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The euro has posted slight gains in the Wednesday session, in what continues to be an uneventful week f0r EUR/USD. Currently, the pair is trading at 1.2451, up 0.39% on the day. On the release front, German Retail Sales plunged 1.9%, much weaker than the estimate of -0.3%. This marked the strongest decline since June 2015. On the inflation front, Eurozone CPI Flash Estimate, ticked lower to 1.3%, the lowest level since July 2017. In the US, there are a host of key events. ADP Nonfarm Employment Change is expected to slow to 186 thousand. The Federal Reserve will release a monetary policy statement, with the markets expecting the benchmark rate to remain unchanged at a range between 1.25%-1.50%. On Thursday, German and the eurozone will release Manufacturing PMIs, while the US publishes unemployment claims and the ISM Manufacturing PMI.

Inflation levels in the eurozone pointed upwards in 2017, but softened in January. Eurozone CPI Flash Estimate came in at 1.3%, as inflation remains well below the ECB target of around 2 percent. Lower inflation gives the ECB some breathing room regarding its stimulus program (QE), which is scheduled to terminate in September. A stronger eurozone economy has raised speculation that the ECB could wind up QE and shift to normative policy, and perhaps even raise interest rates. However, ECB policy members have been cautious, trying to keep in check any market enthusiasm about a major change in policy. Last week, ECB President Mario Draghi went as far as saying that QE could be extended or increased if necessary.

All eyes are on the Federal Reserve, which will make a rate announcement on Wednesday, the final one under Janet Yellen’s watch. The tone of the rate statement could affect investor sentiment and have an impact on gold prices. It’s a virtual certainty that the Fed will leaves rates unchanged this time around, although it’s likely that the Fed will raise rates by a quarter-point at the March meeting. Yellen will make way for Jerome Powell, who takes over as chair in early February. Powell is expected to hold the course on monetary policy, which was marked by small, incremental interest rates in order to keep the robust US economy from overheating.

Notes/Observations

German Jan Unemployment Rate hits fresh post-unification low of 5.4%; Euro Zone matches Dec 2008 lows of 8.7%

European inflation data mixed (France, Euro Zone beat, Spain miss;

German Dec Retail Sales miss expectations

Trump’s State of the Union touched on many issues but was short on details on his policy proposals.

Fed is expected to send an upbeat message in its statement today as market based inflation expectations and the growth outlook have improved since the last meeting

Asia:

Australia Q4 CPI Q/Q: 0.6% v 0.7%e; Y/Y: 1.9% v 2.0%e v 1.8% prior; Trimmed

China Jan Govt Official Manufacturing PMI at a 8-month low (51.3 v 51.6e)

China PBoC skipped its OMO operation for the 5th straight session citing appropriate and stable liquidity in banking system

Bank of Japan (BOJ) Summary of Opinions from Jan 22-23rd meeting noted that it must continue powerful monetary easing as inflation remained weak. Still had a long way to go until 2% inflation target is reached. If cut in BOJ super long JGB buying gave unintended signal on monetary policy, BOJ must correct that

Bank of Japan (BoJ) Gov Kuroda: taking time to change Japan deflationary mindset; will persistently continue easing for price goal. Reiterated high chance of meeting 2% inflation target around FY2019.

BOJ increased its purchases in 3-5 year JGBs by ¥30B to ¥33)B (1st increase since July)

Europe:

BOE Gov Carney: UK economy's outperformance versus BOE's Aug outlook is because of a stronger world economy and looser fiscal stance than expected. Inflation pass through due to the exchange rate shock had further to go and saw inflation remaining above 2% target in near future

UK PM May: leaked Brexit analysis were preliminary, selective and not signed off by ministers (reply to Unreleased, internal UK govt Brexit analysis: UK would be worse off outside the EU under every scenario modeled

ECB’s Weidmann (Germany): German surplus will shrink as investment rises. Reiterates view that cheap oil and loose monetary policy helped to explain German current account surplus

