Daily Pivots: (S1) 1.0654; (P) 1.0684 (R1) 1.0728; More.....

EUR/USD is still bounded in range of 1.0828 and intraday bias stays neutral first. As noted before, choppy rise from 1.0339 is seen as a correction. Hence, in case of another rise, upside should be limited by 1.0872 resistance and bring fall resumption eventually. Break of 1.0619 will argue that the corrective rise is completed and turn bias to the downside for retesting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Daily Pivots: (S1) 0.9916; (P) 0.9961; (R1) 1.0021; More.....

USD/CHF is staying in consolidation pattern from 0.9860 and intraday bias stays neutral first. With 1.0043 minor resistance intact, deeper decline is expected. Current fall from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359, after the consolidation completes.

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Daily Pivots: (S1) 111.53; (P) 112.03; (R1) 112.45; More...

At this point, deeper decline cannot be ruled out in USD/JPY yet. But again, choppy fall from 118.65 is seen as a correction. Hence, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. Above 113.44 minor resistance will turn bias neutral first. Break of 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65 high.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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Daily Pivots: (S1) 1.2493; (P) 1.2521; (R1) 1.2568; More...

GBP/USD is staying in range of 1.2346/2705 and intraday bias remains neutral for the moment. Price actions from 1.1946 are viewed as a consolidation, no change in this view. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Dollar trades mixed in early US session despite positive job data. Initial jobless claims dropped 12k to 234k in the week ended February 4, below expectation of 250k. Four week moving average dropped to 244.25, lowest since 1973. Continuing claims rose 15k to 2.08m in the week ended January 28. Also released in US session, Dollar index is hovering in tight range around 100.32 at the time of writing. Near term outlook is mixed. On the negative side, it's still struggling below 55 day EMA (now at 100.65). On the positive side, daily MACD crossed above signal line. We'd maintain that there is prospect of a rebound after getting firm support from 100 handle.

Shinzo Abe to Meet Donald Trump

The meeting between US president Donald Trump and Japan prime minister Shinzo Abe in Washington on Friday will be closely watched by the markets. While there are news surrounding Trump's accusation of Japan as currency manipulator and others, the key would be the development in trade relationships of the two countries. Trump dismissed the Trans Pacific Partnership in his very early days in office. And it's known that Abe would like to secure a bilateral trade deal with the US.

BoJ Deputy Naksao: Persistent Powerful Monetary Easing needed

In Japan, BoJ Deputy Governor Hiroshi Naksao said that "it's most important that the BOJ persistently pursue powerful monetary easing." And, he warned of risks of global uncertainties. Naksao noted that "momentum toward achieving our price target, while sustained, isn't sufficient." And he emphasized that "there's still a long way to go to achieve our target."Also, he defended accusation of currency manipulation and said that "the BOJ guides monetary policy solely for the purpose of achieving its inflation target at the earliest date possible. It does not target exchange rates."

Euro Weighed Down by France Uncertainties

Euro is mixed today but trades as the second weakest major currency for the week, next to Kiwi. The common currency is being weighed down by political uncertainties. In particular, in France, after a scandal of conservative candidate Francois Fillon, far-right candidate Marine Le Pen is seen as a serious contender for the presidential elections in April and May. According to latest poll, Le Pen could win the first election round on April 23, but without outright majority. That would put her in a runoff, likely with centralist Emmanuel Macron. Current poll suggests that Marcon would win. But in case of a Le Pen win, the possibility of a "Frexit" could surge sharply.

ECB Draghi to Meet Germany Merkel

ECB president Mario Draghi will meet German Chancellor Angela Merkel for a regular closed dollar meeting. Ahead of the meeting, German finance minister Wolfgang Schaeuble said that "it is an art to carefully prepare and plan an exit from an extraordinary monetary policy to prevent bigger distortions." And he preferred ECB to run a "prudent, carefully balanced monetary policy". But Draghi has been clear in his view that ECB won't react to temporary spike in inflation. No press conference is scheduled after the meeting between Draghi and Merkel.

