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News and Events:

Swiss government gets a slap in the face

Swiss voters massively rejected the government's corporate tax proposal on Sunday as the text was rejected by almost 60% of voters. The reform was aimed at keeping Switzerland fiscally attractive for multinational companies and financial holdings. The solution proposed by the government did not convince the Swiss people and now forces the government to return to the drawing board. The government is now in a hurry to find an alternative solution as the current special tax regime will be abolished in 2019.

Investors did not welcome the news and Swiss equities started the week on the back foot as the reform's rejection cast a shadow on the economic outlook. Indeed, Switzerland has a lot at stake here as several cantons base their economic models on those tax advantages. The SMI was trading in negative territory on Monday, while European equities were blinking green on the screen.

Even though it is a serious drawback for the Swiss economy, we believe it is a bit early to ring the alarm as the government still has time to come up with a plan B. They will however have to come to the table with a more balanced solution to straighten the situation. This morning, EUR/CHF held steady at around 1.0670. Investors are not yet ready yet to move away from the safe haven currency, signalling that investors are still confident that Switzerland will find a sustainable solution that will make both businesses and tax payers happy.

Strong UK data seems to persist

Financial markets will closely scrutinise the UK data due to be released tomorrow morning. We expect inflation to come in higher than the prior December figure of 1.6%. Bullish pressures on consumer prices are on the rise as we believe that the pound is still largely undervalued.

We also believe that tomorrow's PPI, which currently stands at 2.7% y/y will increase above 3%. Looking at the data, a jarring statement needs to be made: It seems as though Brexit has in fact been the best thing for UK economics in a while.

In addition, the weak pound is definitely helping the Bank of England which has made up some time in the currency war as Brexit fears help UK exports. The cable has largely bounced back higher since reaching 1.20 in mid-January. We therefore maintain our bullish view of the pound as we believe that financial markets are still pricing in a hard Brexit. We are also reloading our bullish positions amid the ongoing UK recovery.

A hard Brexit should not happen and we believe that negotiations will take place with the EU.

Today's Key Issues (time in GMT):

• Feb 10 Total Sight Deposits CHF, last 535.2b CHF / 09:00
• Feb 10 Domestic Sight Deposits CHF, last 463.0b CHF / 09:00
• European Commission Economic Forecasts EUR / 10:00
• Central Bank Weekly Economists Survey (Table) BRL / 10:25
• TCMB Turkey Survey of Expectations TRY / 11:30
• Jan CPI YoY, exp 3,24%, last 3,41% INR / 12:00
• Feb 10 Bloomberg Nanos Confidence, last 57,3 CAD / 15:00
• Feb 12 Trade Balance Weekly, last $212m BRL / 17:00
• Jan REINZ House Sales YoY, last -10,70% NZD / 20:30
• Jan Export Price Index MoM, last 2,90% KRW / 21:00
• Jan Export Price Index YoY, last 6,30% KRW / 21:00
• Jan Import Price Index YoY, last 9,20% KRW / 21:00
• Jan Import Price Index MoM, last 4,20% KRW / 21:00
• Jan Food Prices MoM, last -0,80% NZD / 21:45
• Feb 12 ANZ Roy Morgan Weekly Consumer Confidence Index, last 117,5 AUD / 22:30
• Jan Money Supply M2 YoY, exp 11,30%, last 11,30% CNY / 23:00
• Jan Money Supply M1 YoY, exp 20,20%, last 21,40% CNY / 23:00
• Jan Money Supply M0 YoY, exp 8,90%, last 8,10% CNY / 23:00
• Jan New Yuan Loans CNY, exp 2440.0b, last 1040.0b CNY / 23:00
• Jan Aggregate Financing CNY, exp 3000.0b, last 1630.0b, rev 1626.0b CNY / 23:00
• Jan Foreign Direct Investment YoY CNY, exp 1,40%, last 5,70% CNY / 23:00
• Jan Budget Balance YTD, exp 225.0b, last -2967.3b RUB / 23:00
• Jan Tax Collections, exp 138200m, 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 1.0620 (30/01/207 low) before bouncing back higher. The break of this level should pave the way towards stronger hourly support at 1.0581 (16/01/2016 low) and 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 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 continues to bounce since it reached support at 111.36 (28/11/2016 low). Hourly resistance is given at 115.62 (19/01/2016 high). The break of hourly support given at 112.57 (17/01/2017 low) has confirmed bearish pressures. 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's medium-term momentum is still bearish despite ongoing increase. Key resistance is given at a distance at 1.0344 (15/12/2016 high). 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 industrial production and manufacturing output has proved resilient into the end of 2016, its sustainability over 2017 is in question'. - Fabrice Montagné and Andrzej Szczepaniak, Barclays