Americas:

US President Trump State of the Union Address: Will work to fix bad trade deals and negotiate new ones; Will protect American workers and intellectual property through strong enforcement of our trade rules. Wants Congress to produce legislation that generates at least $1.5T for new infrastructure investment

Treasury Sec Mnuchin: strong dollar is in the long-term interests of the US; supported free FX markets with no intervention

Energy:

Weekly API Oil Inventories: Crude: +3.2M v +4.8M prior

Economic Data:

(DE) Germany Dec Retail Sales M/M: -1.9% v -0.4%e; Y/Y: -1.9% v +2.8%e

(CH) Swiss Dec UBS Consumption Indicator: 1.69 v 1.73 prior

(DK) Denmark Dec Gross Unemployment Rate: 4.3% v 4.3%e; Unemployment Rate (Seasonally Adj): 3.3% v 3.4%e

(TR) Turkey Dec Trade Balance: -$9.2B v -$9.6Be

02:30 (TH) Thailand Dec Current Account: $3.1Be v $5.3B prior; Overall Balance of Payments (BOP): No est v $2.3B prior; Trade Balance: No est v $3.3B prior; Exports Y/Y: No est v 12.3% prior; Imports Y/Y: No est v 11.9% prior

(FR) France Jan Preliminary CPI M/M: -0.1% v -0.3%e; Y/Y: 1.4% v 1.2%e

(FR) France Jan CPI EU Harmonized M/M: -0.1% v -0.5%e; Y/Y: 1.5% v 1.1%e

(FR) France Dec PPI M/M: 0.0 v 1.5% prior; Y/Y: 1.7% v 2.6% prior- 03:00 (TW) Taiwan Q4 Preliminary GDP Y/Y: % v 2.5%e; Overall annual 2017 GDP: % v 2.7%e

(ES) Spain Jan Preliminary CPI M/M: -1.1% v -1.0%e; Y/Y: 0.5% v 0.9%e

(ES) Spain Jan CPI EU Harmonized M/M: -1.5% v -1.4%e; Y/Y: 0.7% v 0.8%e

(HU) Hungary Dec PPI M/M: 0.0% v 1.0% prior; Y/Y: 3.9% v 4.5% prior

(DE) Germany Jan Unemployment Change: -25K v -17Ke; Unemployment Claims Rate: 5.4% v 5.4%e record low)

(IT) Italy Dec Preliminary Unemployment Rate: 10.8% v 10.9%e (lowest since Aug 2012)

(CH) Swiss Jan Credit Suisse Survey Expectations: 34.5 v 52.0 prior

(PT) Portugal Preliminary Jan CPI Y/Y: M/M: -0.1% v 0.0% prior; Y/Y: 1.1% v 1.5% prior

(PT) Portugal Preliminary Jan CPI EU Harmonized M/M: -1.2% v -0.2% prior; Y/Y: 1.1% v 1.6% prior

(EU) Euro Zone Jan Advance CPI Estimate Y/Y: 1.3% v 1.2%e; CPI Core Y/Y: 1.0% v 1.0%e

(EU) Euro Zone Dec Unemployment Rate: 8.7% v 8.7%e (matches lowest reading since Dec 2008)

Fixed Income Issuance:

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

(SE) Sweden sold SEK5.0B in 3-month bills; Avg Yield: -0.7221% v -0.7251% prior; bid-to-cover: 3.17x v 2.45x prior

(NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 1.75% Feb 2027 bonds; Avg Yield: 1.81% v 1.52% prior; Bid-to-cover: 2.48x v 2.00x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 +0.1% at 396.6, FTSE +0.1% at 7592, DAX +0.3% at 13235, CAC-40 +0.2% at 5483 , IBEX-35 +0.2% at 10452, FTSE MIB flat at 23874 , SMI flat at 9433, S&P 500 Futures +0.3%]

Market Focal Points/Key Themes:

European Indices trade mostly higher rebounding from steep falls yesterday on the back of upbeat earnings and a small retreat in bond yields.

