament assembly, which, in turn, had also to be postponed as a result of “fears of violence” among parliamentarians.

Since recent communications of a commonly agreed resignation among participants, and as the transition finally comes to be done “smoothly”, we see no obstacles as to further USD/ZAR depreciation, currently valued at 11.96 (-4.0% YTD). Since the beginning of 2018, ZAR is currently the best performing currency against the greenback (EUR/USD Cross: -2.65%, GBP/USD Cross: -2.61%, USD/JPY: -2.72%). South African economy maintains a strong 2018 economic outlook, boosted by January Business Confidence at 99.70 (December: 96.40), higher-than-expected trade balance surplus of ZAR 15.70 billion (USD 1.313 billion, expected: USD 0.844 billion) and inflation maintained at 4.70%. Since recent steep decrease of FTSE/JSE 40 index, largely due to political uncertainty, we remain confident that South African equities are on the way to recovery.

Notes/Observations

Risk-averse sentiment seemed to have cooled for the time being as major indexes rebound

Germany said to reach an agreement on a grand coalition

Asia:

Japan Dec Real Cash Earnings posts its fastest decline since July 2017 with YoY reading -0.5% v +0.1% prior ; Labor Cash Earnings y/y: 0.7% v 0.5%e

China PBoC again skipped its Open Market Operation (OMO) for the 10th straight session citing ample liquidity

Europe:

European Commission wants to punish UK non-compliance during the Brexit transition by summarily cutting off the country’s access to parts of the single market. Wants to restrict UK access to the single market if there is a dispute over Brexit

EU said to be prepared to ask Britain for higher financial contributions to the single bloc’s post-Brexit budget that could go beyond what was agreed last year

Ireland said to be pushing for a settled “legal text” over the Brexit border question as early as next month in a move that threatened once again to derail the Brexit negotiations

National Institute of Economic and Social Research (NIESR): raises UK 2018 and 2019 GDP growth forecasts from 1.7% to 1.9%

President Zuma reportedly to resign as soon as preconditions are finalized

Americas:

US House has votes to pass stopgap funding bill to fund government until March 23rd; final vote 245 to 182; bill now moves to the Senate

Energy:

Weekly API Oil Inventories: Crude: -1.1M v +3.2M prior

OPEC Sec Gen Barkindo: OPEC still has a ways to go in market rebalancing. OPEC was satisfied with oil price gains seen in 2017

Economic Data:

(ZA) South Africa Jan Gross Reserves: $50.5B v $50.7B prior; Net Reserves: $43.6B v $43.4Be

(DE) Germany Dec Industrial Production M/M:-0.6% v -0.7%e; Y/Y: 6.5% v 6.8%e

(DK) Denmark Dec Industrial Production M/M: 0.7 v 2.7% prior

(FI) Finland Dec Preliminary Trade Balance: -€0.3B v -€0.2B prior

(NO) Norway Dec Industrial Production M/M: -0.4 v +0.6% prior; Y/Y: +0.3 v -1.3% prior

(NO) Norway Dec Manufacturing Production M/M: 1.3% v 0.4%e; Y/Y: 3.4% v 2.3% prior

(CH) Swiss Q4 UBS Real Estate Bubble Index: 1.32 v 1.34 prior

(MY) Malaysia Dec Trade Balance (MYR): 7.3B v 9.3Be; Exports Y/Y: 4.7% v 12.7%e; Y.Y: 7.9% v 13.6%e

(FR) France Dec Trade Balance: -€3.5B v -€4.9Be

(FR) France Dec Current Account: -€0.9B v -€3.3B prior

(TW) Taiwan Jan Trade Balance: $2.2B v $4.9Be; Exports Y/Y: 15.5% v 18.1%e; Imports Y/Y: 23.3% v 14.5%e

