The Japanese yen has posted slight losses in the Wednesday session. Currently, USD/JPY is trading at 114.50. On the release front, there are no Japanese events on the schedule. In the US, it's a busy day. We'll get a look at release retail sales and CPI reports, and Janet Yellen will continue her testimony about the semiannual Monetary Policy Report before Congress. On Thursday, the US releases three key events - Building Permits, Philly Fed Manufacturing Index and unemployment claims.

The yen continued to lose ground following testimony from an upbeat Janet Yellen. The Fed chair testified before a Senate committee on Tuesday, and was surprisingly upfront about monetary policy, stating that she expected that the Fed would raise rates in the near future. Yellen stated that "waiting too long to remove accommodation would be unwise", referring to the re-hot labor market and expectations that inflation would reach the Fed's target of 2 percent. Will the Fed opt to raise rates in March or in June? The markets will be looking for clues on the timing of a move, as Yellen continues her testimony on Thursday before the House Financial Services Committee.

President Shinzo Abe waxed positive about his summit last week with President Trump. Abe said the two leaders had agreed to have their finance leaders discuss currency issues that have caused tensions between the US and Japan. Trump recently charged that Japan was manipulating its currency to gain a trade advantage. The Japanese government has countered that its ultra-accommodative monetary policy was aimed at curbing deflation. Still, Abe and BoJ Governor Haruhiko Kuroda will have to keep a close eye on the yen - if the dollar pushes past 120 yen, Trump could express his displeasure with the exchange rate in order to protect US exporters.

Focus will be very much on the US on Wednesday as we await Janet Yellen's second day of testimony, this time before the House Financial Services Committee, and prepare for an onslaught of economic data including the latest retail sales and inflation numbers.

Yellen's appearance before the Senate Banking Committee on Tuesday was quite a dull affair from a markets perspective, with much of the questions quite understandably focusing on the hot topic of deregulation, or more specifically Donald Trump's determination to dismantle Dodd-Frank. Not much time was actually devoted to the Fed's monetary policy plans for this year and when it was brought up, it was like trying to get blood from a stone.

While Yellen was in no mood to give anything away that had not already been disclosed in previous statements or minutes, traders did get excited by the disclosure that a rate hike will likely be appropriate at one of its upcoming meetings if employment and inflation evolve in line with expectations. You don't have to be Sherlock Holmes to come to the same conclusion given the Fed's intention to raise rates on three occasions this year but perhaps the simple act of leaving a March hike on the table, given that it had been all but written off by investors, is what triggered such a reaction.

That said, the statement only pushed up the probability of a rate hike in March from 13% to 18% so if Yellen is serious about sending a signal to investors that March is an option, she'll have to try much harder during today's testimony and even mention March specifically as being possible. I doubt she'll be so bold though given her reluctance since taking over as Chair to disclose anything significant that isn't already known or assumed. Still, as we saw yesterday, markets remain sensitive to what Yellen says and are likely to be so again today.

Following a period of relative calm the economic data side, we'll be treated to a whole host of reports today, starting with CPI inflation, retail sales and the empire state manufacturing index before the opening bell. Inflation, or a lack thereof, has long been a problem for the Fed with policy makers clearly wanting to begin and then speed up the tightening process but it seems, gradually, pressures are building. The annual CPI reading is expected to rise to 2.4% today, above the Fed's 2% target - although CPI is not the Fed's preferred measure of inflation - while core CPI is expected to fall slightly to 2.1%. Meanwhile, retail sales - an important measure of consumer confidence and activity - are expected to have risen by only 0.1% last month, following a 0.6% spike in December.

Also on the agenda today, we've got industrial production and capacity utilisation figures for January, oil inventory data from EIA after API reported another large build on Tuesday, as well as appearances from three Fed officials, Patrick Harker, William Dudley (both voters on the FOMC) and Eric Rosengren. Needless to say, it should be quite an eventful session.

EUR/USD has lost ground in Wednesday, as the pair trades at 1.0550. On the release front, Eurozone Trade Balance jumped to EUR 24.5B, beating the estimate of EUR 22.5B. It's a busy day in the US, which will release retail sales and CPI reports, and Yellen will continue her testimony about the semiannual Monetary Policy Report before Congress. On Thursday, the US releases three key events – Building Permits, Philly Fed Manufacturing Index and unemployment claims.