Notable earners this morning included Siemens which reported stronger profits, although Revenue slightly missed forecasts; Infineon slightly missed forecasts and lowered guidance largely on the back of the stronger Euro, while in the UK Capita trades sharply lower after a profit warning, and suspension of dividend along with the proposal of a rights issue. In Sweden Electrolux trades higher after earnings, while Ericsson trades sharply lower after worse than expected loss.

Looking ahead notable earners include Dow component Boeing, alongside Eli Lily, Textron and Anthem among others.

Movers

Consumer Discretionary [H&M [HMB.SE] -7.4% (Earnings), Capita [CPI.UK] -45% (Profit warning, suspends dividend)]

Industrials [Siemens [SIE.DE] +1.2% (Earnings), Volvo [VOLVB.SE] +3.6% (Earnings), Electrolux [ELUXB.SE] +6.6% (Earnings)

Financials [ Julius Baer [BAER.CH] -2.5% (Earnings), Santander [SAN.ES]+0.6% (Earnings), SEBA [SEBA.SE] +2.6% (Earnings), ING [INGA.NL] -1.8% (Earnings)]

Ericsson [Ericsson [ERICB.SE] -9% (Earnings)]

Materials [ArcelorMittal [MT.NL]-1.4% (Earnings)]

Technology [ Infineon [IFX.DE] -1.1% (Earnings)]

Speakers

Sweden Central Bank (Riksbank) Gov Ingves: Now on target with inflation and inflationary expectations are back

European Commission officials said to have rejected the City of London’s proposal to strike a post-Brexit free trade deal on financial services

Czech Central Bank: Financial sector maintains high resilience to adverse shocks. Ready to raise counter-cyclical capital buffer further in case of continued fast credit growth, bank vulnerability and higher risks of real estate financing

South Africa ANC party said to discuss change of power with Zuma this week

BoJ Iwata: Not at the point where can change interest rates soon. there was a misunderstanding in the market that BoJ would exit easy policy soon. The 2% inflation target remained far away so current YCC was appropriate; no need to change YCC for some time. Important for BOJ to be ready to change yield control if economy, price and financial conditions change

Thailand Central Bank official Nakornthab: Could raise 2018 GDP growth forecast from 3.9% due to improving exports and govt spending

Currencies

USD remained on the defensive against the major pairs as the greenback was poised to have its worst monthly performance in two years

EUR/USD edged back towards the 1.25 area as participants discounted recent inflation data out of Europe and seemed to believe that ECB would tighten policy aggressively down the road. Dealers noted that 1.25 level could be tough to breech in the short-term

The GBP was slightly lower in the session. Cable weighed down by report the EU Commission officials had rejected the City of London’s proposal to strike a post-Brexit free trade deal on financial services. Pair near 1-week lows at 1.4135

USD/JPY little changed at 108.75 just ahead of the NY morning.

Fixed Income

Bund Futures trades up 30 ticks at 159.14 as Euro Zone inflation slows in January. Continued upside targets 160.50, while a move lower targets the158.75 low.

Gilt futures trade at 122.48 up 13 ticks, but still near the lows for the month of January. Support continues to stand at 122.25 then 121.75, with upside resistance at 123.75 then 124.33.

Wednesday’s liquidity report showed Tuesday’s excess liquidity fell to €1.869T from €1.885T prior. Use of the marginal lending facility fell to €56M from €65M prior.

Corporate issuance saw 1 issuer raise $0.4B in the primary market.

