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The British pound has posted strong gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.4207, up 1.48% on the day. In economic news, the UK released key employment numbers. Wage growth remained unchanged at 2.5%, matching the forecast. Jobless claims climbed to 8.6 thousand, well above 2.3 thousand. There was no change to the unemployment rate, which held at 4.3%. This matched the estimate. In the US, Existing Home Sales disappointed, slowing to 5.57 million. This missed the forecast of 5.72 million. On Thursday, the US releases unemployment claims and New Home Sales.

The pound continues to impress, and is currently at its highest level since June 2016. GBP/USD has climbed 5.3% in January, as the US dollar has been battered by its major rivals. On Tuesday, the pair pushed above the symbolic 1.40 level, and with sentiment waning over the dollar, the pound rally could continue this week. The markets are keeping a close eye on Preliminary GDP for Q4, which will be released on Friday.

The US government shutdown turned out to be little more than a nuisance, with only one working day lost. On Monday, the Senate voted 266-150 to extend government funding until February 8. This stopgap measure will enable the government to provide services during that time, but the lawmakers will need to hammer out a longer-term agreement, as these short extensions are just band aid solutions. The Democrats held up a funding bill last week, in order to force the Republicans to the table over illegal immigration. The Republicans have promised to hold a vote on this issue, but many Democratic lawmakers remain skeptical that President Trump and the Republicans will deal in good faith over immigration.

US dollar technical support levels crumbled Wednesday in a rout on the dollar that's been building for weeks. The pound was the top performer while the US dollar lagged. New Zealand CPI missed estimates early in Asia-Pacific trade. A new USD trade has been posted to subscribers. Below is the Premium video, highlighting the reasons behind the trade and positioning ahead of Thursday's ECB press conference.

It's gone from bad to worse for USD as the combination of talk from Mnuchin, worries about trade and better prospects elsewhere undermine the currency. The dollar lost more than a full cent against the euro, yen and pound Wednesday. Gold soared to its highest level since summer 2016.

USD/JPY fell to the lowest since September; EUR/USD rose to the best level in three years and the pound climbed 250 pips to the highest since the Brexit vote.

Along with that, commodities priced in US dollar soared with gold and oil hitting multi-year highs.

The trigger was a comment from Mnuchin. As Ashraf pointed out, it was something he had said before, but at the moment every USD-negative tidbit is amplified and the momentum is running away.

Quietly, US economic data has softened as well. Yesterday, the Richmond Fed manufacturing index slipped to 14 compared to 19 expected in January. Today FHFA house price data and existing home sales were both on the soft side.

The big question for central bankers this year will be inflation and Q4 data from New Zealand raised some questions. Prices rose just 1.6% y/y compared to 1.9% expected. The kiwi fell a full cent to 0.7335 on the headlines. Moves in commodity and FX prices will further cloud the global inflation picture.

One person who will desperately try to restrain his currency in the day ahead is Draghi but he faces a tough task. Any hint of less-dovish policy will send the euro skyward.

US economic growth is expected to have slowed a little in the final quarter of 2017, but to still remain in healthy territory. However, according to Fed models, there is the prospect for a slightly better reading than what is anticipated. With the implied probability for a Fed hike in March resting at 73%, a positive surprise in GDP could seal the deal for such an action, and perhaps help the dollar to regain some poise.

The first estimate of US GDP for the fourth quarter will be released on Friday at 1330 GMT, and expectations are for economic growth to have slowed to 3.0% on an annualized basis, from 3.2% in the previous quarter. Besides growth figures, this data set will also contain numbers on consumer prices for the quarter, though in this regard, investors may pay more attention to the core PCE price index for December that will be released on Monday.

What do gauges of the economy suggest? The Atlanta Fed GDPNow model currently anticipates Q4 growth at 3.4%, while the New York Fed's Nowcast model forecasts a print of 3.9%. Therefore, the risks surrounding the official forecast of 3.0% may be tilted to the upside, perhaps for a slightly stronger-than-anticipated GDP print.

Even though the Fed is widely expected to stand pat at its upcoming policy meeting next week, the same cannot be said for the March gathering. At the time of writing, the implied probability for a rate hike in March stands at 73% according to the Fed funds futures, and a positive surprise in the GDP data could push that percentage even higher. Strengthening expectations could help the dollar to claw back some of its recent losses, at least on the news. Dollar/yen could spike up and target the 109.80 barrier, where an upside break could set the stage for extensions towards the next resistance threshold at 110.20.