The euro continues to head lower, as EUR/USD has dropped 2.3 percent since February 3. The euro continued to lose ground following testimony from an upbeat Janet Yellen. The Fed chair testified before a Senate committee on Tuesday, and was surprisingly upfront about monetary policy, stating that she expected that the Fed would raise rates in the near future. Yellen stated that "waiting too long to remove accommodation would be unwise", referring to the re-hot labor market and expectations that inflation would reach the Fed's target of 2 percent. Will the Fed opt to raise rates in March or in June? The markets will be looking for clues on the timing of a move, as Yellen continues her testimony on Thursday before the House Financial Services Committee.

The Eurozone has been showing signs of recovery, as growth and inflation numbers are higher. This is good news for the ECB, which can now focus on easing monetary policy. If the ECB feels that the economy will continue to march in the right direction, the bank could taper its asset-purchase program or raise interest rates. ECB head Mario Draghi will likely remain cautious, with Brexit and elections in France and Germany high on the agenda. Still, if the eurozone economy continues to grow and inflation levels move higher, we could see the ECB change its monetary stance later in the year. The ECB hold its next policy meeting on March 9, and if eurozone numbers continue to head upwards, there will be pressure to tighten monetary policy.

UK hourly wage data disappoints

Notes/Observations

EU Mid-Market Update: Riksbank keeps policy steady but extends its FX mandate; UK hourly wage data disappoints

Notes/Observations

Sweden’s Riksbank keeps policy steady (as expected) but extends its mandate for possible currency intervention to combat a too strong Krona

UK wage data misses expectations (key BOE metric); offsets improvement in jobless claims data

Fed chair Yellen testimony did little to change outlook on bullish USD environment; all meetings remain ‘live’

Key US data in upcoming session; retail sales data are expected to be strong on the control group measure (used in GDP calculations)

Overnight:

Asia:

Japanese official out in force to clarify that BOJ policy was not targeting the FX rate. PM Abe, Fin Min Aso, Vice Fin Min of International Affairs (currency chief) Asakawa and BOJ Gov Kuroda). G7 and G20 agreed that its best if FX was set by the market and would agree on any fx intervention, not bilateral

Europe:

EU's Dombrovskis reiterated that ECB was not targeting euro exchange rate but has an inflation target it tried to reach

Italy govt said to be in discussions with EU authorities about a potential €5.0B precautionary recapitalization of two regional banks (Popolare di Vicenza and Veneto Banca)

Americas:

Fed Chair Yellen: waiting too long to tighten would be unwise; more policy adjustments will likely be needed if the economy remains on track; Asked about a March rate rise: every meeting is live; reiterates gradual rate increases are appropriate; colleagues have indicated that will probably be appropriate to lift rates at some point this year

Energy:

Weekly API Oil Inventories: Crude: +9.9M v +14.2M prior (4th straight build)

Economic data

(NO) Norway Jan Trade Balance (NOK): 25.0B v 23.3B prior

(TW) Taiwan Q4 Final GDP Y/Y: 2.9% v 2.6%e

(ES) Spain Jan Final CPI M/M: -0.5% v -0.5%e; Y/Y: 3.0% v 3.0%e

(ES) Spain Jan Final CPI EU Harmonized M/M: -1.0% v -0.9%e; Y/Y: 2.9% v 3.0%e

(DK) Denmark Q4 GDP Indicator Q/Q: 0.4% v 0.2% prior

(ZA) South Africa Jan CPI M/M: 0.6% v 0.7%e; Y/Y: 6.6% v 6.7%e (5th straight month annual inflation above SARB target range of 3.0-6.0%)

(SE) Sweden Central Bank (Riksbank) left its Repo Rate unchanged at -0.50% (as expected); extends its mandae on FX intervention

(UK) Jan Jobless Claims Change (beat): -42.4K v +0.5Ke; Claimant Count Rate: 2.1% (lowest since Jun 2008) v 2.3%e

(UK) Dec Average Weekly Earnings (miss) 3M/Y: 2.6% v 2.8%e; Weekly Earnings (ex Bonus) 3M/Y: 2.6% v 2.7%e

(UK) Dec ILO Unemployment Rate 3M/3M: 4.8% v 4.8%e

Fixed Income Issuance:

(IN) India sold total INR100B vs. INR100B indicated in 3-month and 12-month Bills

(DK) Denmark sold DKK1.26B in 6-month Bills; Yield: -0.680% v -0.685% prior

(SE) Sweden sold SEK7.5B vs. SEK7.5B indicated in 3-month bills; Avg Yield: -0.6735% v -0.7260% prior; bid-to-cover: 1.25x v 1.71x prior

(NO) Norway sold NOK5.0B vs. NOK5.0B indicated in 1.75% 2027 Bonds; Avg Yield: 1.82% v 1.36% prior; Bid-to-cover: 2.69x v 1.79x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.6% at 3,329, FTSE +0.5% at 7,305, DAX +0.4% at 11,819, CAC-40 +0.5% at 4,919, IBEX-35 +0.7% at 9,577, FTSE MIB +0.7% at 19,318, SMI +0.6% at 8,475, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading higher led by financial stocks after Fed Chair Yellen told the US Senate Banking Committee that waiting too long to tighten would be ‘unwise’; Shares of Deutsche Bank and BBVA the notable gainers in the Eurostoxx as a result; Asia generally ending positive overnight; Commodity and mining stocks trading generally higher in the FTSE 100 as copper consolidates near contract highs.