Looking Ahead

05:30 (EU) ECB allotment in 3-month LTRO

05:30 (DE) Germany to sell €4.0B in 2023 BOBL

06:00 (BR) Brazil Dec National Unemployment Rate: 11.9%e v 12.0% prior

06:00 (IL) Israel Dec Unemployment Rate: No est v 4.3% prior

06:00 (RU) Russia to sell combined RUB30B in 2024 and 2033 OFZ bonds

06:45 (US) Daily Libor Fixing

07:00 (IN) India FY16/17 Annual GDP Estimate Y/Y: No est v 8.0% prior

07:00 (IN) India Dec Eight Infrastructure (Key) Industries: No est v 6.8% prior

07:00 (CL) Chile Dec Total Copper Production: No est v 505.7K prior

07:00 (CL) Chile Dec Industrial Production Y/Y: 1.0%e v 2.3% prior; Manufacturing Production Y/Y: 0.5%e v 1.9% prior

07:00 (CL) Chile Dec Unemployment Rate: 6.3%e v 6.5% prior

07:00 (ZA) South Africa Dec Trade Balance (ZAR): 10.1Be v 13.0B prior

07:00 (US) MBA Mortgage Applications w/e Jan 26th: No est v 4.5% prior

07:30 (BR) Brazil Dec Primary Budget Balance (BRL): -30.8Be v -0.9B prior; Nominal Budget Balance: -59.6Be v -30.0B prior; Net Debt to GDP: 51.6%e v 51.1% prior

08:05 (UK) Baltic Dry Bulk Index

08:15 (US) Jan ADP Employment Change: +185Ke v +250K prior

08:30 (US) Q4 Employment Cost Index (ECI): 0.6%e v 0.7% prior

08:30 (CA) Canada Nov GDP M/M: 0.4%e v 0.0% prior; Y/Y: 3.4%e v 3.4% prior

08:30 (CA) Canada Dec Industrial Product Price M/M: 0.0%e v 1.4% prior; Raw Materials Price Index M/M: -2.5%e v +5.5% prior

08:30 (US) Treasury quarterly refunding announcement for 3-year, 10-year and 30-year bonds

09:45 (US) Jan Chicago Purchasing Manager: 64.0e v 67.6 prior

10:00 (US) Dec Pending Home Sales M/M: 0.5%e v 0.2% prior; Y/Y: 1.7%e v 0.6% prior

10:00 (CO) Colombia Dec National Unemployment Rate: No est v 8.4% prior; Urban Unemployment Rate: 10.3%e v 9.6% prior

10:00 (MX) Mexico Dec Net Outstanding Loans (MXN): No est v 3.991T prior

10:30 (US) Weekly DOE Crude Oil Inventories

14:00 (US) FOMC Interest Rate Decision: Expected to leave Interest Rates unchanged

14:00 (AR) Argentina Dec Industrial Production Y/Y: No est v 3.5% prior

16:00 (NZ) New Zealand Jan ANZ Job Advertisements M/M: No est v -0.3% prior

17:00 (AU) Australia Jan CBA Australia PMI Manufacturing: No est v 57.1 prior

17:30 (AU) Australia Jan AiG Manufacturing PMI: No est v 56.2 prior

18:00 (AU) Australia Jan CoreLogic House Px M/M: No est v -0.4% prior

18:00 (KR) South Korea Jan CPI M/M: 0.6%e v 0.3% prior; Y/Y: 1.3%e v 1.5% prior

19:00 (KR) South Korea Jan Trade Balance: $4.0Be v $5.8B prior

Spot Gold bounced on Wednesday, driven by weaker dollar, after four-day pullback from $1366 found footstep at $1334 (Fibo 76.4% of $1324/$1366 upleg). Near-term bears are taking a breather and awaiting the outcome of Fed’s policy meeting, due later today, looking for signals of next steps of the US central bank in the near future. Fed chair Janet Yellen is leading her last policy meeting as head of the central bank before transferring the chairmanship to her successor Jerome Powell. Gold’s overall picture remains bullish and keeps focus at the upside with recent pullback seen as positioning for fresh upside action. Close above 10 SMA is needed to generate fresh bullish signal and confirm that probes below were minor threat to underlying bulls. Extension above $1346 (Fibo 38.2% of $1366/$1334 pullback) will be next bullish signal with confirmation of reversal seen on extension above $1353 (Fibo 61.8%). Bearish scenario sees increased risk for retesting $1324 pivot (18 Jan trough) on loss of $1334 handle.

