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The EUR/USD exchange rate remained above the 1.2400 level, following the Fed's interest rate decision and monetary policy statement. The pair fell 23 pips or 0.18% to the 1.2395 mark, but recovered initially.

The US Federal Reserve announced the decision to keep interest rates at 1.50% on Wednsday, but stated that consumer inflation is likely to accelerate this year, fuelling expectations that borrowing costs would keep climbing under the new Central Bank's Chief Jerome Powell. Citing strong increases in household spending, capital investment and employment, the Fed anticipated the country's economy to expand at a modest pace and the job market to remain solid in 2018. The Bank is expected to hike rates three times more this year.

EUR/CHF stabilizes at around 1.1540 as USD consolidates

EUR/CHF came under renewed selling pressure yesterday in the late afternoon as it slid from 1.1637 to 1.1554 before consolidating at around 1.1570. It has been a bad start into the year for the Swiss National Bank as, since mid-January, the Swiss franc has been strengthening against all G10 currency - with the exception of the pound sterling. The Franc rose 3% against the greenback, 2.25% against the Aussie, 2.20% against the yen and, most importantly, 1.55% against the single currency.

Against the backdrop of rising global interest rates, especially in the US and EU, this is somewhat surprising as Swiss rates have rose only moderately compared to them. The 5-year interest rate differential between Germany and Switzerland jumped to 46bps, while the 10-year spread returned to 25bps. However, as usual with the Swiss franc, fundamentals are not the main drivers, answers may lie somewhere else.

First, the current backslash against the greenback - the USD TWI (trade-weighted index) fell to its lowest level since December 2014 – has triggered renewed interest for safe-haven assets such as the CHF, JPY and obviously Gold. Secondly, there have rumours about the eventuality of the SNB tightening its monetary policy. In our opinion, the SNB won’t move an inch before the ECB starts tightening, Thomas Jordan has absolutely no upside to do such a move as it would trigger a CHF rally and ruined several years of efforts.

Globally, we expect the USD to make its comeback within the next few weeks, which should release the pressure on the Swiss franc. Indeed, much of the EUR/CHF turmoil was the result the US dollar sell-off, rather than a EUR appreciation. EUR/USD has remained stable over the last seven days, while USD/CHF lost some ground.

Chinese Manufacturing PMI progresses, though weaker than expected

Chinese economy has proven itself robust last month. Showing signs of continuous progression in manufacturing production following Chinese New Year, Chinese January PMI was at 51.3, slightly weaker than December (51.6), essentially caused by Peking’s government initiative to reduce polluting industries (e.g. heavy and manufacturing industries) and reducing shadow banking across the country.

Chinese December 2017 Y/Y Exports and Imports of 10.90% (9.10% consensus) and 4.50% (13% consensus) respectively also confirm our view that Chinese strong economic growth in 2017 will certainly be slower in 2018, though more vigorous than expected. With a Q4 GDP Y/Y of 6.80% (6.80% – 6.90% range maintained since April 2017), we remain confident that China will maintain this pace for 2018 (around 6.70% – 6.80%). Other economic data such as December CPI Y/Y at 1.80%, December Retail Sales Y/Y at 9.40% remain conclusive for a good year in China in 2018

Currency pair EUR/USD

The EUR/USD challenged the short-term resistance trend line (red) but failed to break and made a new retest of the support trend line (blue). Price bounced at the support trend line, which could be part of a wave 2 (blue) pullback. A bullish breakout could start a bullish wave 3 (blue).

The EUR/USD seems to have completed a wave 2 (blue) correction and a bullish break above the resistance trend lines (red) could trigger a bullish breakout and momentum.

Currency pair GBP/USD

The GBP/USD uptrend is continuing higher and will soon retest the Fibonacci targets of waves 5.

The GBP/USD broke above the resistance trend line (dotted orange) which could be starting a bullish wave 3 (blue) momentum.

Currency pair USD/JPY

The USD/JPYis testing the larger resistance trend line (red) of the downtrend channel after price broke above the triangle pattern (dotted orange).

The USD/JPY is in a potential wave 3 (purple) if price manages to break above the resistance trend line (red).