Upcoming scheduled US earnings (pre-market) include Analog Devices, ALLETE, Alkemes, Bunge, Cincinnati Bell, Colliers International, NOW Inc, Entergy, Groupon, Hilton Worldwide, Huntsman, Lithia Motors, Manitowoc Foodservice, Och-Ziff Capital, Pepsico, Shopify, SodaStream, Targa Resources, US Foods, and Wyndham Worldwide.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Air Liquide AI.FR -1.4% (FY16 results), Heineken HEIA.NL +4.5% (FY16 results), Hennes & Mauritz HMB.SE -0.9% (Jan sales)]

Consumer Staples: [Danone BN.FR +0.2% (FY16 results)]

Financials: [ABN Amro AABA.NL +2.8% (Q4 results), Credit Agricole ACA.FR +5.4% (Q4 results), Irish Residential Properties IRES.IE +1.7% (prelim FY16 results), Natixis KN.FR +2.3% (under investigation in France over announcements made in 2010 on subprime crisis), Patrizia Immobilien P1Z.DE +1.5% (prelim FY16 results)]

Industrials: [Kuka KU2.DE +0.1% (prelim FY16 results), Pfeiffer Vacuum PFV.DE +0.9% (FY16 results, Busch Group offer ‘unattractive’), Schindler Holding SCHP.CH +1.3% (FY16 results), SSAB SSABA.SE -2.2% (Q4 results), Zodiac Aerospace ZC.FR -2.8% (reportedly TCI seeks to block merger with Safran)]

Materials: [Akzo Nobel AKZA.NL -3.7% (Q4 results), DSM DSM.NL -1.9% (Q4 results)]

Speaker

Sweden Central Bank (Riksbank) Policy Statement noted that monetary policy needed to remain expansionary and still saw a greater chance of a rate cut than a hike. Economic activity was strengthening, but there was considerable political uncertainty abroad and the risks of setbacks have increased. For inflation to stabilize around 2%, a continued strong level of economic activity and a SEK currency (krona) that did not appreciate too rapidly are required. First potential rate hike not seen before 2018 and extended its currency intervention mandate (member Floden had reservations)

Sweden Central Bank (Riksbank) Gov Ingves post rate decision press conference noted that the developments over the past few months had been in-line with expectations with inflation accelerating

Greece PM Tsipras reiterated its govt red-line stance that would be destructive to discuss extra austerity measures

EU's Moscovici stated that Greece had outperformed its fiscal target in 2016. Could achieve same results in coming two years (2017-18 period). Bail-out review could reach a conclusion with extra effort from all parties

Moody's commented on Italy: Euro exit risks were very low but political dynamics were unpredictable. Withdrawal from euro area, associated currency redenomination would be significant credit event for Italian sovereign

Russia Central Bank (CBR) Gov Nabiullina: End-Jan CPI declined to 5.0% y/y. Low inflation helped the shift to investment-led growth

Russia govt spokesman Peskov: President Trump's team contact were normal diplomatic practice

Bank of Japan (BOJ) Gov Kuroda reiterated view that central bank was not targeting FX as its policy was aimed at achieving the 2% inflation target (in-line with earlier comments during Asian session). FX level affected by many factors as interest rates were not the only variable

China PBoC working paper stressed that macro policies should remain prudent and neutral. Efforts should be made to avoid liquidity crisis and “debt-

Iran Oil Min Zanganeh: Oil export capacity has risen to 2.8M bpddeflation” trap due to rapid deleveraging

Currencies

Fed chair Yellen testimony did little to change outlook on bullish USD environment as the greenback maintained its firm tone against the majors.

USD/JPY stayed in the mid-114 area as a plethora of Japanese officials continued to clarify that BOJ policy was not targeting the FX rate. PM Abe, Fin Min Aso, Vice Fin Min of International Affairs (currency chief) Asakawa and BOJ Gov Kuroda). G7 and G20 agreed that its best if FX was set by the market and would agree on any fx intervention, not bilateral

Better UK employment data could not help the GBP currency as dealers instead focused on the hourly wage data (a key BOE metric). GBP/USD fell below the 55-day moving average of 1.2433 after hour wages came in at 2.6%, two-tenths below expectations

USD/SEK moved higher to test above 9,46 level after Sweden’s Riksbank kept its policy steady (as expected) but extended its mandate for possible currency intervention to combat a too strong Krona.

