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Markets are panicking, and investors are finding few places to hide after the Dow Jones Industrial Average plunged more than 1,500 intraday before closing 1,175 points lower at 4.6% on Monday. The hysterical sell-off showed no signs of letting up in Asia with the Nikkei and Topix indices falling more than 6% with the Nifty, ASX and STI straights all declining more than 3%.

With U.S. equities wiping out all gains for January and turning lower for the year, new Fed Chief, Jay Powell will be under a leadership test. The key trigger for the sell-off was the fear of rising inflation, and thus the Fed will need to tighten monetary policy at a faster pace.

Although economic data releases from the U.S. are continuing to impress following last week’s jobs report, with the U.S. ISM non-manufacturing index hitting 59.9 in January, this didn’t help to calm the markets.In fact, it had an opposite impact, suggesting that monetary policy needs to tighten faster to avoid the economy from overheating.

Bond yields, which have been a key source of pressure on stocks over the week declined significantly as investors found few places to go for. U.S. 10-year yields declined more than 20 basis points from yesterday’s highs, and if more outflows occur from stocks, I expect to see yields declining further.

We have been anticipating a correction for a long time now, but when markets become over-confident, corrections also become steeper. It’s hard to tell how far markets may decline, but given that economic fundamentals remain strong, I think investors will start buying the dips sooner than later.

Cryptocurrencies are also being dumped with Bitcoin falling towards $6,000 early Monday. The most famous digital currency has fallen 69% from December’s record high, and almost 56% from the start of the year. The slide comes after many banks in the U.S. and U.K. considered banning customers from buying cryptocurrencies using their credit cards. It seems the war against the crypto-world is far from over, and how the situation involves from here remains unknown, but risks are certainly high.

Currency markets have been relatively quiet when compared to the action in equities and bonds, but expect the Yen to strengthen further, if stocks continue to plunge throughout the U.S. trading session.

Currency pair EUR/USD

The EUR/USD is building a larger WXY (blue) correction within a wave 4 (purple) unless price breaks below the 50% of wave 4 vs 3. The Fibs and the previous top (green) could provide potential support. A break above the resistance (red) could indicate an uptrend continuation within wave 5 (purple).

The EUR/USD could be building a bearish ABC (green) correction within wave 4 (purple). A bullish bounce at support (green/Fibs) and bullish break above resistance (red) could start a continuation of the uptrend.

Currency pair GBP/USD

The GBP/USD broke below the support trend line (dotted blue) and has retraced towards the 38.2% Fibonacci level. The Fib levels could provide support if price is indeed building a wave 4 (green) correction. A break below the 50% Fib makes a wave 4 less likely.

The GBP/USD is probably building a bearish ABC (grey) zigzag correction.A break above resistance (red) could indicate the start of wave 5 (green).

Currency pair USD/JPY

The USD/JPYmade a strong bearish fall, which could indicate a downtrend. However, price did not manage to break the support zone (green) as yet so the wave pattern is still favouring a wave 1-2 (purple) for the moment.

The USD/JPYmade a bullish continuation but price failed to break above the larger resistance level (orange) and then fell below support. The bearish momentum could be part of a zigzag within wave 2 (purple), which may not break below the 100% Fib otherwise it is invalidated.

Headlines/Economic Data

General Trend: Various Asian indices decline over 5%

S&P500 Futures decline over 3% in Asia

Financial and Energy stocks underperform

(CN) China coal names under pressure after report China was considering a price cap

US equities remain volatile in Asian trading: Japan Exchange said circuit breaker was triggered on Dow Jones futures; Circuit breaker Also triggered on Tokyo Stock Exchange Mother futures

Asian gov't bond yields move lower amid gains in Treasury prices and equity declines

Japan 40-year JGB yield hits lowest level since April 2017

BoJ Gov Kuroda declines comment on daily stock price movements

Japan

Nikkei 225 opened -1.8%; closed -4.7%

TOPIX Information and Communications Index declines over 4% amid losses of over 5% in shares of Softbank

Financials decline:TOPIX Securities Index declines over 5%; Mitsubishi UFJ, Mizuho Financial and Sumitomo Mitsui Financial decline over 3%.