Kiwi trades lower after RBNZ

As expected, RBNZ left the OCR unchanged at 1.75%, following three rate cuts in 2016. The policy statement has changed to a more neutral tone from an accommodative one previously. Yet, the central bank's rate hike forecasts stay at a slower pace than what the market has priced in. Policymakers acknowledged that economic growth has 'increased as expected and is steadily drawing on spare resources'. The outlook remain s positive. It also acknowledged the return of headline CPI to the target band, and judged it would gradually move to the midpoint of the band. We expect the OCR would stay unchanged for the rest of the year. More in RBNZ's Rate Hike Path Still Lags Market Expectations.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2493; (P) 1.2521; (R1) 1.2568; More...

GBP/USD is staying in range of 1.2346/2705 and intraday bias remains neutral for the moment. Price actions from 1.1946 are viewed as a consolidation, no change in this view. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

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The Japanese yen has posted small losses on Thursday session, erasing the gains which marked the Wednesday session. Currently, USD/JPY is trading at 112.40. On the release front, it's another light day. Japanese Preliminary Machine Tool Orders posted a gain of 3.5%, a second straight gain after a long streak of declines. In the US, today's highlight is unemployment claims, with the indicator expected to climb to 249 thousand. On Friday, the US releases UoM Consumer Sentiment. The markets aren't expecting much movement, with a forecast of 97.9 points.

On Friday, Japanese Prime Minister Shinzo Abe comes to Washington, where he will hold talks with President Trump. The meeting comes at an important time, as both sides will be hoping to smooth some ruffled feathers. One of Trump's first moves in office was to withdraw the US from the Trans-Pacific Partnership, a trade deal which Japan has strongly endorsed. Trump recently accused Japan of unfair trade practices in its ultra-loose monetary policy, which has kept the yen at low levels and helped boost Japanese exports. The Japanese have argued that they are not targeting the yen's value, but rather trying to combat deflation. Still, Abe will have his work cut out for in trying to assuage Trump, who has shown little patience with US trading partners and has repeatedly made protectionist statements. Japan is heavily reliant on its export sector, and the last thing it needs is a trade war with the United States. Abe is expected to defuse the currency spat by suggesting that the US and Japan discuss currency policy at the next G7 meeting.

Donald Trump hammered away at the economy during the election campaign, but was short on specifics as far as remedies. However, he did promise a significant fiscal boost through infrastructure spending and tax cuts. This led to a post-election euphoria in the markets and boosted the US dollar. Fast forward to February, and optimism has been replaced by caution and unease, as Trump continues to entangle himself in controversy, both with US trading partners and at home, with the media and Supreme Court. The markets are disappointed that Trump has not unveiled an economic plan or blueprint, limiting himself to protectionist rhetoric which has sent alarm bells ringing worldwide. On Wednesday, Goldman Sachs forecast that the administration won't implement tax reform or infrastructure spending before 2018.

The heightened political risks across the globe and persistent Trump uncertainties have sparked a sense of unease which continues to pressure the financial markets. Global stocks remain extremely volatile amid the jitters with gains potentially limited as the era of political uncertainty encourages investors to scatter away from riskier assets. Although Asian shares were slightly higher on Thursday following the rising confidence towards the Chinese economy, the upside should be capped by risk aversion. In Europe, stocks were buoyed by the upbeat earnings reports but concerns over the pending elections in France, Germany, and Netherlands could expose shares to downside losses. Wall Street displayed exhaustion on Wednesday with prices poised to edge lower during trading today if optimism starts to wane over Donald Trump's proposed fiscal policies coming into effect. With political risk and anxiety almost dictating where the markets trade, investors may use this period of uncertainty to seek safety in safe-havens such as Gold.

Dollar Index struggles above 100.00

The mixed signals being sent by the Trump administration on the value of the Dollar coupled with the lack of clarity offered on the market shaking fiscal policies have left the Greenback vulnerable to losses. Sellers may exploit the downside momentum on the Dollar moving forward with further selloffs expected if concerns heighten over Trump's protectionist policies negatively impacting growth in the United States. Although the prospects of higher US interest rates has the ability to protect the Dollar in the longer term, the Trump-off trading environment and sheer uncertainty could expose prices to steeper losses.