Fixed Income:

Bund futures trade at 163.39 down 3 ticks continuing to retrace as risk on tone continues with new all time high in S&P 500, Dow and Nasdaq. A move back higher targets 163.64 initially followed by 164.07, 164.46 then 164.94. Support moves to 162.92 followed by 162.44.

Gilt futures trade at 125.31 up 16 ticks trading just off highs on the back of weaker hourly wage data out of the UK. Resistance moves to 125.56 followed by 125.90 then 126.28 A move back below 125.14 low targets 124.91 followed by 124.46. Short Sterling futures trade flat with Jun17Jun18 trading 19bp choice.

Wednesday's liquidity report showed Tuesday's excess liquidity rose to €1.324T up €2B from €1.322T prior. Use of the marginal lending facility falls to €296M from €353M prior.

Corporate issuance saw $9.9B come to market via 5 issuers headlined by Morgan Stanley $3B 3 year floaters, Novartis 3 part $3B offering, and JP Morgan $2B 31 year bond offering. Issuance for the week stands at $16.6B with Monthly issuing surpassing $40B.

Looking Ahead

05:30 (UK) DMO to sell 0.125% I/L 2026 Gilts

05:30 (PT) Portugal Debt Agency (IGCP) to sell €1.0-1.25B in 3-month and 12-month Bills

06:00 (IE) Ireland Dec Trade Balance: No est v €4.1B prior

06:00 (ZA) South Africa Dec Retail Sales M/M: 0.4%e v 3.5% prior; Y/Y: 2.2%e v 3.8% prior

06:00 (BR) Brazil Dec IBGE Services Sector Volume Y/Y: No est v -4.6% prior

06:00 (RU) Russia to sell combined RUB40B in 2022 and 2026 OFZ Bonds

07:00 (US) MBA Mortgage Applications w/e Feb 10th: No est v +2.3% prior

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Feb Empire Manufacturing: 7.0e v 6.5 prior

08:30 (US) Jan CPI M/M: 0.3%e v 0.3% prior; Y/Y: 2.4%e v 2.1% prior

08:30 (US) CPI Ex Food and Energy M/M: 0.3%e v 0.2% prior; Y/Y: 2.1%e v 2.2% prior

08:30 (US) Jan CPI Index NSA: 242.445e v 241.432 prior; CPI Core Index SA: No est v 249.93 prior

08:30 (US) Jan Real Avg Weekly Earnings Y/Y: No est v 0.2% prior, Real Avg Hourly Earning Y/Y: No est v 0.8% prior

08:30 (US) Jan Advance Retail Sales M/M: 0.1%e v 0.6% prior; Retail Sales Ex Auto M/M: 0.4%e v 0.2% prior, Retail Sales Ex Auto and Gas: 0.3%e v 0.0% prior, Retail Sales Control Group: 0.3%e v 0.2% prior

08:30 (CA) Canada Dec Manufacturing Sales M/M: 0.3%e v 1.5% prior

09:00 (CA) Canada Jan Existing Home Sales M/M: No est v 2.2% prior

09:00 (BE) Belgium Dec Trade Balance: No est v €0.6B prior

09:15 (US) Jan Industrial Production M/M: 0.0%e v 0.8% prior; Capacity Utilization: 75.5%e v 75.5% prior, Manufacturing Production: 0.2%e v 0.2% prior

10:00 (US) Feb NAHB Housing Market Index: 67e v 67 prior

10:00 (US) Dec Business Inventories: 0.4%e v 0.7% prior

10:00 (US) Fed Chair Yellen semi-annual testimony before House Panel

10:30 (US) Weekly DOE Crude Oil Inventories

11:30 (IL) Israel Jan CPI M/M: -0.3%e v 0.0% prior; Y/Y: 0.0%e v -0.2% prior

12:00 (US) Fed's Rosengren to address NY Assoc for Business Economics

12:00 (CA) Canada to sell 5-Year Bonds

12:45 (US) Fed's Harker speaks in Philadelphia

16:00 (US) Dec Total Net TIC Flows: No est v $23.7B prior; Net Long-term Tic Flows: No est v $30.8B prior