Notes/Observations

European Jan Manufacturing PMI data mixed in session but overall continued to provide evidence of support the region’s recovery (Beats: France, Swiss, Norway, Czech; Misses: Germany, UK, Spain, Sweden, Poland; In-line: Euro-Zone, Russia )

Asia:

South Korea Jan CPI M/M: 0.4% v 0.7%e v 0.3% prior; Y/Y:1.0% v 1.3%e

China Jan Caixin Manufacturing PMI: 51.5 v 51.5 prior

(JP) Japan Jan Final Manufacturing PMI: 54.8 v 54.4 prelim (highest since Feb 2014)

Europe:

ECB’s Coeure (France): Currency war is always a losing proposition; reiterates view of expecting rates to really remain very low for extended period of time

European Banking Authority (EBA) released macroeconomic scenarios related to 2018 EU-wide stress test

EU said to be threatening sanctions to stop Britain undercutting the Europe’s economy after Brexit

Forza Italia party denies reports about Berlusconi's ill health

Italy’s 5-star leader said to have told investors he would be willing to govern with Forza Italia, PD in broad coalition (**Note: story later denied but would ask other parties to agree on policies, support his government

Americas:

FOMC held its Target Range steady between 1.25-1.50% (as expected) in an unanimous vote; Labor market had continued to strengthen; dropped language on expecting inflation to remain below 2% in near term

Canada Foreign Min Freeland: still cautiously optimistic about NAFTA talks; significant differences remain on NAFTA

Energy:

EIA report noted that US crude output rose above 10M bpd in Nov, a 47-year high

Economic Data:

(IN) India Jan Manufacturing PMI: 52.4 v 54.7 prior (6th month of expansion)

(PE) Peru Jan CPI M/M:0.1% v 0.2%e; Y/Y: 1.3% v 1.3%e

(IE) Ireland Jan Manufacturing PMI: 57.6 v 59.1 prior (moved off from record highs)

(RU) Russia Jan Manufacturing PMI: 52.1 v 52.1e (18th month of expansion)

(CH) Swiss Jan SECO Consumer Confidence: 5 v 2e (7-year high)

(UK) Jan Nationwide House Price Index M/M: 0.6% v 0.1%e; Y/Y: 3.2% v 2.5%e

(TR) Turkey Jan Manufacturing PMI: 55.5e

(TH) Thailand Jan CPI M/M: 0.1% v 0.1%e; Y/Y: 0.7% v 0.8%e; CPI Core Y/Y: 0.6% v 0.7%e

(SE) Sweden Jan Manufacturing PMI: 57.0 v 61.0e

(NL) Netherlands Jan Manufacturing PMI: 62.5 v 62.2 prior (53rd month of expansion and a record high)

(NO) Norway Jan Manufacturing PMI: 59.0 v 56.6e

(PL) Poland Jan Manufacturing PMI: 54.6 v 55.3e (39th month of expansion)

(HU) Hungary Jan Manufacturing PMI: 60.9 v 60.5 prior (26th month of expansion)

(ES) Spain Jan Manufacturing PMI: 55.2 v 55.6e (51st month of expansion)

(CH) Swiss Dec Real Retail Sales Y/Y: 0.6% v 0.3% prior

(CZ) Czech Jan Manufacturing PMI: 59.8 v 59.0e (18th month of expansion)

(CH) Swiss Jan Manufacturing PMI: 65.3 v 64.2e (25th month without a contraction)

(HK) Hong Kong Dec Retail Sales Value Y/Y: 5.8% v 6.7%e; Retail Sales Volume Y/Y: 4.3% v 6.0%e

(IT) Italy Jan Manufacturing PMI: 59.0 v 57.4e (17th month of expansion)

(FR) France Jan Final Manufacturing PMI: 58.4 v 58.1e (Confirmed 16th month of expansion)

(DE) Germany Jan Final Manufacturing PMI: 61.1 v 61.2e (Confirmed 38th month of expansion)

(EU) Euro Zone Jan Final Manufacturing PMI: 59.6 v 59.6e (confirmed 54th month of growth)

(GR) Greece Jan Manufacturing PMI: 55.2 v 53.1 prior (8th month of expansion and highest since Oct 2007)

(ZA) South Africa Jan Manufacturing PMI: 49.9 v 47.4e (7th month of contraction)

(IS) Iceland Q4 Unemployment Rate: 2.6% v 2.2% prior

(UK) Jan Manufacturing PMI: 55.3 v 56.5e (18th month of expansion but lowest since Jun)

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €3.295B vs. €3.0-4.0B indicated range in 2021, 2025 and 2041 Bonds

Sold €1.19B in 0.05% Jan 2021 bond; Avg yield: -0.021% v -0.005% prior, Bid-to-cover: 2.57x v 2.28x prior

Sold€1.21B in 2.15% Oct 2025 bond; Avg Yield: 1.039% v 1.461% prior; Bid-to-cover: 2.08x v 2.62x prior

