'Wednesday's U.S. dollar ended the day unchanged-to-lower against all of the major currencies.' - Kathy Lien, BK Asset Management (based on investing.com)

Pair's Outlook

During the early hours of Thursday's trading session the common European currency surged against the US Dollar. The currency exchange rate was continuing the rebound, which began during the second part of Wednesday's trading session. In addition, due to the fact that the pair managed to break through the resistance put up by the 55-day SMA at 1.0602 level, it is most likely that the surge will continue up to the monthly PP, which is located at 1.0650 level. However, it is unlikely that the monthly PP's resistance will be broken, as it is also strengthened by the 20-day SMA at 1.0657.

Traders' Sentiment

Traders are bullish on the pair, as 53% of SWFX open positions are long. In the meantime, SWFX trader set up pending commands are bearish, as 60% of trader set up orders are set up to sell the Euro.

'The dollar is struggling as U.S. Treasury yields retreated from highs.' – JP Morgan Chase Bank (based on Reuters)

Pair's Outlook

Even though the GBP/USD currency pair experienced strong downside volatility on Wednesday, it still managed to close above the 1.2460 psychological support. Assuming the given support level remains strong the Cable should now edge higher, ignoring the immediate resistance, namely the weekly PP at 1.2474. Instead, attention should be paid to the 20-day SMA, which rests around 1.2521, but the intraday ceiling could even be the 1.2550 mark—also a psychological level. Meanwhile, technical indicators support the possibility of the positive outcome and an additional purchase signal was provided two days ago, when the 55-day SMA climbed over the 100-day one.

Traders' Sentiment

Bullish sentiment still holds more or less at the same level, taking up 61% of the market today. The share of sell orders slid from 56 to 53%.

'We did flip two weeks ago to a modest net short against the franc and the yen. Chances are the dollar, as it has been doing in recent weeks, will drift around in a tight consolidative range.' – JP Morgan (based on Business Recorder)

Pair's Outlook

As was anticipated, the US Dollar failed to outperform the Yen yesterday, although upside volatility did stretch out to the 115.00 level. Ultimately, the pair remained relatively unchanged, posting an insignificant loss, but a full-blown failure is not the case. Due to the recent breach of a seven-month down-trend, the USD/JPY pair still has the opportunity to soar towards 118.00 within a month. The only solid obstacle on the pair's path is the resistance circa 115.10, represented by the 55-day SMA, the monthly R2 and the upper Bollinger band. Today, however, the Buck is expected to struggle at climbing over the weekly R1 and monthly PP resistance area.

Traders' Sentiment

There are 56% of traders holding long positions today (previously 51%). At the same time, the portion of buy orders declined from 58 to 55%.

The US dollar came under renewed buying interest yesterday, following the release of the nation's CPI and retail sales data, both for January. All the figures beat their forecasts, indicating that inflationary pressures are accelerating, and that US consumers continue to spend at a robust pace. Despite the data being strong overall, the greenback gave back all its gains in the following hours, to trade even lower against some of its major counterparts prior and during Chair Yellen's second testimony before Congress.

USD/JPY surged on the data releases to hit resistance a few pips above 114.80 (R2) before retreating back below the 114.00 (R1) support (now turned into resistance) barrier. Given the inability of the bulls to drive the battle higher for another test near the key 115.50 (R3) zone, we believe that the short-term bias of the pair is back to neutral. We would like to see a clear and decisive break above that level before we assume the continuation of the post-election rally, and trust further bullish advances.

Considering that Chair Yellen's overall tone was optimistic again, we think that the main catalyst for the correction lower in the greenback may have been the disappointing real weekly earnings growth print that was released alongside the CPI data. It showed that real average weekly earnings declined from December to January, partly due to the surge in the CPI rate, and that they are stagnant from a year before. Although the acceleration in the core CPI supports somewhat the case for a near-term Fed hike, for now we will maintain the view that the FOMC is unlikely to rush into a March hike amid lackluster wage growth, and heightened uncertainty around the direction of fiscal policy. Therefore, we still expect the next rate hike in June. We would like to see some clarity around tax and fiscal reform, some acceleration in wage growth as well as an uptick in the core PCE price index rate, before we reconsider this view.

With regards to USD, we expect the currency to remain supported in the short-term, amid upbeat signals from Chair Yellen, and expectations that President Trump will announce a "phenomenal" tax plan in the next weeks. However, the details of Trump's tax plan are likely to be what determines whether the post-election USD rally will get a second wind, or whether we are likely to see further downside correction.