(PE) Peru Jan Unemployment Rate: No est v 6.2% prior

(PE) Peru Dec Economic Activity Index (Monthly Index) Y/Y: 3.3%e v 3.6% prior

(PE) Peru Q4 GDP Y/Y: 2.9%e v 4.4% prior

(NG) Nigeria Jan CPI Y/Y: 18.6%e v 18.6% prior

(CO) Colombia Jan Consumer Confidence Index: -11.5e v -10.7 prior

News and Events:

Unlikely CPI provides USD boost

Global equities and the US dollar rallied yesterday amid Janet Yellen's appearance before the Senate Banking Panel. The S&P 500 rose 0.40% to 2,337 points while the dollar index jumped 0.65% to 101.30. The Fed Chair's remarks were in the same vein as the last FOMC statement as she reiterated that the time for another rate hike is coming; however she but did not provide any hints regarding the timing. The market, once again, has interpreted its comments as being hawkish, while in our opinion she is simply slowly starting to prepare the market for the next hike. According to the Fed funds futures, the probability of a rate hike at the March meeting has climbed above 50%. Nevertheless, we believe that the uncertainty generated by the Trump administration, together with overestimated inflation expectations will force the Fed to proceed slowly and cautiously.

The January inflation report that is due for release later today will therefore be key in assessing whether a March move is underway. The headline measure is expected to have increased 2.4%y/y in the first month of the year (2.1% in December), thanks to rising energy prices. On the other hand, the core measure that excludes the most volatile components is expected to have eased to 2.1%y/y from 2.2% previous reading. We do not expect a strong read for this month due to the lack of solid momentum in personal consumption and recent investment. Therefore, the risk is mostly on the downside in USD today as the risk of disappointment is quite substantial. Moreover, retail sales are expected to have suffered from the January lull.

Kuroda hints at further easing

The days of ultra-loose monetary policy are not over for Japan. At the Japanese Parliament BoJ Governor Kuroda stated that the target rates for bonds could be lowered as the economy is not really showing signs of improvement. In reality it rather seems that the Japanese economy has been operating at full capacity for many years but that the economy is proving way too difficult to stimulate.

The inflation target of 2% does not look attainable. Japanese policymakers have a close eye on the Fed and are certainly secretly hoping that US officials raise rates several times this year to provide some needed downside pressure on the yen. It is worth noticing that current demand for the dollar against the yen remains stable.

Kuroda's comments remind us of the fact that there is actually not much that the BoJ can do. The institution is running out of ammo and the past decade's monetary policy has only served to cause debt to skyrocket.

We believe that entering into the risk-on period with a true global recovery would offload some of the pressure from the country. However, the world has rarely been so unstable. We are not ruling out the possibility that the yen will serve this year as a safe haven. Between the rock and the hard place that is Trump and European political uncertainties, the Japanese currency has definitely room for further strengthening.

Today's Key Issues (time in GMT):