Sold €895M in 4.70% July 2041 bonds; Avg Yield: 2.262% v 2.427% prior; Bid-to-cover: 1.65x v 1.61x prior

(ES) Spain Debt Agency (Tesoro) sold €775M vs. €0.5-1.0B indicated range in 0.65% Nov I/L 2027 bonds; Real Yield:0.000% v 0.241% prior; Bid-to-cover: 2.69x v 2.54x prior

(FR) France Debt Agency (AFT)sold total €8.874B vs. €8.0-9.0B indicated range in 2028, 2034 and 2066 Oats

Sold €3.621B in 0.75% 2028 Oat; Avg Yield: 0.98% v 0.79% prior; Bid-to-cover: 2.02x v 1.44x prior

Sold €3.31B in new 1.25% 2034 Oat; Avg Yield: 1.33%; Bid-to-cover: 1.34x prior (no history)

Sold €1.943B in 1.75% 2066 Oat; Avg Yield: 1.91% v 2.14% prior, Bid-to-cover: 1.24x v 1.99x prior

(SE) Sweden sold SEK500M in 0.125% I/L 2026 bond; Avg Yield: -1.1921% v -1.2792% prior; Bid-to-cover: 2.06x v 2.33x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.4% at 397.1, FTSE +0.1% at 7540, DAX +0.4% at 13237, CAC-40 +0.5% at 5507 , IBEX-35 +0.5% at 10507, FTSE MIB +0.9% at 23717 , SMI +0.4% at 9376, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European Indices trade higher across the continent rebounding from weakness over the past few sessions tracking higher US futures and a stronger Nikkei 225 overnight. Earnings continued to be the dominant theme, with Daimler, Vodafone and Roche reporting underwhelming results, while Dassault Systems reported strong growth, with shares advancing more than 7%. Nokia advances after reporting a beat on the top and bottom line, and provided 2018 and 2020 outlooks. Novo Nordisk, Skanska, Unilever were among other notable names that reported. Looking ahead notable earners include AliBaba, Ralph Lauren, Cigna and Mastercard.

Movers

Consumer Discretionary [Unilever [UNA.NL] -0.6% (Earnings), Kesko [KESKOB.FI] +3% (Earnings)]

Industrials [Daimler [DAI.DE] -1.3% (Earnings), Dassault Systems [DSY.FR] +7.2% (Earnings)]

Telecom [Vodafone [VOD.UK] -1.6% (Q3 update), Nokia [NOKIA.FI] +6.7% (Earnings), TDC [TDC.DK] -10% (Earnings, acquisition)]

Healthcare [Novo Nordisk [NOVOB.DK] -5.2% (Earnings)]

Speakers

PM May: To push forward a global strategic relationship with China

EU's Dombrovskis: EU Commission was preparing for cliff-edge scenario for Brexit among other views. Saw Brexit transition being linked to the budget and noted that it would not be the Norway model for the UK

India Fin Min Jaitley Budget speech saw 2nd half FY2017/18 GDP growth between 7.2-7.5% (Oct-Mar period).He noted that the country was firmly on course to achieve growth of 8% plus this year. Forecasted FY19/20 GDP growth at 7.2% with fiscal deficit of 3.3%. The govt set FY19/20 Gross Market Borrowing at INR6.06T; Net borrowings at INR4.62T

Taiwan Central Bank Dec Minutes: Members concerned over US-Taiwan interest rate spread. 1 member believed that rate hike would add to TWD currency gains

Currencies

USD saw its gains from the Fed’s hawkish hold ebbed away during the European session. Dealers noted that the current course of Fed rate hike path is baked in. The greenback could find some room if the Minutes of yesterday’s Fed meeting reflected growing concern about them being behind the curve

EUR/USD back above the 1.24 level as European Jan Manufacturing PMI data continued to provide evidence of support the region’s recovery. The pair also aided by views from some analysts that Eurozone inflation data might have bottomed.

GBP higher by 0.5% at 1.4245. Some analysts noted some optimisim on Brexit talks. UBS analyst brought forward its forecast of next BOE rate hike to May but noted the forecast was conditional on a Brexit transitional agreement in March

USD/JPY above the 109.50 level with dealers attributing the USD rally in response to a hawkish-hold FOMC statement. The pair seemed to be locked in a 107-110 range for the time being

Fixed Income

Bund Futures trades down 40 ticks at 158.29 as the downward trend resumes. Continued upside targets 159.85, while a move lower targets the157.75 level.

Gilt futures trade at 121.57 down 37 ticks, as the 10-year yield hits the highest level since 2016. Support continues to stand at 121.25 then 120.75, with upside resistance at 122.75 then 123.25.