Riksbank remains on hold and shifts to an ultra-dovish bias

The Riksbank remained on hold yesterday, as was widely expected. In a surprising turn of events, at least for us, the Bank shifted to a much more dovish bias than previously. The officials indicated that although economic activity is strengthening, there is considerable political uncertainty abroad and the risk of setbacks has risen. Perhaps the most important signals for FX markets was that there is still a greater probability for the repo rate to be cut rather than raised in the near term, and that for inflation to stabilize around the 2% target, a slowdown in the krona's appreciation is required. The Bank also decided to extend the mandate that allows it to quickly intervene in the FX market, sending hints that excessive strength in SEK will not be tolerated.

USD/SEK surged on the news to break above a longer-term uptrend line taken from the lows of May 2016, before hitting resistance slightly below the 9.0000 (R1) zone. Then, the rate pulled back in the following hours to come back below the aforementioned uptrend line and to find fresh buy orders near 8.8800 (S1). Bearing in mind the Bank's dovish stance and hints for potential FX intervention, SEK could remain under selling interest for a while. As such, we would expect the bulls to seize control again at some point and aim for another test near the crossroad of that uptrend line and the 9.0000 (R1) level. A clear break above that important area could set the stage for further bullish extensions, towards our next resistance of 9.1300 (R2). What's more, we would prefer USD/SEK over EUR/SEK as a proxy for any further SEK weakness in the near-term, considering the recent optimistic signals from Chair Yellen that could continue to support USD, and the political risks looming over the Eurozone, which may continue to weigh on EUR.

Today's highlights:

During the European day, the economic calendar is light. The only noteworthy indicator we get is Sweden's unemployment rate for January. The forecast is for the rate to have risen significantly, something that could bring SEK under renewed selling pressure.

In Eurozone, the minutes of the ECB's January policy meeting are coming out. Although these are usually not a major market mover, considering the Bank's surprisingly dovish stance at that meeting, they could attract some unusual attention. Even though the headline CPI rate surged to a level last seen in 2013 prior to this gathering, President Draghi downplayed the importance of that improvement by pointing out that he sees no convincing upward trend in underlying inflation. He made it clear that the Bank is likely to keep its policy unchanged until there is a notable pick-up in Eurozone's core CPI, and that speculating on the prospect of "ECB tapering" is entirely premature. Given that the broader message from Draghi was well-communicated, we will go through these minutes for any clues on whether the Governing Council was unanimous in this assessment, and on how the Bank may respond once the core CPI does begin to accelerate.

In the US, the Philly Fed business activity index for February is due out and the forecast is for the figure to decline from the previous month. We also get the nation's initial jobless claims for the week ended on the 10th of February, and expectations are for an increase in the figure, something that would also raise the 4-week moving average. Considering that both of these indicators are expected to show some softness, we could see a modest negative reaction in USD at these releases. The building permits and housing starts for January are due out as well, though both figures are expected to have remained more or less unchanged.

We have only one speaker scheduled for today: Norges Bank Governor Stefan Ingves.

'Soros Fund Management LLC got out of gold in the fourth quarter of 2016.' – Marcy Nicholson, Reuters

Pair's Outlook

The yellow metal surged on Thursday, as the bullion found support on Wednesday and continued the surge during the early hours of Thursday's trading session. The rebound occurred against the 20-day SMA at 1,216.26, and the bullion managed to reach above the 1,235 level during today's trading. However, this might be the end of the surge, as the commodity price faces the combined resistance of the monthly R1 at 1,237.68 and the upper trend line of the long term descending channel pattern at 1,238.67.

Traders' Sentiment

SWFX traders remain long on the bullion, as 54% of trader open positions are long on Thursday. Meanwhile, 60% of trader set up orders are to buy the bullion.

EUR/USD

Current level - 10604

Yesterday's low at 1.0520 signals a reversal of the downtrend from 1.0828 and the outlook is positive, for a rise towards 1.0705, en route to the mentioned peak. Minor intraday support lies at 1.0580.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.98

A reversal has been confirmed at 115.00 and the intraday bias is bearish, for slide towards 112.50. Initial intraday hurdle lies at 113.25.

GBP/USD

Current level - 1.2470

The recent low at 1.2380 signals a finale of the pattern below 1.2580 and my outlook is positive, for a rise towards 1.2610.

On the S&P500 price broke out of a triangle formation nearly two weeks back which means that index is now in a final leg up within a higher degree wave 3. As such upside can be limited in the near future, once we have five sub-waves up within red wave 5) of 3. We see some nice resistance around the 261.8 Fibonacci ratio, from where market may turn down later this week to start a new corrective pullback of a higher degree wave four.