Toyota [7203.JP]: Declines over 3% ahead of expected earnings report

(JP) Japan Econ Min Motegi:Want to closely watch financial market moves and impact on the economy

(JP) Japan Fin Min Aso: Coincheck is not a bank,so needs real time inspection; no comment on market moves

(JP) Japan MoF sells ¥400B v ¥400B indicated in 10-yr 0.1% inflation-indexed bonds; lowest yield -0.464%; bid to cover 3.38x

(JP) Japan Securities Clearing Corp (JSCC) said to issue intraday margin call related to Topix and Nikkei 225 Futures - US financial press

(JP) Bank of Japan (BOJ) Gov Kuroda: No comment on daily moves of stock prices; Japan equities are being impacted by moves in the US - Parliament

Korea

Kospi opened -2.2%

Financials decline by over 3%:Hana Financial down over 5%

Weakness in the chip sector: Samsung declines over 2%, while Hynix drops by more than 1.5%

Samsung Electronics [005930.KR]: China NDRC saidto sign MOU with the company regarding chip cooperation - China Daily [**Note:Samsung and the NDRC were said to have signed the MOU related to cooperation inthe DRAM market, said a Korean press report from Feb 2nd. The report said theMOU may include Samsung agreeing to moderate DRAM price increases in order tohelp contain costs for smartphone makers in China]

(KR) South Korea Ministry of Trade, Industry and Energy: to foster midsized firms to add 130,000 jobs by 2022 - Korean press

(KR) Bank of Korea (BoK) Gov Lee to monitor impact of US equity markets ondomestic market - South Korean Press

(KR) South Korea Finance Ministry: To scrap/delay earlier plans to imposetougher capital gains tax on foreigners

(KR) South Korea sells 30-yr pre-issuance govt bonds at 2.69%

(KR) ~8% of virtual bank accounts for cryptocurrency trading in South Koreahave been converted to real-name bank accounts, 1-week after the govt ended theability to have anonymous accounts - Korean press

(KR) South Korea International Trade Association: South Korea faces far moreimport restrictions from the United States than any other country - Korean press

(KR) South Korea sells KRW1.1T in 30-yr govt bonds, avg yield 2.67%

China/Hong Kong

Hang Seng opened -3.8%, Shanghai Composite -2.0%

Hang Seng Energy Index -4.8%, Information Tech -4.5%, Property/Construction -4.3%, Consumer Goods -4.1%, Materials -4%, Financials -4%

(CN) Shanghai Exchange to increase oversight of dividend payments,to promote the listed company cash dividends - Chinese Press

(CN) Local provinces in China said to conduct checks on implicit government debts - China Securities Times

(CN) China PBoC: Skips OMO (9th straightsession) v skipped prior; Net drain CNY80B v CNY40B prior

(CN) PBOC SETS YUAN REFERENCE RATE AT 6.3072 v6.3019 PRIOR

(CN) China Premier Li: China will remain committed to the policy of reform andopening up and provide more convenience for foreign experts to work in China –Xinhua

Australia/New Zealand

ASX 200 opened -1.6%; closed %

ASX 200 Energy Index -3.8%, Financials -3.2%, Consumer Discretionary -3.6%, Telecom -2.9%, Resources-2.7%

(AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED

(UK) PM May seeking developmentof trade relations with Australia post Brexit

(AU) AUSTRALIA DEC TRADE BALANCE (A$) -1.36B V +200ME

(AU) AUSTRALIA DEC RETAIL SALES M/M: -0.5% V -0.2%E

(AU) AUSTRALIA Q4 RETAIL SALES EX-INFLATION Q/Q: 0.9% V 1.0%E

LifeHealthcare, LHC.AU To be acquired by PacificEquity Partners at A$3.75/shr cash; to declare fully franked special dividendof A$0.18/share; Also reports H1 results; +41%

(AU) Australia Treasurer Morrison: I drew upon his "own experience and understanding" in dismissing Treasury's expert advice on negative gearing