(CH) Swiss Jan Foreign Currency Reserves (CHF): 731.4B v 744.1B prior

(SE) Sweden Jan Budget Balance (SEK): 0.0B v -69.9B prior

(UK) Jan Halifax House Prices M/M: -0.6% v +0.2%e; 3M/3M: 2.2% v 2.4%e

(IS) Iceland Central Bank (Sedlabanki) left its 7-Day Term Deposit rate (currently at 4.25%)

(IN) India Central Bank (RBI) left its Repurchase Rate unchanged at 6.00%; as expected

(IT) Italy Dec Retail Sales M/M: -0.3% v -0.2%e; Y/Y: -0.1% v +1.0%e

(CZ) Czech Jan International Reserves: $151.7B v $148.0B prior

(SG) Singapore Jan Foreign Reserves: $282.4B v $279.9B prior

(CN) China Jan Foreign Reserves: $3.162T v $3.170Te

Fixed Income Issuance:

(EU) EFSF opened its book to sell €3.0B in 10-year bond; guidance seen -7bps to mid-swaps

(IN) India sold total INR140B vs. INR140B indicated in 3-month, 6-month and 12-month bills

(DK) Denmark sold DKK5.065B in 0.1%2030 DGBi Bonds; Avg Yield: -0.46%; Bid-to-cover: 2.48x

(SE) Sweden sold SEK2B vs. SEK2B indicated in 0.75% May 2028 bonds; Avg Yield: 0.9046% v 0.8437% prior;Bid-to-cover: 4.33x v 2.91x prior

(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 2021 bonds; Avg Yield: 1.06% v 0.92% prior;Bid-to-cover: 3.88x v 2.65x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.8% at 375.9, FTSE +0.6% at 7187, DAX +0.7% at 12474, CAC-40 +0.6% at 5191 , IBEX-35 +0.6% at 9869, FTSE MIB +0.8% at 22518 , SMI +1.0% at 8926, S&P 500 Futures -0.8]

Market Focal Points/Key Themes: European Indices have rebounded from yesterday's sharp sell off following a strong rebound in the US over night. US futures this morning however are pointing lower once again as volatility continues. On the earnings front Sanofi reported mixed results with shares little changed; Statoil, Tullow Oil, Vestas Wind trade higher after results, while ABN Amro, Carlsberg trade lower. Elsewhere Adidas shares outperform in Germany following an analyst upgrade. In the US shares of of Wynn Resorts trades lower after the resignation of its CEO and Founder Steve Wynn. Looking ahead notable earners include Humana, Hasbro and Michael Kors.

Movers

Consumer Discretionary [ Carlsberg [CARLB.DK] -4.1% (Earnings)]

Healthcare [Sanofi [SAN.FR] -1.5% (Earnings)]

Financial [ ABN Amro [ABN.NL] -1.7% (Earnings), Hannover Re [HNR1.DE] +2.6% (FY18 outlook), Talanx [TLX.DE] +2.3% (Earnings)]

Energy [ Statoil [STL.NO] +3.2% (Earnings), Vestas Wind [VWS.DK] +1.7% (Earnings), Tullow Oil [TLW.UK] +2.8% (Earnings)]

Speakers

German CDU/CSU, SPD political parties are said to agree on a grand coalition treaty. Parties said to have agreed upon ministry positions. SPD said to have received the Finance Ministry positions (**Note: SPD had been negotiating for more-Europe in the coalition talks). Merkel bloc to get Economy, Defense and Interior Ministries (CSU Seehofer as Interior Min; CDU party with economy and defense post)

UK Govt official: PM May was unlikely to provide the kind of clarity on her blueprint Brexit plan that the EU sought by end of this week

ECB's Nouy (SSM chief) said to call summit on Non-performing Loans (NPLs) for Friday, Feb 9th

ECB's Nouy: Bank have made great strides to become more resilient; things are improving but more needs to be done. To shift the date for which the guidance applies to new NPLs; To publish final guidelines in March

ECB's Lautenschlaeger: ECB would not tolerate empty shells in post Brexit environment. Banks will have to prepare for all options on Brexit

Spain formally nominated Spain Econ Min de Guindos for ECB post (as expected)