Res: 1346, 1350, 1353, 1357
Sup: 1340, 1334, 1331, 1328

WTI oil is holding within narrow consolidation after posting new one-week low at $63.66 on Wednesday. Near-term bias is negative following two-day fall from $66.64 high, with bearish signal generated on Tuesday's close below 10SMA ($64.65). Fresh weakness on Wednesday cracked next important support at $63.97 (rising 20SMA) and sustained break here would expose pivot at $62.50 (Fibo 38.2% of $55.81/$66.64 upleg/rising daily Kijun-sen). Negative near-term sentiment is boosted by fears in the markets about increase in US oil supplies as API report, released late Tuesday, showed US oil inventories rose by 3.2 million barrels, coming well above forecasted build of 0.1 million barrels. Focus is on EIA weekly crude stocks data, due later today, with forecast for build of 0.12 million barrels after ten straight weeks of draws in US crude stocks. Stronger than expected build in crude inventories would further depress oil price, while another draw in weekly crude stocks would ease existing downside pressure. Bearish scenario requires close below $62.50 Fibo support to signal deeper correction, while firmer bullish signal could be expected on return and close above broken 10SMA.

Res: 64.23, 64.65, 65.54, 66.64
Sup: 63.66, 62.83, 62.50, 61.79

Crude oil is slightly declining, though maintained above 64. Strong support is given at 60.93 (05/01/2018 low). Expected to keep increasing as demand remains strong.

In the long-term, crude oil has recovered after its sharp decline last year. However, we consider that further weakness is very likely. For the time being the pair lies in an upside trend since June 2017. Support lies at 42.20 (16/11/2016) while resistance point is located at 77.83 (20/11/2014). Crude oil is trading largely above its 200 DMA.

Silver continues its decline but remains above 17.20. Hourly support is at 16.75. The short-term technical structure remains positive as long as silver remains above 17. Hourly resistance lies at 18.21 (08/09/2017 high).

In the long-term, the trend remains negative/ sideways. Further downside is very likely. The pair is trading slightly above its 200 DMA. Resistance is located at 21.58 (10/07/2014 high). Strong support can be found at 11.75 (20/04/2009).

Gold is declining after strong increase initiated in 12/12/2017. Hourly support is at 1'331 (23/01/2018 low) while additional support is given at 1'323 (12/01/2018 low). Expected to show short-term upside moves.

In the long-term, the technical structure suggests that there is a growing upside momentum. A break of 1'392 (17/03/2014) is required to confirm it. A major support can be found at 1'045 (05/02/2010 low).

Bitcoin is trading lower. Hourly support is at 9'185 (17/01/2018 low) while resistance is located at 12'130 (18/01/2018 high). The short-term technical structure suggests further decline.

In the long-term, the digital currency has had an exponential growth but also presented important downturns. There is decent likelihood that the currency could stabilize between 9'000 - 12'000 in 2018. Bitcoin is trading far above its 200 DMA (5K+ gap).

EUR/CHF is trading mixed. Hourly resistance given at 1.1685 (26/01/2018 high) is getting distanced. Expected to show further short-term downside moves.

In the longer term, the technical structure has reversed. Strong resistance is given at 1.20 (level before the unpeg). Yet, the ECB's slowing QE program is likely to cause buying pressures on the euro, which should weigh in favour of the EUR/CHF. Supports can be found at 1.0184 (28/01/2015 low) and 1.0082 (27/01/2015 low).

EUR/GBP is trading lower but is slowly rising back. Hourly support is given at 0.8687 (25/01/2018 low). The technical structure suggests further short-term strength.

In the long-term, the pair has largely recovered from lows in 2015. The technical structure suggests an upside momentum. The pair is trading below the range of its 200 DMA. Strong resistance can be found at 0.9500 (psychological level).