With the economic calendar fairly light today, price action should dictate where the Greenback concludes. From a technical standpoint, a breakdown below 100.00 on the Dollar Index could encourage a further selloff lower towards 99.00.

Euro parity dream resurfaces

The series of pending elections in Europe which may spark uncertainty, coupled with the threat of Eurosceptic parties gaining ground and destabilising the unity of the Eurozone continues to pressure the Euro. Sentiment remains firmly bearish towards the EUR and recent reports of Greece's debt crisis returning with a vengeance could encourage bearish traders to attack the EURUSD incessantly. The International Monetary Fund has warned that Greece may not achieve the required target to qualify for a cash bailout with discussions already on the rise of a potential Grexit. This terrible cocktail of uncertainty and political risk could ensure the parity dream on the EURUSD becomes a reality in the longer term. From a technical standpoint, the EURUSD remains slightly pressured on the daily charts with a breakdown below 1.0650 sparking a selloff lower towards 1.0500.

Commodity spotlight - Gold

In this period of uncertainty, political risk and market jitters, Gold remains a trader's best companion and such was observed this week when the precious metal charged to a fresh 3 month high at $1244.67. Risk aversion remains rife across the financial markets while developments in the United States and globally have created tension consequently boosting appetite for safe-haven investments. While the prospects of higher US interest rates this year may pressure Gold in the longer term, this yellow metal has risen to prominence in the short term with further gains expected as anxiety intensifies. From a technical standpoint, Gold is bullish on the daily charts are there have been consistently higher highs and higher lows. The current upside momentum could offer enough inspiration for bulls to send Gold higher towards $1250.

Overnight, the RBNZ kept its policy unchanged, as was widely anticipated. In a surprising twist, at least for us, the final sentences of the meeting statement retained an easing bias despite the latest improvement in economic data. The RBNZ echoed its previous policy statement and indicated that numerous uncertainties persist, particularly in the international outlook, and policy may need to adjust accordingly. In addition, the Bank reiterated that NZD remains higher than desired, and that a decline in the exchange rate is needed. On the bright side, the officials acknowledged the improvement in the domestic economy, though these upbeat points were not enough to offset their pessimistic view on the global outlook and the strength of the Kiwi. Therefore, NZD/USD slid on the decision, and continued even lower during Governor Wheeler's press conference. An interesting point that Governor Wheeler made, was that the biggest risk he sees is US President Trump's potential protectionist trade policies, something that could spark retaliation from other countries, and that may cause the Fed to tighten even faster as prices in the US rise rapidly.

NZD/USD tumbled following the decision, falling below the upside support line taken from the low of the 3rd of January and finding support slightly above the 0.7180 (S1) barrier. This shifts the short-term outlook to negative in our view and as such, if the bears manage to overcome the 0.7180 (S1) hurdle, they may target the 0.7130 (S2) support next.

Despite these dovish signals from the officials, we do not expect them to actually cut rates again in the foreseeable future absent a major shock, such as heightened global protectionism as Governor Wheeler indicated. We think that this dovish forward guidance may be an implicit way to halt any further gains in NZD, at least temporarily. As such, we believe that although the latest pullback in NZD/USD may continue in coming days, the pair's broader outlook remains cautiously positive. New Zealand's economic data are still strong, and as long as the aforementioned shocks do not materialize, we could see the pair turn up again in the foreseeable future. On the daily chart, NZD/USD is back below the downside resistance line drawn from the peak of the 7th of September. However, there is still a strong possibility for a higher low and as such, we would treat the short-term reversal as a corrective move, at least for now.

EUR/USD heads higher, but political risks persist

The US dollar slid yesterday, pushed down by a decline in the yield of US treasuries. This caused EUR/USD to rebound from the diagonal support line drawn from the low of the 16th of January. Nevertheless, given that the financial world has started paying some attention to the upcoming European elections and the political risks they pose to the bloc, we believe that this rebound is likely to remain limited. We expect the pair to come under renewed selling interest soon, and if sellers manage to drive the battle below the aforementioned support line and the 1.0630 (S1) level, we would expect them to initially pave the way for our next support of 1.0590 (S2). With regards to the broader trend, the fact that the recovery which started on the 3rd of January remained limited near the key obstacle of 1.0800 (R3) enhances our view that this was just a corrective move and that the medium-term downtrend remains intact.