S&P500, 4H

Sunrise Market Commentary

• Rates: Bearish view temporary on hold because of Trump?
  Strong US eco data, Yellen's testimony, hawkish Fed comments and anticipation on Trump's fiscal stimulus plans raised odds of a March rate hike to nearly 50% this week, pulling US Treasuries lower. However, the developing scandal in Trump's administration might temporary break bearish sentiment on core bond markets via safe haven flows.
• Currencies: USD upside momentum falters despite strong US data
  Yesterday, the dollar touched new ST highs against most majors on very strong US data, including a higher than expected CPI. However, the US currency fell prey to profit taking. For now, this is nothing more than a correction on the recent rally . However, we look out whether US political issues might become more important for USD trading..

The Sunrise Headlines

• US stock markets fired through after initially hesitating following strong US eco data. They eventually gained around 0.5%. Overnight, Asian stock markets are more mixed with Japan underperforming.
• Boston Fed Rosengren said that the potential for an overshoot in US economic growth may justify a more rapid tightening in monetary policy than the central bank had forecast in December. Philly Fed Harker expects 3 rate hikes in 2017.
• Australia's unemployment rate fell from 5.8% to 5.7% in January. The economy added 13,5k jobs last month (10k expected), but there was a decline in the number of full-time jobs (-44,8k), while 58.3k part-time jobs were added.
• The EU is preparing an early summit with China in April or May in Brussels to promote free trade and international cooperation in the face of a more protectionist and inward-looking Washington, three EU officials said.
• Ireland's minority government has survived a vote of no-confidence over its handling of a police whistle-blower scandal. The motion was passed by 57 votes to 52, with 44 abstentions.
• Rebel French conservative lawmaker Fenech said voters were deserting their party, the Republicans, and it faced election defeat unless it ditched Fillon.
• Italy's former PM Renzi called on rivals not to quit the ruling PD-party, after a group of senior figures were said to be poised to break away. Renzi said this week he would hold a PD leadership contest, hoping to reassert his authority.
• Today's eco calendar contains US housing starts, building permits, weekly jobless claims and Philly Fed business indicator. The ECB releases the Minutes of its previous meeting and governors Coeure and Nowotny speak. Spain and France tap the bond market.

Currencies: Dollar Rally Slows Ahead Of Yellen Testimony

USD fails to hold gains despite strong data

On Wednesday, the dollar showed two faces. The US currency stayed well bid in Europe, building on Tuesday's post-Yellen gains. The dollar rally accelerated as the US data (Empire Manufacturing, CPI and retail sales) all came out much stronger than expected. However, profit taking kicked in going into the US equity market opening. The dollar reversed the earlier gains. USD/JPY closed the session at 114.16 (from 114.26). EUR/USD finished the session at 1.0601 (from 1.0578 on Tuesday).

Overnight, Asian equities trade mixed-to slightly positive supported by a softer dollar. Japan is the usual exception, as the decline of USD/JPY weighs. The PBOC fixed the USD/CNY rate little changed from yesterday, but yuan (USD/CNY 6.8585) is trading strong in line with the USD correction. The Aussie dollar profits slightly from decent January labour data. AUD/USD tries to regain the 0.77 level. EUR/USD is changing hands in the 1.0620 area, one big figure higher than yesterday's postdata low.

Today, the US housing starts & permits, the initial claims and the Philly Fed business sentiment survey may affect trading. Housing starts & permits are expected to have stabilized after a sharp rise of starts and a stabilization of permits in December. We have no reason to expect starts (and permits) have reached a turning point. The Philly Fed business sentiment is ahead in time of the NY one (published yesterday) and surged higher in January (highest in 2-years). Given the upward surprise of the NY index, we see upside risks, but a slight decline remains possible.

Yesterday, the dollar profited from strong US data and from hawkish Fed comments, but couldn't maintain its gains. Question is why? For now we assume that it was a simple correction on the recent rally. Even so, we look whether other factors might come in play. Are markets growing nervous on the ability of the Trump administration to deliver on the changes it promised? For now, this is only hypothetical thinking. Even so, we turn more neutral on the dollar in a dayto- day perspective. We also look whether or not the dollar will profit in case of more positive eco data. If not, it would be a further reason to turn more cautious

Global context: The dollar was in a corrective downtrend since the start of January as the Trump reflation trade petered out. Last week, the dollar showed tentative signs of a bottoming out process, supported by the ‘Trump tax promise'. Euro weakness is a factor too. As we see the 1.0874 as solid resistance, a sell EUR/USD on upticks approach is favoured. The downside test of USD/JPY is also rejected. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) remains key support. Post-Yellen, the downside of the dollar is better protected. Even so, we are still more cautious on the upside potential of USD/JPY compared to USD/EUR.