Thursday’s liquidity report showed Wednesday’s excess liquidity rose to €1.892T from €1.869T prior. Use of the marginal lending facility rose to €75M from €56M prior.

Corporate issuance saw 6 issuers raise $4.9B in the primary market.

Looking Ahead

(EU) ECB’s Praet (Belgium, chief economist)

(IT) Italy Jan Budget Balance: No est v €14.9B prior

(RO) Romania Jan International Reserves: No est v $37.1B prior

(RU) Russia Jan Sovereign Wealth Funds: Reserve Fund: No est v $0.0B prior; Wellbeing Fund: No est v $65.2B prior

06:00 (IE) Ireland Jan Live Registry Monthly Change: No est v -2.9K prior; Live Registry Level: No est v 241.3K prior

06:00 (BR) Brazil Dec Industrial Production M/M: 1.9%e v 0.2% prior; Y/Y: 3.3%e v 4.7% prior

06:00 (ZA) South Africa Dec Electricity Production Y/Y: No est v 1.7% prior; Electricity Consumption Y/Y: No est v 0.9% prior

06:45 (US) Daily Libor Fixing

07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to raise Repurchase Rate by 25bps to 0.75%

07:00 (CA) Canada Dec MLI Leading Indicator M/M: No est v 0.5% prior

07:00 (BR) Brazil Dec CNI Capacity Utilization: No est v 78.3% prior

(US) Jan Wards Domestic Vehicle Sales; Total Vehicle Sales

07:30 (US) Jan Challenger Job Cuts: No est v 32.4K prior; Y/Y: No est v -3.6% prior

08:00 (BR) Brazil Jan Manufacturing PMI: No est v 52.4 prior

08:00 (CZ) Czech Jan Budget Balance (CZK): No est v -6.2B prior

08:00 (RU) Russia Gold and Forex Reserve w/e Jan 26th: No est v $442.8B prior

08:00 (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: No est v -2.4% prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (US) Initial Jobless Claims: 235Ke v 233K prior; Continuing Claims: 1.93Me v 1.937M prior

08:30 (US) Q4 Preliminary Nonfarm Productivity: 0.7%e v 3.0% prior; Unit Labor Costs: +0.9%e v -0.2% prior

09:30 (CA) Canada Jan Manufacturing PMI: No est v 54.7 prior

09:45 (US) Jan Final Markit Manufacturing PMI: 55.5e v 55.5 prelim

10:00 (US) Dec Construction Spending M/M: 0.4%e v 0.8% prior

10:00 (US) Jan ISM Manufacturing: 58.6e v 59.3 prior (revise from 59.7); Prices Paid: 68.8e v 69.0 prior

10:00 (MX) Mexico Dec Total Remittances: $2.5Be v $2.3B prior

10:30 (MX) Mexico Jan Manufacturing PMI: No est v 51.7 prior

10:30 (US) Weekly EIA Natural Gas Inventories

12:00 (IT) Italy Jan New Car Registrations Y/Y: No est v -3.2% prior

12:00 (BR) Brazil Jan Trade Balance: $2.9Be v $5.0B prior

12:30 (UK) BOE’s Breazier in London

13:00 (MX) Mexico Jan IMEF Manufacturing Index: 52.0e v 51.7 prior; Non-Manufacturing Index: 51.9e v 52.0 prior

13:30 (AR) Argentina Jan Government Tax Revenues (ARS: 262.4B v 235.2B prior

16:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 2.50%

16:00 (NZ) New Zealand Jan ANZ Consumer Confidence: No est v 121.8 prior

The Australian dollar holds in red for the fourth straight day and extends pullback from new high at 0.8135 (26 Jan). Today's bearish acceleration broke below 10SMA (0.8044) and cracked next pivot at 0.80 zone (0.8010 - Fibo 38.2% of 0.7807/0.8135 upleg/0.80 – psychological support). Fresh weakness is generating bearish signal and showing strong threats for broader uptrend as close below 0.80 would signal deeper correction and larger bulls on hold for some time. Further easing would face support at 0.7975 (rising 20SMA) and could extend towards next key support at 0.7892 (Fibo 38.2% of entire 0.7500/0.8135, 11 Dec/26 Jan rally). Stronger dollar on hawkish Fed and south-heading indicators on daily chart support the notion. Conversely, return and close above 10SMA is needed to sideline rising bearish threats.

Res: 0.8044, 0.8067, 0.8100, 0.8135
Sup: 0.8000, 0.7975, 0.7936, 0.7892

The pair rallies on Thursday as dollar was inflated by hawkish stance from Fed, signaling stronger recovery from 2018 low at 108.28.