Cyprus Fin Min Georgiades to step down

Italy Stats Agency (ISTAT) Monthly Economic Note: Sees lesser intensity in domestic growth

Japan PM Abe: Spoke with US VP Pence about North Korea in detail and reiterated that could not accept nuclear armed North Korea. US and Japan were 100% together

India Central Bank Policy Statement noted that –the decision to keep policy steady was not unanimous (5-1) with dissenter calling for 25bps hik. It maintained its neutral monetary policy stance and reiterated to keep Headline inflation close to 4% target on a durable basis. It saw the need for vigilance around evolving inflation scenario in coming months; fiscal slippage as indicated in budget could impinge on inflation outlook. Forecasted Headline inflation between 5.1-5.6% in H1 and between 4.5-4.6% in H2

Currencies

FX market appeared to be a calm presence in the face of increased global equity volatility. Overall the USD remained locked within recent ranges against the major pairs. US equity market had swoon over the last few days is in part rooted in worries higher inflation could cause the Fed to be more aggressive with rate rises. Dealers noted that USD would likely to come under renewed broad-based selling pressure as participants digest why currency markets have stayed calm with FX volatility remaining well below levels witnessed from 2015 to early 2017

EUR/USD was fractionally lower despite reports of a grand coalition agreement in Germany. The pair continued to find headwinds above the 1.24 level.

GBP/USD was facing headwinds as various press outlets noted that the EU would harden its stance during the transition phase of negotiations. Pair at 1.3930 just ahead of the NY morning.

USD/JPY was the only real mover in the session as the pair was lower by 0.5% just above the 109 handle. The Nikkei225 Index did see its 2% gain evaporate in the final hour of trading.

Fixed Income

Bund Futures trades up 37 ticks at 158.88 reversing earlier losses. Upside targets 159.85, while a continued move lower targets the157.75 level.

Gilt futures trade at 121.91 up 11 ticks, slightly off the highs from last night. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.888T from €1.889T prior. Use of the marginal lending facility rose to €51M from €35M prior.

Corporate issuance saw 1 issuer raise $350M in the primary market.

Looking Ahead

(GR) Greece Debt Agency (PDMA) to sell EUR-denominated 7-year note

(IL) Israel Jan Foreign Currency Balance: No est v $113.0B prior

(RO) Romania Central Bank (NBR) Interest Rate Decision: Expected to raise Interest Rates by 25bps to 2.25% (no set time)

(MX) Mexico Jan Vehicle Production: No est v 246.3K prior; Vehicle Exports: No est v 252.7K prior

05:30 (DE) Germany to sell €3.0B in 0.5% Feb 2028 Bunds

06:00 (PT) Portugal Q4 Unemployment Rate: No est v 8.5% prior

06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 1.50%

06:00 (US) Fed’s Kaplan (non-voter, dove) in Frankfurt

06:00 (RU) Russia to sell combined RUB35B in 2021 and 2028 OFZ bonds

06:30 (CL) Chile Jan Trade Balance: $1.2Be v $1.06B prior; Total Exports: $6.7Be v $6.8B prior; Total Imports: $5.5Be v $5.7B prior; Copper Exports: No est v $3.9B prior

06:30 (CL) Chile Jan International Reserves: No est v $39.0B prior

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 2nd: No est v -2.6% prior

07:00 (CL) Chile Dec Nominal Wage M/M: No est v 0.5% prior; Y/Y: 5.5%e v 5.5% prior

08:00 (PL) Poland Jan Official Reserves: No est v $113.3B prior

08:00 (RU) Russia Jan Official Reserve Assets: 453.8Be v $432.7B prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Dec Building Permits M/M: +2.0%e v -7.7% prior

08:30 (US) Fed’s Dudley (voter, dove) on panel

09:30 (TR) Turkey Jan Cash Budget Balance (TRY) No est v -21.1B prior

10:00 (PL) Poland Central Bank Gov Glapinski to hold post rate decision press conference