• Jan PPI MoM, last 0,60% DKK / 08:00
• Jan PPI YoY, last 3,20% DKK / 08:00
• Jan Central Gov't Budget Balance, last -27.14b TRY / 08:00
• Jan CPI YoY, exp 6,70%, last 6,80% ZAR / 08:00
• Jan CPI Core MoM, exp 0,50%, last 0,50% ZAR / 08:00
• Jan CPI Core YoY, exp 5,80%, last 5,90% ZAR / 08:00
• Jan CPI MoM, exp 0,70%, last 0,40% ZAR / 08:00
• 4Q GDP Indicator SA QoQ, last 0,20% DKK / 08:00
• Jan F CPI YoY, exp 3,00%, last 3,00% EUR / 08:00
• Jan F CPI MoM, exp -0,50%, last -0,50% EUR / 08:00
• Jan F CPI EU Harmonised MoM, exp -0,90%, last -0,90% EUR / 08:00
• Jan F CPI EU Harmonised YoY, exp 3,00%, last 3,00% EUR / 08:00
• Jan CPI Core MoM, last 0,10% EUR / 08:00
• Jan CPI Core YoY, exp 1,10%, last 1,00% EUR / 08:00
• Bank of Russia Governor Nabiullina in Federation Council RUB / 08:00
• Feb 15 Riksbank Interest Rate, exp -0,50%, last -0,50% SEK / 08:30
• 4Q Industry Capacity, last 88,90% SEK / 08:30
• Jan Claimant Count Rate, exp 2,30%, last 2,30% GBP / 09:30
• Jan Jobless Claims Change, exp 0.5k, last -10.1k GBP / 09:30
• Dec Average Weekly Earnings 3M/YoY, exp 2,80%, last 2,80% GBP / 09:30
• Dec Weekly Earnings ex Bonus 3M/YoY, exp 2,70%, last 2,70% GBP / 09:30
• Dec ILO Unemployment Rate 3Mths, exp 4,80%, last 4,80% GBP / 09:30
• Dec Employment Change 3M/3M, exp 22k, last -9k GBP / 09:30
• Dec General Government Debt, last 2229.4b EUR / 09:30
• Feb FGV Inflation IGP-10 MoM, exp 0,24%, last 0,88% BRL / 10:00
• Dec Trade Balance SA, exp 22.0b, last 22.7b EUR / 10:00
• Dec Trade Balance NSA, exp 26.0b, last 25.9b EUR / 10:00
• Dec IBGE Services Sector Volume YoY, exp -4,40%, last -4,60% BRL / 11:00
• Dec Retail Sales Constant YoY, exp 2,20%, last 3,80% ZAR / 11:00
• Dec Retail Sales MoM, exp 0,40%, last 3,50% ZAR / 11:00
• Feb 10 MBA Mortgage Applications, last 2,30% USD / 12:00
• Feb 13 CPI WoW, last 0,10% RUB / 13:00
• Feb 13 CPI Weekly YTD, last 0,70% RUB / 13:00
• Dec Manufacturing Sales MoM, exp 0,30%, last 1,50% CAD / 13:30
• Feb Empire Manufacturing, exp 7, last 6,5 USD / 13:30
• Jan CPI MoM, exp 0,30%, last 0,30% USD / 13:30
• Jan CPI Ex Food and Energy MoM, exp 0,20%, last 0,20% USD / 13:30
• Jan CPI YoY, exp 2,40%, last 2,10% USD / 13:30
• Jan CPI Ex Food and Energy YoY, exp 2,10%, last 2,20% USD / 13:30
• Jan CPI Core Index SA, last 249,93, rev 250,013 USD / 13:30
• Jan CPI Index NSA, exp 242,479, last 241,432 USD / 13:30
• Jan Real Avg Weekly Earnings YoY, last 0,20%, rev 0,40% USD / 13:30
• Jan Real Avg Hourly Earning YoY, last 0,80% USD / 13:30
• Jan Retail Sales Advance MoM, exp 0,10%, last 0,60% USD / 13:30
• Jan Retail Sales Ex Auto MoM, exp 0,40%, last 0,20% USD / 13:30
• Jan Retail Sales Ex Auto and Gas, exp 0,30%, last 0,00% USD / 13:30
• Jan Retail Sales Control Group, exp 0,30%, last 0,20% USD / 13:30
• Jan Existing Home Sales MoM, last 2,20% CAD / 14:00
• Jan Industrial Production MoM, exp 0,00%, last 0,80% USD / 14:15
• Jan Capacity Utilization, exp 75,40%, last 75,50% USD / 14:15
• Jan Manufacturing (SIC) Production, exp 0,20%, last 0,20% USD / 14:15
• Currency Flows Weekly BRL / 14:30
• Feb NAHB Housing Market Index, exp 67, last 67 USD / 15:00
• Fed Chair Yellen Delivers Semi-Annual Testimony to House Panel USD / 15:00
• Dec Business Inventories, exp 0,40%, last 0,70% USD / 15:00
• Feb 10 DOE U.S. Crude Oil Inventories, exp 3500k, last 13830k USD / 15:30
• Feb 10 DOE Cushing OK Crude Inventory, exp 400k, last 1143k USD / 15:30
• Fed's Harker Speaks in Philadelphia USD / 18:00
• Fed's Rosengren to Address NY Assoc for Business Economics USD / 18:10
• Dec Net Long-term TIC Flows, last $30.8b USD / 21:00
• Dec Total Net TIC Flows, last $23.7b USD / 21:00
• Jan Foreign Direct Investment YoY CNY, exp 1,40%, last 5,70% CNY / 23:00
• Jan Industrial Production YoY, exp 3,00%, last 3,20% RUB / 23:00
• Jan Tax Collections, exp 137290m, last 127607m BRL / 23:00
• Jan Trade Balance, exp -$10265.0m, last -$10369.3m INR / 23:00
• Jan Exports YoY, last 5,70% INR / 23:00
• Jan Imports YoY, last 0,50% INR / 23:00

The Risk Today:

EUR/USD's selling pressures continue. the pair has broken strong hourly support given at 1.0581 (16/01/2016 low). The road is wide open towards support at 1.0454 (11/01/2017 low). Expected to see continued decrease. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD is still trading below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should back bouncing lower towards support given at 1.2254 (19/01/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY is pushing higher after its increase from support given at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high). Expected to see further strengthening in the short-term. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is still strengthening after the breakout of the downtrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Nonetheless, we believe that the road is nonetheless clearly wide-open for further decline if the pair gets back below parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