On the flipside, in case these data disappoint relative to expectations, the dollar could come under renewed selling interest. Dollar/yen could fall below its recent lows of 109.40, potentially targeting the 108.70 support area. If the bears prove strong enough to overcome that hurdle, the next level that could come into play is the round figure of 108.00.

Finally, it should be noted that the US will also publish durable goods orders for December at the same time as the GDP figures, implying that any market reaction in the dollar at the release may be influenced by those prints too, especially in case of a notable surprise.

Markets:

US and European bonds came again under modest pressure today. Strong EMU PMI's suggest that the economic expansion continued at the start of 2018, weighing on European bonds. At the same time the 10-yr Note future also drifted back south after yesterday's rebound. There was no high profile US economic news. However, fear for a protectionist battle between the US and its trading partners might have been a negative for Treasuries. US Treasury Secretary Mnuchin applauding the decline of the dollar and Commerce Secretary Wilbur Ross indicating more action to protect American exporters raised the odds for a confrontation between the US and its main trading partners, including China. The jury is still out, but growing tensions between the US and China might question the PBOC's preparedness to hold the current huge portfolio of US Treasuries. US bond yields rise between 2.7 bps (2-y) and 4.4 bps. German yields increase between 0.1 bp (2-y) and 2.7 bps (10-y).

The USD decline accelerated today. Recent protectionist actions/rhetoric of the Trump administration are an additional negative for the US currency. In this respect, US Treasury Secretary Mnuchin further undermined confidence in the dollar as he indicated that the decline of the dollar was good for US trade. Mnuchin formally repeated the US mantra of a strong dollar in line with economic fundamentals over time. However, this sounds ever less credible. EUR/USD jumped to the 1.2350 area and remained under upward pressure later in the session. The EMU January PMI's were again very strong, but hardly impacted FX trading. Dollar weakness prevailed. Initially, intraday declines in the likes of EUR/GBP, EUR/AUD, EUR/JPY even suggested that the euro should not per se be the forerunner to profit from current USD decline (admittedly the moves were largely reversed later). Whatever, protectionist action from the US is becoming an ever bigger source of USD nervousness. Trump's speech in Davos on Friday might be at least as important for the fate of the dollar (and EUR/USD) than tomorrow's ECB meeting. EUR/USD trades in the 1.2375 area. USD/JPY is drifting lower in the 109 big figure (currently109.40).

Sterling was an outperformer against an overall weak dollar. Cable already filled offers in the high 1.42 area. The rise of sterling was supported by a good UK labour market report. Job growth in the 3 months to November was again strong, easing concerns after a poor figure last month. At the same time, sterling was supported by relatively soft comments from Brexit Minister Davis. He told UK lawmakers that the UK might initially stay closely aligned to the EU's regulatory framework. EUR/GBP is trading in the 0.8725 area. So the key 0.8690 support is coming within reach.

European equities show modest losses of the order of 0.25%/0.50% as the sharp decline of the dollar weighs on the region's exporters. US equities open again with modest gains of 0.2% to 0.4% . This time the Dow outperforms.

News Headlines:

"A weaker dollar is good for us as it is related to trade and opportunities," US Treasury Secretary Mnuchin told reporters at the World Economic Forum in Davos.

EMU businesses had a much better start to 2018 than expected, ramping up activity at the fastest rate since the middle of 2006, the composite PMI showed. The EMU index jumped to 58.6 this month from 58.1. The upturn was driven by a strong performance in the bloc's dominant service industry, where new business flooded in at a rate not seen in over a decade.

The British Office for National Statistics said the number of people in work rose by 102k in the 3 months to Nov. taking employment to a record 32.2 mn. The figures went some way to alleviating worries that Britain's labour market was running out of steam. Earnings, ex. bonuses, rose by 2.4% Y/Y, the biggest increase since Dec 2016.

The pair slumped on Wednesday as the greenback came under increased pressure. Fresh weakness after consolidation phase in previous few sessions extends into second day and probes below 0.9500 support, last traded in early Sep 2017.

Larger downtrend from 1.0037 (01 Nov high) is currently riding on the third wave and eyes its 161.8% Fibonacci expansion at 0.9472. The wave can travel further down for test of key med-term supports at 0.9438/20 (21 July/08 Sep double-bottom).

Break here will be strong bearish signal for extension of downtrend from 1.0343 which would also confirm weekly double-top at 1.0325 (Nov 2015) and 1.0343 (Dec 2016) peaks.

Meanwhile, bears could show stronger signs of hesitation on approach to key 0.9438/20 supports, but firm bearish setup favors limited upside before bears resume.