New Zealand closed for holiday

Looking Ahead: New Zealand Q4 Employment Change, Labor Cost Index and Unemployment Rate due to be released on Wed

Other Asia

(MY) Malaysia PM Razak: To waive stamp duty on some stocks for 3-yrs; to allow all investors do intraday shortselling

(TW) Taiwan Govt backedbanks said to have bought stocks on Monday including TSMC and Hon Hai (closed-1.6% after falling more than 2% in the session)

SIA Engineering [SIE.SG] To form JV with GE Aviation toform an engine overhaul joint venture based in Singapore

(SG) Singapore Deputy PM: No strong case to bancryptocurrency, closely studying cryptocurrency

North America

US equity markets ended lower: Dow -4.6%, S&P500 -4.1%, Nasdaq -3.8%, Russell 2000-3.6%
S&P500 Financials -5%, Industrial -4.5%

Micron [MU]: Gained over 2% in the afterhours: Raises Q2 $2.70-2.75 v $2.57e, Rev $7.20-7.35B v $7.02Be (prior $2.51-2.65, Rev$6.80-7.20B)

(US) White House: Pres Trump's focus is on long-term economic fundamentals, which remain exceptionally strong

(US) Fed's Kashkari (dove, non-voter): Friday's job report last week showed hint wages could be rising; Dollar could create inflationary pressures - TV interview

(US) Jerome Powell formally sworn in as the new Fed Chair

(US) Congressional source: Debt ceiling is unlikely to be added as a rider to the stopgap spending bill; The House is meeting tonight to discuss a stopgap spending bill that will keep the govt funded into March – press

(US) US House expected to vote on Tuesday on short-term measure to fund government through March 23rd and avert shutdown - financial press
Looking Ahead: US weekly API Crude OilInventories due to be released

Europe

(EU) ECB's Draghi: euro area economy is expanding robustly with stronger growth rates than previously anticipated and significantly above potential; We cannot yet declare victory on inflation front; Also, new headwinds have arisen from the recent volatility in the exchange rate, whose implications for the medium-term outlook for price stability require close monitoring.- comments to EU Parliament

(UK) Brexit Sec Davis: our teams will work intensively to agree on Brexit implementation period by March

(UK) Prime Min May: the UK and EU have discussed agreement on future trade as soon as possible, working towards Oct timetable

(UK) JAN BRC SALES LFL Y/Y:0.6% V 0.7%E

(DE) Germany coalition govt talks extended for a second time; talks said to be continuing with an eye to conclude negotiations on Tues - Germany press

(DE) Germany Labor Union IG Metall: Agreed to labor deal which provides for a 4.3% pay increase for workers that stretches over a 27 month period

(UK) Telegraph published leaked EU rules that it could be forced to accept during Brexit, speculating it could trigger new disagreements in Cabinet who have said they will not accept such rules

Levels as of 01:00ET

Nikkei225 -4.7%, Hang Seng -4.1%; Shanghai Composite -2.7%; ASX200 -3.2%, Kospi -1.5%

Equity Futures: S&P500 -0.5%; Nasdaq100 +0.1%,Dax -1.3%; FTSE100 -1.0%

EUR 1.2388-1.2351; JPY 109.30-108.45; AUD 0.7892-0.7835;NZD 0.7302-0.7257

Apr Gold +0.7% at $1,345/oz; Mar Crude Oil -1.0%at $63.52/brl; Mar Copper -0.2% at $3.18/lb

For the 24 hours to 23:00 GMT, the AUD declined 0.5% against the USD and closed at 0.7883.

LME Copper prices declined 0.2% or $16.0/MT to $7050.0/MT. Aluminium prices declined 1.2% or $26.0/MT to $2202.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7862, with the AUD trading 0.27% lower against the USD from yesterday's close, after data showed that Australia unexpectedly posted a huge deficit in December.

Earlier today, the Reserve Bank of Australia (RBA), at its February monetary policy meeting, opted to keep the official cash rate at record low of 1.50%, citing continuing concerns about weak household consumption. In its post-meeting statement, the central bank indicated that while business conditions and investment were improving in the economy, household consumption remained a source of uncertainty.