British manufacturing production rose at a stronger than expected pace in December, despite the country's decision to leave the European Union. Official data released by the Office for National Statistics on Friday showed manufacturing output grew 2.1% in the final month of 2016, following November's upwardly revised gain of 1.4% and surpassing analysts' expectations for a mild increase of 0.3%. On an annual basis, manufacturing production advanced 4.0% in December, the largest gain since April 2014. Meanwhile, industrial output climbed 1.1% in the same month, compared with the previous month's downwardly revised increase of 2.0%/ However, the figure topped analysts' forecasts of a 0.2% decline. Year-over-year, industrial production jumped 4.3%, the strongest increase since January 2011. Furthermore, the ONS reported that the UK construction sector also grew at a stronger than anticipated pace, rising 1.8% in December, while economists predicted an increase of 1.1%, following November's upwardly revised 0.4% increase. Separately, the ONS reported the UK's trade gap narrowed to 10.9 billion pounds in December, whereas analysts expected an increase to 11.5 billion pounds in the reported period. Meanwhile, November's deficit was revised down to 11.6 billion pounds from the originally reported 12.2 billion pounds.

'Whatever the outcome of France's presidential elections, it probably won't raise the odds of an exit from the euro.' – Stefania Spezzati, Bloomberg

Pair's Outlook

During the early hours of Friday's trading session the common European currency began the day and traded against the US Dollar between the levels of significance, which together have provided the pair with support for the past three consecutive trading sessions. At the start of the session the currency exchange rate was above the monthly PP, which is at 1.0650. The forecast of a decline remains in force, as it can be clearly seen that slowly but surely the pair is moving lower. After passing the monthly PP the rate is most likely set to fall to the 55-day SMA at 1.0688.

Traders' Sentiment

SWFX traders are neutral bullish on the pair, as 51% of trader open positions are long. Meanwhile, 60% of trader set up orders are to sell the Euro.

'We maintain our view that risk reward for USD longs has improved considerably.' – BNP Paribas (based on PoundSterlingLive)

Pair's Outlook

The Cable's losses were limited on Friday, but with the pair continuing to gravitate towards the 1.25 major level. Risks are now skewed to the downside, as there is a potential sell signal present today, which indicates the Sterling could soon slide back under the 1.24 mark. However, the Pound is first required to pierce a number of supports, such as the weekly PP, the monthly PP, the 55 and the 100-day SMAs. Technical studies somewhat support this outlook, as they are giving bearish signals in the medium and long-term timeframes. A rally today is likely to just be the continuation of last week's consolidation trend, when the Cable kept moving towards the 1.25 handle.

Traders' Sentiment

Traders' sentiment remains bullish, now at 62% (previously 61%). Meanwhile, the share of sell orders inched down from 56 to 53%.

'According to our long-term valuation models, the yen remains significantly undervalued against the US dollar despite modest gains early this year.' – BTMU (based on FXStreet)

Pair's Outlook

Friday ended with the USD/JPY currency pair putting the bearish trend-line to another test, but ultimately leaving it intact. Another attempt was made earlier today, when the pair opened with a bullish gap and tried to reclaim the 114.00 mark. The weekly R1, however, appears to be providing strong resistance, which could cause the Buck to be sold sufficiently, making bears take over the market today. In this case the down-trend will be preserved once again, although risks of a breakout are now high. Either way the second resistance area around 114.30 is expected to hold, whereas any bearish development is to be limited by the 20-day SMA circa 113.38.