'While the trend in inflation remains upward, it is not quickening as fast as today's headline suggests. Inflation is not an immediate issue for the Fed'. - Sarah House, Wells Fargo Securities

US producer prices posted the largest increase in more than four years last month amid higher energy-related production costs, official figures revealed on Tuesday. The US Labor Department reported its Producer Price Index advanced 0.6% in January, while market analysts expected the Index to remain unchanged from the previous month at 0.3%. That marked the largest gain since September 2012. However, on an annual basis, producer prices climbed just 1.6% in the first month of 2017, after a similar increase in December. In the meantime, the so-called core PPI, which excludes volatile items, jumped 0.4% month-over-month in January, compared with analysts' expectations for an unchanged reading of 0.2%. Year-over-year, core producer prices grew 1.6% last month, following December's gain of 1.7% and providing support for the view that the Federal Reserve could raise rates in the upcoming months as promised. Back in December, the Central bank raised its overnight rate to a range of 0.50-0.75% and projected three more rate hikes in 2017. The Federal Reserve Chair Janet Yellen said on Tuesday that the Bank would probably increase rates already at its next policy meeting in March. Following Janet Yellen's comments, the US Dollar hit its three-week high against a basket of currencies., while US government bonds dropped markedly.

'While the further upturn in price pressures will fuel speculation that interest rates may start to rise later in 2017, the most likely scenario remains one of policy staying on hold over the next two years as the economy navigates through Brexit.' - Chris Williamson, IHS Markit

British consumer prices increased last month due to higher oil costs and the weakening Pound, official data showed on Tuesday. According to the Office for National Statistics, the Consumer Price Index grew 1.8% year-over-year in January, the largest increase since June 2014, compared to the preceding month's 1.6% rise. However, that was below the 1.9% market forecast as the steep fall in clothing prices offset inflationary pressures coming from food and fuel last month. On a yearly basis, the core CPI, which excludes volatile items such as oil and food, came in at 1.6%, unchanged from the prior month and behind analysts' expectations of a 1.7% gain, while the Retail Price Index advanced 2.6% from 2.5% previously, missing projections of a sharper 2.8% rise. Furthermore, the ONS said factory gate prices grew at a faster than expected pace of 3.5% last month, the largest increase since December 2011. Input prices jumped 20.5% on a yearly basis, after rising 17% in the previous month, while output prices advanced 3.5%, surpassing the 3.2% rise market forecast. Analysts suggest that an upward pressure on inflation is likely to intensify in the upcoming months amid further depreciation of the British Pound. According to the Bank of England's latest forecasts, the inflation rate is likely to rise above 2.7% this year.

EUR/USD

Current level - 10579

The downtrend is intact heading towards 1.0500 area. Initial intraday resistance lies at 1.0590, followed by the crucial peak at 1.0632.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 114.31

The upmove has been renewed, targeting 115.65 resistance area. Initial intraday support lies at 114.00 and crucial on the downside is 113.25 low.

GBP/USD

Current level - 1.2463

Yesterday's slide from 1.2550 is still underway, with a risk of a dip towards 1.2410 area. 

'Euro should remain compressed against most other pairs.' - Saed Abukarsh, Ark Capital Management (based on Bloomberg)

Pair's Outlook

The common European currency continues its path lower against the US Dollar, as the currency exchange rate continues exactly as forecasted. The pair has reached the weekly S1, which is located at 1.0568. The rate has found support in the weekly level of significance. However, it is clear that the Euro weakness is set to continue to fall. In that case the closest notable support level will be located at 1.0496. Although, it is most likely that the currency exchange rate will fluctuate above the recently found support for some time before continuing the set path.

Traders' Sentiment

SWFX traders remain neutral bullish, as 52% of trader set up orders are long on Wednesday. In the meantime, 60% of trader set up orders are to sell the Euro.

In her testimony yesterday before the Senate Committee on Banking, Housing, and Urban Affairs, Fed Chair Yellen maintained a broadly confident tone with regards to the economy as well as the prospect of a near-term rate hike. In her prepared remarks, the Fed chief said that a hike will likely be appropriate at one of the upcoming meetings if employment and inflation evolve in line with expectations, and reiterated that waiting too long to tighten "would be unwise".