On the economic front, Australia surprisingly posted a seasonally adjusted trade deficit of A$1358.0 million in December, amid a surge in imports and confounding market expectations for a surplus of A$200.0 million. The nation had registered a revised surplus of A$36.0 million in the prior month. Moreover, the nation's seasonally adjusted retail sales retreated 0.5% on a monthly basis in December, exceeding market expectations for a fall of 0.2%. Retail sales had advanced 1.2% in the previous month.

The pair is expected to find support at 0.7825, and a fall through could take it to the next support level of 0.7787. The pair is expected to find its first resistance at 0.7927, and a rise through could take it to the next resistance level of 0.7991.

Going ahead, traders would eye the release of Australia's AiG performance of construction index for January, slated to release overnight.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR declined 0.66% against the USD and closed at 1.2378, after the European Central Bank (ECB) President warned of recent volatility in the Euro.

The ECB Chief, Mario Draghi, cautioned that recent surge in the Euro could risk derailing the inflation progress in the medium-term and emphasised that the central bank would remain patient and persistent in its efforts until inflationary pressures build up sustainably. Nevertheless, he expressed confidence that the robust economic rebound across the common currency region would push inflation towards the central bank's 2.0% goal.

On the macro front, the Euro-zone's final Markit services PMI was revised higher to a level of 58.0 in January, expanding at its quickest pace in nearly 11 years. The preliminary figures had indicated a rise to a level of 57.6, compared to a level of 56.6 in the previous month.

On the other hand, the region's Sentix investor confidence index unexpectedly dropped to a level of 31.9 in February, defying markets expectations for a rise to a level of 33.2. The index had registered a reading of 32.9 in the previous month. Further, the region's seasonally adjusted retail sales retreated 1.1% on a monthly basis in December, more than market anticipation for a fall of 1.0% and compared to a revised gain of 2.0% in the prior month.

Separately, activity in Germany's services sector climbed more than initially estimated to a level of 57.3 in January, accelerating by the most in nearly 7 years. In the prior month, the PMI had registered a reading of 55.8, while the flash print had indicated an advance to a level of 57.0.

Meanwhile, German Chancellor, Angela Merkel's conservatives and the Social Democrats (SPD) failed to conclude coalition negotiations yesterday.

Macroeconomic data released in the US indicated that the ISM non-manufacturing PMI climbed more-than-anticipated to a level of 59.9 in January, jumping to its highest reading since August 2005, driven by robust growth in new orders. The PMI had registered a revised reading of 56.0 in the previous month, while markets were anticipating for a rise to a level of 56.7.

Meanwhile, the nation's final Markit services PMI dropped to a level of 53.3 in January, confirming the preliminary figures. In the prior month, the PMI had registered a reading of 53.7.

In the Asian session, at GMT0400, the pair is trading at 1.2373, with the EUR trading a tad lower against the USD from yesterday's close.

The pair is expected to find support at 1.2327, and a fall through could take it to the next support level of 1.2281. The pair is expected to find its first resistance at 1.2447, and a rise through could take it to the next resistance level of 1.2521.

Going ahead, Germany's factory orders for December, scheduled to release in a few hours, will be on investors' radar. Moreover, the US trade balance and JOLTs job openings, both for December, slated to release later in the day, will pique significant amount of investor attention.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 1.08% against the USD and closed at 1.3965, following dismal UK services sector report.

Data showed that Britain's Markit services PMI declined more-than-anticipated to a level of 53.0 in January, expanding at its weakest pace since September 2016, thus further muddying the growth picture of an economy increasingly bogged down by Brexit worries. The PMI had recorded a level of 54.2 in the prior month, while market participants had envisaged for a fall to a level of 54.1.

In the Asian session, at GMT0400, the pair is trading at 1.3964, with the GBP trading slightly lower against the USD from yesterday's close.