Falling 10 SMA (currently at 0.9621) should limit corrective upticks.

Res: 0.9554; 0.9621; 0.9666; 0.9704
Sup: 0.9482; 0.9438; 0.9420; 0.9362

Copper price bounced from five-week low at $3.1065 on Wednesday, inflated by sharp fall of US dollar that offsets negative impact from strong rise in copper inventories.

Fresh rally so far retraced the largest part of Tuesday's strong fall (the biggest one-day loss since 05 Dec), sidelining immediate downside threats, after corrective leg from $3.3200 high was contained by 100SMA at $3.1065.

Recovery rally dented Fibo 38.2% of entire $3.3200/$3.1065 downleg and could extend further as slow stochastic is heading north after emerging from oversold territory and shoeing a plenty of space upside.

Immediate barrier lies at $3.2028 (converged 10/30 SMA's), followed by $3.2293 (20SMA).

Break here and through $3.2384 (Fibo 61.8% of $3.3200/$3.1065) would generate strong bullish signal and neutralize near-term bears.

Res: 3.2028; 3.2132; 3.2293; 3.2384
Sup: 3.1881; 3.1569; 3.1416; 3.1065

Investors who were itching for another opportunity to propel Sterling higher were given the green light on Wednesday after UK employment data came in stronger than market expectations.

The number of people in work unexpectedly jumped in the three months to November, while wage growth offered a pleasant surprise by rising 2.4% - the highest in almost a year. Although the number of jobless claims rose by 8.6k during the months of December, the unemployment rate held steady at 4.3%. While Sterling could continue benefiting from the positive labor report in the near term, it must be kept in mind that UK inflation still remains above wage growth. With wage growth still lagging behind inflation, it is likely to squeeze household incomes which would consequently put the standard of living under pressure. Sentiment over the UK economy could take another hit if consumers' spending power continues to deteriorate amid the high inflation and tepid wage growth environment.

Taking a look at the technical picture, the GBPUSD is unquestionably bullish on the daily charts, mostly due to a weakening US Dollar. A growing sense of optimism over a soft Brexit outcome has also played a role in the currency's incredibly appreciation, with prices trading around 1.4170 as of writing. The combination of Dollar weakness and Brexit related optimism has the ability to elevate the GBPUSD towards 1.4200 and 1.4230. Technical lagging indicators such as the MACD and 50 Moving Averages both go in line with the bullish sentiment on the daily charts. If bears want to jump back into the game, the GBPUSD needs to break below 1.3850 which is over 300 pips away from current prices.

Dollar under renewed selling pressure

The battered Dollar extended losses against a basket of major currencies on Wednesday, after US Treasury Secretary Mnuchin said a weaker Dollar is "good" for trade.

It has certainly been a rough trading week for the Dollar amid political uncertainty in Washington, with recent comments from Mnuchin fueling the downside. The Dollar is clearly in trouble, with further losses on the cards as the prospects of other major central banks gradually tightening monetary policy, erode buying sentiment further. From a technical standpoint, the Dollar Index is heavily bearish on the daily charts. The breakdown below 90.00 could invite a further decline towards 89.60 and 89.00, respectively.

Currency spotlight - EURUSD

The EURUSD sprinted to a fresh three year high above 1.2350 during Wednesday's trading session amid a softening US Dollar.

With the bullish sentiment towards the European economy stimulating investor appetite for the Euro, and Dollar weakness still a recurrent market theme, the EURUSD remains heavily supported. A hawkish ECB meeting on Thursday has the ability to push the EURUSD much higher. From a technical standpoint, the currency pair is firmly bullish on the daily charts. A solid breakout and daily close above 1.2320 could encourage a further incline towards 1.2400 and 1.2440, respectively.

Bitcoin hovers around $11,000

Bitcoin displayed weak and vulnerable characteristics this week as the cryptocurrency struggled to hold ground above $11,000.

There is anxiety in the air over South Korea banning anonymous cryptocurrency trading, while China's cryptocurrency crackdown has somewhat impacted appetite for Bitcoin. Taking a look at the technical standpoint, Bitcoin remains in a bearish trend on the daily charts. Sustained weakness below $11,000 could invite a decline towards $10,000. Alternatively, a break above $12,000 could trigger a further incline towards the $13,000 lower high.

EURUSD: The pair has resumes its medium term uptrend leaving risk of more strength on the cards. On the upside, resistance comes in at 1.2400 level with a cut through here opening the door for more upside towards the 1.2450 level. Further up, resistance lies at the 1.2500 level where a break will expose the 1.2550 level. Its daily RSI is bullish and pointing higher suggesting more strength. Conversely, support lies at the 1.2300 level where a violation will aim at the 1.2250 level. A break of here will aim at the 1.2200 level. Below here will open the door for more weakness towards the 1.2150. All in all, EURUSD faces further upside move on bullish offensive.