Traders' Sentiment

Bulls lost some numbers over the weekend, being that 58% of all open positions are now long (previously 61%).

'Global uncertainty from the U.S., Europe and on the Korean front will drive global prices high again as prices couldn't break the December-low.' – Hareesh V, Geofin Comtrade Ltd. (based on Reuters)

Pair's Outlook

The yellow metal began the week near the 1,230 level, where it traded rather flat during the early hours of Monday's trading session. The bullion began the week below the newly calculated weekly PP, which is located at 1,232.24. It is most likely that the commodity price will continue to decline by the end of the day, as the closest support level is located at 1,219.77, where the weekly S1 is located at. In addition, the weekly S1 is supported by the 38.20% Fibo at 1,219.20 level. After encountering this support level, the bullion is likely going to rebound and begin to regain strength.

Traders' Sentiment

SWFX market sentiment remains bullish, as 55% of open positions are long. In the meantime, 57% of trader set up orders are to buy the metal.

The pair moved to the upper part of near-term 0.7600/0.7700 range, following Friday’s rally that confirmed higher base at 0.7600 zone.

Firm bullish setup of daily studies is supportive for break above 0.7700 barrier and final push towards target at 0.7776 (08 Nov peak) to mark full retracement of 0.7776/0.7158 descend.

Initial support lies at 0.7656 (session low) ahead of rising daily Tenkan-sen at 0.7621 that continues to underpin ascend since early Jan and lower breakpoint at 0.7600 (higher base, reinforced by rising 20SMA).

However, extended sideways mode could be expected while the price holds within 0.7600/0.7700 range.

Res: 0.7687, 0.7694, 0.7732, 0.7765
Sup: 0.7656, 0.7621, 0.7600, 0.7568

The pair cracked psychological 114.00 barrier today, on extension above initial target at 113.91(Fibo 61.8% of 115.36/111.57 downleg). Fresh bulls were limited by falling 30 SMA for now, but the downside stays protected by 20SMA at 113.35 that marks initial support. Expect near-term action to remain biased higher while the price remains above upside-turning daily Tenkan-sen (currently at 112.85). Daily close above 113.91 is needed to signal further recovery and open way towards next pivotal barrier at 114.54 (daily Kijun-sen).

Res: 113.91, 114.13, 114.54, 114.93
Sup: 113.35, 113.20, 112.85, 112.50

Strong bullish acceleration in early Monday's trading sidelined immediate downside risk after last Thu-Fri weakness was contained by daily Ichimoku cloud at 1.2442.

Fresh rally probes above strong barrier at 1.2525 (daily Tenkan-sen) would trigger extension towards next pivot at 1.2580 (last week's high / near Fibo 61.8% of 1.2704/1.2345 downleg).

Improving near-term technicals are supportive, together with bullishly aligned dailies, with daily close above Tenkan-sen to confirm bullish near-term stance.

Focus is expected to stay shifted at the upside while daily cloud holds, with sustained break above 1.2580 to confirm higher low at 1.2438 (Friday's low) and signal further upside.
Conversely, increased downside risk could be expected on penetration into thickening daily cloud (currently spanned between 1.2399 and 1.2442).

Res: 1.2548, 1.2567, 1.2580, 1.2620
Sup: 1.2495, 1.2454, 1.2442, 1.2403

The Euro bounced in Asia after extension of two-day downleg from 1.0708 lower top found footstep at 1.0606 (55SMA) that so far holds. Overall picture remains bearish and favors fresh weakness after correction. Break below initial supports at 1.0606/1.0583 (55SMA / 50% of 1.0339/1.0827) would expose daily cloud base (1.0550) and Fibo 61.8% support at 1.0525 Broken Kijun-sen (1.0641) that now acts as initial resistance is under pressure, with upticks expected to be ideally capped under 1.0665 (Friday's high/falling 5SMA). Upper pivot lies at 1.0707 (20 SMA) and only firm break here would neutralize near-term bears.

Res: 1.0665, 1.0707, 1.0755, 1.0775
Sup: 1.0603, 1.0583, 1.0550, 1.0525