Today's highlights:

During the European day, the most noteworthy economic indicator we get is Norway's GDP growth for Q4. The forecast is for growth to have rebounded notably after a decline in Q3, which is likely to be pleasant news for the Norges Bank. Something like that could diminish even further the likelihood for any further easing by the Bank in the foreseeable future and thereby, bring NOK under renewed buying interest.

In Germany, the trade balance for December is due out, though this is usually not a major market mover for the common currency.

From the US, we get initial jobless claims for the week ended on February 3rd and expectations are for an increase in the figure, something that would bring the 4-week moving average down slightly.

We have four speakers scheduled for today: BoE Governor Mark Carney, RBA Governor Philip Lowe, Chicago Fed President Charles Evans and St. Louis Fed President James Bullard.

Thursday February 9: Five things the markets are talking about

With currency manipulation trending strongly on Trump's twitter rants, tomorrow's high profile Abe-Trump summit will be closely scrutinized.

Japanese Prime Minister Abe has signaled he is prepared to discuss the currency issues at G20 and will try and convince POTUS to do the same and not just on a piecemeal one-on-one basis. Expect the PM to argue that Japan's monetary policy is aimed at battling deflation and not at weakening the yen.

The BoJ's deputy governor Nakaso also noted that while the central bank is prepared to consider raising long-term rates target in the future, momentum behind inflation does not yet justify the shift.

Yesterday, the U.K's PM Theresa May successfully passed her first hurdle and officially began divorce proceedings. As widely expected, the U.K's lower House of Parliament passed the bill to trigger Article 50, effectively starting Brexit negotiations with the E.U.

The vote was 494 in favor to 122 against; the bill now goes to the House of Lords, which is also expected to pass the bill (will be debated in the upper chamber later this month). The PM also promised that Parliament would get a vote on any Brexit deal before it is presented to the E.U.

1. Equities providing mixed results

Despite mixed results, the bulk of Asian shares climbed overnight, as investors grow somewhat more confident about China.

In Japan, the Nikkei share average fell -0.5% due to pressure from a stronger yen (¥112.28) ahead tomorrow's U.S/Japan summit.

In Hong Kong, shares hit a four-month high with mainland companies outperforming, as expectations of further yuan depreciation continues to nudge Chinese investors into the city's stocks. The Hang Seng index closed up +0.2%.

In Europe, shares are posting modest gains at the open, led by oil and mining companies, as investors seek fresh trading cues. The FTSE 100 was recently up +0.1%, while the Eurostoxx 600 index rose +0.4%.

U.S equities are set to open 'flat.'

Indices: Stoxx50 +0.3% at 3,247, FTSE flat at 7,188, DAX +0.2% at 11,561, CAC-40 +0.3% at 4,781, IBEX-35 +0.1% at 9,336, FTSE MIB -0.4% at 18,696, SMI +0.4% at 8,414, S&P 500 Futures flat

2. Oil higher on gas inventories, but bloated

Oil prices are being supported by an unexpected draw in U.S. gasoline inventories. However, bloated crude supplies should be capable of capping medium term prices.

Brent crude futures are trading up +50c at +$55.62 per barrel, U.S. light crude (WTI) is also up +50c at +$52.84 a barrel.

Yesterday's U.S. Energy Information Administration (EIA) reported a drawdown on weekly gasoline inventories - fell by -869k barrels last week to +256.2m vs. expectations for a +1.1m barrel gain. The report also showed that U.S. commercial crude inventories rose by +13.8m barrels to +508.6m.

Note: High oil inventories continue to undermine efforts by the OPEC and other producers including Russia to tighten the market by cutting production.

Gold continues to hold firm near its three-month highs hit yesterday (+$1,244.78) on dollar strength amid political and economic uncertainty on both sides of the Atlantic - U.S and Europe.

Note: Investors are concerned about the strong showing in the French presidential race of far-right candidate Marine Le Pen, who has promised to take France out of the euro zone and to hold a referendum on EU membership.

The precious metal has gained nearly +5% over the last month, and nearly +7% since the year began.