She tried to keep a balanced approach on some issues, repeating that monetary policy is not on a pre-set course and that there may be significant policy changes that affect the economic outlook. However, these were not enough to offset her overall hawkish signals that a rate hike may be looming. As a result, the dollar came under renewed buying interest, possibly as investors priced in a higher probability of a rate increase at the upcoming meetings. EUR/USD fell below the support (now turned into resistance) barrier of 1.0590 (R1), to hit support a few pips above the 1.0555 (S1) territory. The rate subsequently rebounded and during the early European morning Wednesday, it looks to be headed for a test near the crossroad of the 1.0590 (R1) zone and a short-term downtrend line taken from the highs of the 2nd of February. The near-term outlook is still negative and as such, if the bears manage to remain in control near that crossroad and push the pair down again, we could see another test near the 1.0555 (S1) support. A clear dip below that level could set the stage for further declines, towards our next support territory of 1.0500 (S2).

Despite Yellen's optimistic signals with regards to the prospect of a near-term hike, we maintain the view that for now, the most likely timing for such action is the June meeting. We believe that the uncertainty surrounding the future direction of fiscal policy, as well as the lack of progress in both wage growth and the core PCE price index, are all factors likely to keep the Committee from rushing into the next hike. The fact that the FOMC has turned more dovish this year through a rotation in voting rights supports this view. As for the dollar, although Yellen's signals could keep the currency supported, we think that the broader direction of the currency is likely to be determined by the tax plan that President Trump is set to announce in the coming weeks. The details of the tax cuts that the new administration has promised could determine whether the post-election USD rally will get a second wind, or whether market participants got ahead of themselves, and discounted too much too soon.

For now, market focus is likely to remain on Yellen, as she is scheduled to testify again today before the House Committee on Financial Services. Considering that she is going to deliver the same exact speech, the market focus will be on the Q&A session afterwards. We would need to see fresh and equally optimistic comments with regards to monetary policy in order for the bulls to add to their USD-long positions.

Riksbank meeting: A shift to a more optimistic bias?

Today, market participants will probably turn their gaze to Sweden, where the Riksbank will announce its policy decision, followed by a press conference from Governor Ingves. The forecast is for the Bank to take the sidelines. The last time the officials met, they extended the duration of their QE program and maintained a rather sanguine tone in the meeting statement, indicating that the outlook for economic activity in Sweden and abroad had improved somewhat. More importantly, three out of the six Board members entered reservations against extending QE purchases, a move which leads us to conclude that the bar for any further easing is quite high. Even those who voted in favor of the extension were quite upbeat on the state of the economy, according to the minutes of that meeting. What's more, since then the nation's CPI and CPIF rates for December although below target, surged to reach highs last seen in 2011 and 2012 respectively. Bearing these in mind, we see a very low likelihood for the Bank to take action at this meeting and we believe that the statement's language may be even more confident than last time, something that could prove SEK-positive.

USD/SEK hit support near 8.7000 (S3) and rebounded to break back above the 8.8000 (S2) barrier, which is the upper bound of a wide sideways range that had contained the price action between January 2015 and October 2016. The rate also managed to break above a short-term downtrend line. Although this shifts the short-term bias to cautiously positive, the fact that the pair is still trading below a longer-term uptrend line taken from the lows of May 2016, makes us hesitant to trust further advances for now. What's more, in case we get an optimistic statement from the Riksbank today, we could see the rate slide and test the 8.8800 (S1) support, where a dip could set the stage for further declines towards 8.8000 (S2). As for the bigger picture, the fact that USD/SEK is still above the upper bound of the aforementioned sideways range keeps the broader outlook positive in our view. A clear break below 8.8000 (S2) would bring the rate back within the range, and could signal that the medium-term bias is back to neutral.

Today's highlights:

During the European day, UK employment data for December are due out. Both the unemployment rate and the average weekly earnings rates are forecast to have held steady. Although both rates are expected to have remained unchanged, they stand at levels which confirm that the UK economy continues to be unaffected by Brexit uncertainties, at least so far. This may reverse some of the losses the pound suffered after the below-consensus CPI data.

With regards to the US economic indicators, we get inflation and retail sales data, both for January. Kicking off with the inflation figures, the headline CPI rate is expected to have risen further, while the core rate is forecast to have held steady. Despite a potential rise in the headline rate, the fact that the core rate remains flat suggests that the progress in headline inflation is mainly due to movements in the prices of volatile items, and is thus transitory. What's more, the core PCE price index rate remained flat in December, further confirming that underlying inflationary pressures are not accelerating yet. Turning to retail sales, the headline rate is expected to have fallen, while the core rate is forecast to have risen. Given the mixed expectations, the reaction in USD may not be major on the news, unless we were to see a significant surprise in one of these data sets, particularly in the core CPI and core retail sales. We also get the Empire State manufacturing and the NAHB housing market indices, both for February. Industrial production data for January are coming out as well.

Besides Fed Chair Yellen and Riksbank Governor Ingves, we have one more speaker scheduled for today: Philadelphia Fed President Patrick Harker.