10:15 (US) Fed’s Evans (non-voter, dove) on economy and monetary policy

10:30 (US) Weekly DOE Crude Oil Inventories

12:00 (CA) Canada to sell 2-Year Bonds

13:00 (US) Treasury to sell $24B in 10-Year Notes

14:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 25bps to 6.75%

15:00 (US) Dec Consumer Credit: $20.0Be v $28.0B prior

15:00 (NZ) New Zealand Central Bank (RBNZ) Interest Rate Decision: Expected to leave Official Cash Rate (OCR) unchanged at 1.75%

16:00 (NZ) New Zealand Central Bank (RBNZ) Gov Spencer post rate decision press conference

The common European currency has been trading in a descending channel against the Swiss Franc after it touched the upper boundary of a dominant channel on January 10.

During the past few days, the pair has formed a new low at 1.1409. A breakout is likely to occur through the lower boundary of a triangle.

Technical indicators are in favor of bears to continue their dominance over the EUR/CHF pair.

During the past few weeks, the US Dollar has been depreciating heavily against the Swiss Franc after hitting a high at 0.9977 on December 8.

The USD/CHF pair has continues its bearish path, and its moving neatly in a descending channel. The 100-, and the 200—hour SMAs suggest the currency exchange rate could decline further.

In regard to the near future, a breakout could be expected either south or north. If and when it happens, the pair is likely to find resistance at the weekly R2 at 0.9162 or could find support at the monthly S1 at 0.9255.

The Australian dollar came under pressure on Wednesday dipped to 0.7862 so far, after limited recovery attempts. Falling thick hourly cloud capped upticks and continues to weigh on near-term action, maintaining negative near-term bias. Another bearish signal was generated on failure hold above former strong support (broken Fibo 38.2% of 0.7500/0.8135 rally. South-heading daily RSI shows space for further easing which needs break below Tuesday’s low at 0.7835 to signal extension of bear-leg from 0.8135 (26 Jan peak). The notion is supported by weak momentum studies. Bull-cross of 55/100SMA’s that was formed yesterday (0.7778), signals significant support and guarding 200SMA (0.7747), which may limit extended downticks. At the upside, hourly cloud base marks immediate resistance at 0.7878, ahead of cloud top at 0.7925 and converging 10/20 SMA’s (0.7996/0.7986) in attempt to form bear-cross and increase bearish pressure.

Res: 0.7878, 0.7925, 0.7953, 0.7986
Sup: 0.7835, 0.7817, 0.7778, 0.7747

Narrow range trading, shaped in tight Doji was seen in Asian / early European trading.

Long-legged Doji was left on Tuesday and signaling that two-day fall from double upside rejection at 1.2518/22 might be stalling.

No stronger signs of recovery while the upside remains capped by 10SMA (1.2408) and falling hourly cloud (1.2402/34) maintaining pressure.

On the other side, rising 20SMA (1.2322) continues to underpin and guarding pivotal support at 1.2300 (Fibo 38.2% of 1.1915/1.2537 upleg).

No clear near-term direction while the price holds between 10 and 20SMA’s.

Firm break below 1.2300 would signal extension of pullback from 1.2537/22 tops, while lift above 10SMA would signal higher low and shift near-term focus higher.

Res: 1.2408, 1.2434, 1.2474, 1.2522
Sup: 1.2362, 1.2322, 1.2300, 1.2226

The euro has stabilized price-action towards the 1.2400 level against the U.S dollar in early Wednesday trading, following a reversal in broader stock markets and a decline in the greenback. The EURUSD pair is now recovering bullish trading momentum, after finding strong weekly technical support at the 1.2313 level. With a lack of macroeconomic data today, financial markets will likely be focused on the recent recovery in stock bourses, and the next directional move in the U.S dollar index.

The EURUSD pair may see if further upside if price-action can hold above the 1.2400 level. Key upside targets remain 1.2432, 1.2474 and 1.2500.

Should EURUSD price-action fail to hold above the 1.2400 level, we may see a decline towards the 1.2350 and 1.2313 support regions.