3. G7 Sovereign yields remain under pressure

The U.S bond market rally continues to question the confidence of three FOMC rate hikes this year. With the market continuing to look for guidance, Fed Chair Yellen's Congressional testimony next week may be a key determinant of near term policy bias.

Yesterday's U.S 10-year Treasury note auction drew an average yield of +2.333% compared to last month's +2.342%. The bid-to-cover was 2.29 vs. 2.22 - the average over past four-auctions is 2.52.

In Europe, yields on 10-year debt in Italy and Spain yields have dropped -3bps, while those in France were little changed.

Down-under, Aussie 10-year bonds have rallied for a fourth consecutive day, driving yields down -5bps to +2.64%, the lowest in three-months, while Kiwi bonds fell -10bps to +3.16% after the Reserve Bank of New Zealand (RBNZ) kept policy steady (as expected), and noted that policy to continue to be accommodative, but noted that global uncertainties remain.

Note: Its interest rate projections for 2017 and 2018 were "less hawkish" than market expectations.

4. FX wary of verbal intervention

With most of the major pairs trading in their 'contained' ranges on global political concerns for now, periphery G20 currencies have seen some volatile intraday swings. The NZD (N$0.7213) was one of the highlights in the overnight session.

With the market preparing for a rate liftoff from the RBNZ, the communiqué of economic projections, and subsequent commentary delivered a squarely "neutral" assessment, pushed the Kiwi down -100pts to trade atop of NZ$0.7200.

The EUR is holding just below the psychological €1.0700 level, with markets getting worried about peripheral spread widening even further on political concerns. The key support at the €1.06 level remains intact for the time being.

USD/JPY is holding above its two-month low print this week (¥111.59). Dealers are seeking guidance from tomorrows US/Japan summit. GBP is up +0.35% at £1.2567.

In China, the PBoC has skipped its reverse repo operations, calling liquidity conditions ample. USD/CNY closed at ¥6.8672.

5. Norway's Economic Recovery picks up, Bank of Mexico to hike

Data this morning shows that Norway's economic recovery picked up in Q4. GDP rose +0.3% on the quarter from a downwardly revised uptick of +0.1% in Q3.

Analysts note that GDP growth looks set to pick up further with the Government planning a fiscal stimulus worth +0.4% of GDP this year - this should favour the NOK in the medium term. EUR/NOK is trading down -0.15% at €8.8807.

Later this afternoon (02:00pm EST) the Bank of Mexico is expected to raise interest rates by +50 bps to +6.25% in order to stem inflation. The MXN, which has recovered ground in recent weeks and is now trading at levels not seen since mid-December, is down -0.15% at $20.5072.

It's been another relatively quiet start to trading on Thursday, very much in keeping with what we've seen throughout the week so far with the absence of major economic data or events offering little direction for traders.

The only event of note so far today came from New Zealand where the central bank signalled its intention not to raise interest rates until 2019, catching traders off guard with markets having priced in at least one hike this year. It seems the Reserve Bank of New Zealand is not quite as optimistic on the outlook as markets were expecting and its belief that the currency remains overvalued will only dampen its views. The New Zealand dollar has pared some of its earlier losses but still remains off more than one cent against its US counterpart.

Oil is trading up more than 1% on the day having recovered from its inventory-induced sell-off over the last couple of days. A huge inventory build over the last week, as reported by API and EIA, cast further doubts over whether efforts by OPEC and non-OPEC members to cut production will fully address the oversupply issue that has crushed oil prices in recent years. The re-emergence of US shale oil as prices have rebounded from their lows appears to be offsetting the cuts apparently being imposed as part of the production cut deal and questions are also surfacing about whether demand growth is as strong as expected. Still, oil is edging higher this morning despite all of this having reached the bottom of its trading range. Clearly it's going to take more than a large inventory build to seriously test these lows.

In general we continue to see plenty of caution in the markets which is likely attributable to the large amount of political risk and the unpredictability on Donald Trump is the early days of his tenure. Jobless claims is the only notable economic release to come today but we will also hear from Charles Evans and James Bullard, two Fed officials the first of which is a permanent voter on the FOMC. While markets have all but priced out a rate hike in March, it will be interesting to see if the Fed is on the same page.