EUR/USD: dollar fails to maintain post-data gains

EUR/GBP

EUR/GBP still looking for guidance

On Wednesday, the jobless claims declined sharply and job creation in the 3 months to December was stronger than expected. However, wage growth disappointed and slowed from 2.8% Y/Y to 2.6% Y/Y. The market reacted to the wage data (prices) rather than to the activity data and thus Sterling lost some ground. EUR/GBP revised the 0.85 area, but the move had no momentum and petered out very soon. Later in the session, the strong US data pressured cable but there was no negative fall-out from EUR/USD on EUR/GBP. EUR/GBP close the session north of 0.85 (0.8507). Cable rebound on the late session USD correction and finished the day at 1.2361.

Today, global actors will dominate sterling trading in absence of eco data. EUR/GBP recently hovered in tight range close to the 0.8450 support, but a break didn't occur. Sentiment on sterling is a rather neutral. Activity data remain good, but price data are soft enough to prevent a BoE rate hike anytime soon. Euro weakness in case of rising political uncertainty is a risk for all euro cross rates, including for EUR/GBP. Longer term, we have a sterling negative view as the negative impact from Brexit still has to reach to UK economy. However, this is no issue at this stage. Short-term the picture of EUR/GBP remains indecisive/fragile, but this is partially due to euro weakness, rather than outright sterling strength. We continue to look how the test of the key 0.8540 support turns out. In case of a break, the 0.8304 area is the next MT support. At least partially stop-loss protection on EUR/GBP longs may be considered.

EUR/GBP: new test of the 0.8450 support is avoided, but picture remains fragile

Download entire Sunrise Market Commentary

The strong growth in U.S. retail sales and the surge in consumer prices were expected to continue pushing the U.S. dollar higher on Thursday, but what happened was exactly the opposite, leaving many traders questioning the greenback's uptrend.

The past 24 hours were very interesting in currency markets, not just on the data front, but even comments from Fed officials who echoed Yellen's hawkishness. Philadelphia Fed President Patrick Harker, suggested that the economy needs three rate hikes in 2017 without even factoring in President Trump's fiscal agenda, meanwhile Boston Fed President was more hawkish, saying that the Fed may raise rates by more than the central bank has forecasted.

The only explanation for the dollar to retreat against most of its major peers is that yield spreads failed to expand further. For example, the U.S. – German 10-year yield spread dropped today by 2 basis points to 210 and dropped by almost 3 basis points against the Japanese 10-year yields.

I believe that the slight tick higher in bond prices will be temporary, unless a correction in U.S. equities is due after several days of posting new highs. Very few experts may disagree that valuations are overstretched, and that investors are willing to pay more premium on prospects of aggressive fiscal plans. We can even go further to discuss that bubbles are being formed, and Professor Robert Shiller's CAPE PE ratio supports this opinion as it approaches 29. However, bubbles may grow bigger, even much bigger before they burst, if animal spirits continue to drive the rally.

For this reason, I think the dollar may remain a buy on the dip, until there is evidence of U.S. equities retreating.

Today's U.S. data which includes weekly jobless claims, housing starts, building permits and Philadelphia's Fed manufacturing index, are not likely to provide any significant impact on the U.S. dollar, so traders should keep focused on performance of U.S. treasuries.

Currency pair EUR/USD

The EUR/USD broke above the resistance (dotted red) of the bearish trend channel but still has horizontal resistance (red/brown) nearby. A break above the bottom (brown) of wave 1 (blue) and 61.8% Fibonacci retracement of wave 4 vs 3 invalidates the wave 4 (blue).

The EUR/USD is build bullish price action which could be an ABC zigzag (green) within wave 4 (blue). A bearish turn that stays below the 61.8% Fib level could see a continuation of the downtrend towards 1.05. In that case, the bullish break above the channel could turn out to be a small overthrow. A break above the 61.8% Fibonacci retracement of wave 4 vs 3 invalidates the wave 4 (blue).

Currency pair GBP/USD

The GBP/USD retraced back and bounced at the support trend line (blue) and 78.6% Fibonacci retracement. A break below the support and 100% Fib invalidate the bullish continuation. A break above the resistance trend line (orange) could see price test higher resistance (red/brown).

The GBP/USD broke support (dotted green) and made one more bearish push towards support. The bullish bounce seems to be impulsive which is why it has been marked as a wave 1 (purple). A break below the 100% level of wave 2 vs 1 (purple) invalidates the wave count.

Currency pair USD/JPY

The USD/JPY is moving higher within an uptrend channel (red/green lines) after breaking out above the long-term resistance trend lines (dotted orange). The current bearish retracement could receive potential support from the channel (green) and Fibonacci levels of wave 4 (blue). A break below the 61.8% Fibonacci level of wave 4 vs 3 makes it likely that a different wave structure is taking place.

The USD/JPY could complete a bearish ABC (brown) zigzag but a bounce at the 38.2% Fibonacci level will most likely not be the end of wave 4 (blue). Wave 4 corrections are typical complex so this ABC (brown) will probably be part of larger WXY correction.