Fresh strength broke above three-day consolidation top and cracked important barriers at 109.50/57 (Fibo 38.2% of 111.48/108.28 bear-leg / falling 10SMA, generating bullish signal.

Close above here is needed to confirm and open barriers at 109.88 (Fibo 50%) and 110.25 (Fibo 61.8% of 111.48/108.28 downleg).

Daily RSI is heading north after reversing from oversold territory and showing space for further advance, with momentum building and underpinning the rally.

Alternatively, failure to clear 109.50/57 pivots and close below, would signal that bulls are losing traction and would keep the downside vulnerable.

Overall picture remains bearish and current rally is seen as correction and positioning for fresh downside.

Res: 109.88, 110.25, 110.58, 110.72
Sup: 109.50, 109.03, 108.50, 108.28

Cable holds firm bullish tone on Thursday and extends strong recovery rally of past two days from 30 Jan spike low at 1.3979.

Today's rally broke above 1.4258 (Fibo 76.4% of 1.4344/1.3979 pullback) opening way towards psychological 1.4300 barrier and key barrier at 1.4344 (post Brexit vote recovery high).

Eventual break here would open way for extension of recovery phase from 1.1930 (07 Oct 2016 post-Brexit fall low) towards projected levels at 1.4431 (Fibo 123.6%) and 1.4484 (Fibo 138.2% projection).

Rising 10 SMA / daily Tenkan-sen continue track the advance, offering solid supports at 1.4102/00 which guards key near-term support at 1.40 zone.

Near-term action is also underpinned by thick 4-hr cloud (spanned between 1.4157 and 1.4043).

Sterling showed impressive rally in January, rallying 5.2% for the month, in its biggest monthly rally since May 2009.

Res: 1.4286, 1.4344, 1.4400, 1.4431
Sup: 1.4232, 1.4200, 1.4157, 1.4135

The British pound has recovered upside momentum against the U.S dollar, following the Federal Reserve's decision to leave the U.S interest rate unchanged. The GBPUSD pair is now testing back towards the 1.4200 handle in early Thursday trading, after dropping to 1.4122 on Wednesday, after EU officials rejected the City of London's Brexit blueprint. Manufacturing data is now the focus of financial markets, as traders await the release of the UK Manufacturing PMI for January and the U.S ISM Manufacturing report.

The GBPUSD pair is likely to encounter further gains while trading above the 1.4200 level, key upside resistance is found at 1.4234 and 1.4284.

Should the GBPUSD pair struggle to gain traction above the 1.4200 handle, a decline back towards 1.4154 and 1.4122 seems likely.

The euro continues to trade in range-bound conditions against the U.S dollar, following the FOMC policy decision, with price-action currently searching for a directional bias between the 1.2385 and 1.2432 levels. The EURUSD pair is still well supported above the 1.2400 level in early Thursday trading, despite a better than expected U.S ADP Job Report and the Federal Reserve striking a positive tone in yesterday’s policy statement release. Moving into the European session, EURUSD traders await a clear range-break and a raft of January Manufacturing PMI data being released from across the eurozone.

The EURUSD pair remains strong bullish above the 1.2432 level, further upside towards 1.2470 and 1.2538 would then seem possible.

Should the EURUSD pair fall below the 1.2385 level, sellers will likely try to test towards the 1.2355 and 1.2280 support levels.

Bitcoin's price is down a quarter of a percent after Bloomberg broke the news about Bitfinex.

According to the report, the Commodities and Futures Trading Commission (CFTC) had subpoenaed the people behind Bitfinex. Bitfinex is one of the largest cryptocurrencies exchange in the world.

According to the CFTC, the people behind Bitfinex created a token called tether, which was pegged to the dollar. Each token represented one dollar. However, on close inspection, the company did not have the dollars it claimed to have.

On Wednesday, after Bloomberg published the report, the New York Times followed it up with an article that suggested Bitfinex was propping up the price of bitcoin. According to the report, the company artificially increased and decreased the price of bitcoin instead of letting the market set the price. If this is true, there are limited chances that the company will exist for long.

The implications of a Bitfinex failure would be severe to the cryptocurrency industry because of its size. Some have compared it to the Goldman Sachs of cryptocurrencies.

The concerns about Bitfinex will continue to cloud many cryptocurrencies and bitcoin in particular. Traders will wonder whether other exchanges could be compromised as well thus lead to a sell off. As shown below, in the past couple of days, the price of bitcoin has been in consolidation mode with the price not moving as much as it did before. It has also struggled to recover from last month's highs.