Overnight data revealed that UK's BRC retail sales across all sectors advanced 0.6% on an annual basis in January, compared to a similar rise in the previous month, while markets had anticipated for a rise of 0.7%.

The pair is expected to find support at 1.3884, and a fall through could take it to the next support level of 1.3805. The pair is expected to find its first resistance at 1.4097, and a rise through could take it to the next resistance level of 1.4231.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD declined 0.69% against the JPY and closed at 109.17.

In the Asian session, at GMT0400, the pair is trading at 108.63, with the USD trading 0.49% lower against the JPY from yesterday’s close.

The pair is expected to find support at 108.03, and a fall through could take it to the next support level of 107.44. The pair is expected to find its first resistance at 109.74, and a rise through could take it to the next resistance level of 110.86.

Moving ahead, market participants would keep a close watch on Japan’s flash leading economic and coincident indices for December, scheduled to release tomorrow.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.14% against the CHF and closed at 0.9317.

On the data front, Switzerland’s total sight deposits nudged down to a level of CHF574.7 billion in the week ended 02 February, after recording a level of CHF575.0 billion in the previous week.

In the Asian session, at GMT0400, the pair is trading at 0.9309, with the USD trading 0.09% lower against the CHF from yesterday’s close.

The pair is expected to find support at 0.9272, and a fall through could take it to the next support level of 0.9236. The pair is expected to find its first resistance at 0.9361, and a rise through could take it to the next resistance level of 0.9414.

The currency pair is trading below its 20 Hr moving average and showing convergence with its 50 Hr moving average.

For the 24 hours to 23:00 GMT, the USD rose 0.97% against the CAD and closed at 1.2535.

In the Asian session, at GMT0400, the pair is trading at 1.2541, with the USD trading slightly higher against the CAD from yesterday’s close.

The pair is expected to find support at 1.2438, and a fall through could take it to the next support level of 1.2334. The pair is expected to find its first resistance at 1.2605, and a rise through could take it to the next resistance level of 1.2668.

Ahead in the day, investors would await the release of Canada’s international merchandise trade data for December as well as the Ivey-PMI for January.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

Key Highlights

• The British Pound started a downside move after trading as high as 1.4345 against the US Dollar.
• There was a break below a key bullish trend line with support at 1.4130 on the 4-hours chart of GBP/USD.
• Two important supports on the downside 1.3950 and 1.3920 hold a lot of significance in the short term.
• The UK British Retail Consortium (BRC) Like-For-Like Retail Sales rose 0.6% in Jan 2018, similar to the forecast.

GBPUSD Technical Analysis

There were decent bullish moves in British Pound above 1.4200 this past week against the US Dollar. Later, the GBP/USD pair started a downside correction and is currently testing the 1.3950 support region.

Looking at the 4-hours chart of GBP/USD, the pair recently failed to move above 1.4280 and a bearish trend line with current resistance at 1.4210. It started a downside move and broke a key bullish trend line with support at 1.4130.

It sparked further losses and the pair declined below the 61.8% Fib retracement level of the last wave from the 1.3979 low to 1.4278 high. It seems like the pair could decline further towards 1.3940-50 support area.

The mentioned 1.3950 zone is a major support, and therefore a break below the stated 1.3950 level could push the pair towards the next key support at 1.3920. Further below 1.3920, the pair may perhaps move back in a bearish zone, with supports at 1.3800 and 1.3750.

On the upside, an initial resistance is around the 1.4100 level. Above 1.4100, the bearish trend line with current resistance at 1.4210 might prevent upsides.

US Services PMI and Dollar’s Recovery

Recently, the US saw the release of the Services Purchasing Managers Index (PMI) for Jan 2018 by Markit Economics. The forecast was slated for no change in the PMI from 53.3 in Jan 2018.

The actual result was in line with the forecast as there was no change in the PMI in Jan 2018 from 53.3.

Broadly, the US Dollar is slowly recovering as EUR/USD moved down recently and traded below 1.2400. However, the greenback is still struggling to break a major resistance area at 110.20-110.40 versus the Japanese Yen (as discussed in the last USD/JPY analysis), and it declined below 109.50.