EURGBP edged sharply lower over the last hours and recorded a fresh 5-week low of 0.8710. When looking at the bigger picture the pair has been trading within a downward sloping channel since October 2017. The short-term technical indicators are bearish and point to more weakness in the market.

Looking at the 4-hour chart, prices are looking capped by the 20 and 40 simple moving averages which are negatively aligned after a bearish crossover that took place on January 18. Furthermore, the RSI indicator has entered the negative zone, whilst the MACD oscillator is ready to post a downward cross with its trigger line in the bearish territory.

Further losses could see the December 8 low of 0.8690 acting as a major support. A drop below the aforementioned obstacle would reinforce the bearish structure in the short-term and open the way towards the next key support level of 0.8635, which is near with the lower band of the downward sloping channel.

In the event of an upside reversal, the 0.8760 level could act as a strong barrier before being able to re-challenge the 0.8800 handle.

Here are the latest developments in global markets:

FOREX: Better than expected employment readings and growing hopes of a softer Brexit pushed pound/dollar to 1.4151 (+1.04%) during early European trading hours and led euro/pound down to a 5-week low of 0.8746 (-0.75%). Euro/dollar edged up to fresh 3-year highs at 1.2355 (+0.28%) after Eurozone's Markit composite PMI surprisingly hit a new all-time high. On the other hand, dollar/yen extended losses towards a 4 ½-month low of 109.36 and the dollar index touched a 3-year trough at 89.70 following comments by the US Secretary Steven Mnuchin who said that a weaker dollar is attractive for trade purposes. Aussie/dollar and kiwi dollar were among the best performers, trading at 4-month highs, while Swedish krona/dollar gained ground after the Swedish central bank, the Riksbank, said that it might start raising interest rates before the ECB.

STOCKS: A drag in utilities and techs erased part of gains in energy stocks. However, European indices continued to trade at 2 ½-year highs amid optimism on the region's economic expansion and continuing earnings growth. The pan-European STOXX 600 lost speed, trading slightly up by 0.03% at 1045 GMT after the Bank of Merrill Lynch downgraded the French waste and water group Suez to underperform from neutral, while JP Morgan cut its ratingS for AMS – Apple's supplier – to neutral. The blue-chip Euro STOXX 50 was up by 0.23%, whereas the German DAX 30 and the UK FTSE 100 were steady. The Swiss SWI 20 jumped by 0.53%, underpinned by rising healthcare equities.

COMMODITIES: Oil prices were mixed. WTI crude climbed by 0.34% on the day to $64.66 per barrel and Brent was slightly down by 0.10% at $69.89. Gold surged by 0.64% on the back of a weaker dollar, last seen at $1,349.50 per ounce.

Day ahead: New Zealand release CPI figures; Trump heads to Davos

Later in the day, the economic calendar features the Markit flash manufacturing PMI, existing home sales and data on oil inventories out of the US, while New Zealand will report on Q4 consumer prices.

At 1445 GMT, the US manufacturing PMI for the month of January is expected to inch down from 55.1 in December to 55.0 according to IHS Markit, whilst existing home sales due at 1500 GMT are said to decline by 2.2% m/m in December for the first time after rising for three consecutive months. In November, the measure hit a 1 ½-year high at 5.6%.

A few minutes later(1530 GMT), the Energy information administration will release its weekly report on the US oil inventories, with forecasts suggesting crude oil and distillate stocks falling by a smaller amount in the week ending January 19. Gasoline inventories, though, are anticipated to continue rising at a slower pace.

New Zealand Q4 CPI figures will follow at 2145 GMT with the potential to shake the kiwi. Expectations are for inflation to slow down to 0.4% q/q compared to 0.5% in the previous quarter, while on a yearly basis the index is projected to remain flat at 1.9%, within the RBNZ's target of 1-3.0%.

In Davos, Switzerland, the global elite continues discussions on world topics at the annual World Economic Forum for the third day. Trump administration officials are also on the way to attend the event after the US Senators on Monday managed to end the government shutdown until February 8. Investors will be eager to hear any comments by the US President as he has shown opposition to many areas of discussions including trade issues in his first year of presidency. Moreover, his first legislative achievement involving massive tax cuts for businesses and individuals has attracted global interest as the US business environment might be more profitable for foreign companies.