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'At the moment markets are not driven just by pure economics and fundamentals but also by geopolitical risks, which are currently underpriced.' – Eddie Cheung, Standard Chartered Plc (based on Bloomberg)

Pair's Outlook

The common European currency's fall against the US Dollar was paused in the first hours of Wednesday's trading session, as the currency exchange rate made more attempts to pass the support cluster located below it. The support cluster consists of the weekly S1 at 1.0659 and the monthly PP at 1.0850. It is most likely that the support cluster will be passed, and the currency exchange rate will continue to move lower to the next support level, as the 55-day SMA is located at 1.0621.

Traders' Sentiment

SWFX traders have not changed their open positions, as 52% of traders remain bearish on the pair. In the meantime, 66% of trader setup orders are set up to sell the Euro.

'Sterling is stuck in a range. It's very cheap on most measures, but then real yields are very low and the current account deficit is very big.' – Societe Generale (based on PoundSterlingLive)

Pair's Outlook

The British currency surprised with its performance on Tuesday, having fully recovered from its intraday low of 1.2350 and closed above the 1.25 mark. However, the Cable was still unable to climb over the immediate resistance, namely the weekly PP, which continues to provide resistance today. The Pound still remains on the back foot, risking to edge lower once more. The tough demand area around 1.2440 is expected to prevent the GBP/USD pair from sustaining sharper losses, mainly the 100-day SMA, as it has done so on several occasions.

Traders' Sentiment

Bulls keep gaining numbers, as today 62% of traders are long the Pound and the remaining 38% are short. As for the pending orders, the share of sell ones edged lower from 57 to 54%.

'Until we have answers to some of the big (policy) questions I can't see any free space for dollar bulls to run into. They are fearful of what the administration is prepared to do to actually keep a lid on the dollar.' – Neil Mellor, Bank of New York Mellon (based on Reuters)

Pair's Outlook

A technical correction has been registered yesterday, causing the USD/JPY to almost completely erase Monday's losses. The pair, however, still remains in a bearish trend, where it traded for more than two months now. Further bullish developments could last until the 113.00/50 area is reached, as that is where the exchange rate could retest the bearish trend-line. Nevertheless, technical indicators suggest the US Dollar is to weaken against the Yen today, as they are now giving bearish signals. In this case, the area around 111.50, represented by the Bollinger band and the weekly S1 is likely to provide sufficient support if reached.

Traders' Sentiment

Today 65% of all open positions are long, up from 59% on Tuesday. At the same time, the portion of buy orders remained unchanged at 62%.

'Given the absence of significant data this week, the market's attention may be squarely on politics.' – HSBC (based on Reuters)

Pair's Outlook

On Wednesday morning the yellow metal fluctuated below the weekly R1, which is located at 1,233.81. The fluctuations are very similar to what occurred during Tuesday's trading session. However, there are differences, which give clues regarding the pair's future movements. First of all, the bullion's price was less volatile to the downside, which indicates that there is a minor support level prepping it up. Although, the resistance cluster above the commodity price is now being reinforced by the upper Bollinger band. These factors combined formulate a forecast of a flat session for the metal.

Traders' Sentiment

Traders remain neutral regarding the bullion, as 50% of open positions are long. Meanwhile, 57% of trader set up orders are to buy the metal.

"U.K. house prices continue to be supported by an ongoing shortage of property for sale, low levels of house building, and exceptionally low interest rates". - Martin Ellis, Halifax

House prices in the United Kingdom dropped unexpectedly last month, official figures revealed on Tuesday. Halifax reported its House Price Index, the longest running monthly house price measure, plunged 0.6% in January, following the preceding month's downwardly revised increase of 1.6%, while market analysts expected house prices to grow at a 0.2% pace in the reported month. The January figure marked the first monthly decline since the Brexit vote. On an annual basis, prices climbed 5.7% last month, down from December's 6.5% and below economists' forecasts. In a report, Halifax said that a lack of properties for sale, low interest rates and slow building activity would push house prices higher in the upcoming months. However, it also stated that subdued economic growth and rising pressure on consumer spending could probably weaken house price growth. In January, the average house price was 220,260 pounds. Last week, the British mortgage lender Nationwide said the average house price rose 0.2% on a monthly basis in January, following the previous month's 0.8% increase. Year-over-year, house prices grew at a 4.3% pace last month, the weakest since November 2015, compared to the December increase of 4.3%. According to Nationwide, the housing market would lose some momentum going forward.

'We may be now seeing a return of the ‘twin deficits' that we saw in the 1980s and the 2000s'. - Jeffrey Frankel, Harvard University

The US trade deficit dropped more than expected in December after two straight months of increases amid higher exports. The Commerce Department reported the country's trade gap narrowed 3.2% to $44.3 billion in the reported month, following November's upwardly revised deficit of 45.7 billion, while market analysts held expectations for a decrease to $45.0 billion. The December improvement was driven by stronger exports that posted a 2.7% monthly increase to $190.7 billion, the highest level since April 2015. Advanced technology goods were the main contributor to export growth. However, US exports remained under pressure from the strong Dollar, which rose 4.4% against other major currencies in 2016. The data showed shipments to the EU climbed 10.1%, with exports to Germany advancing 12.4%. The US President Donald Trump accused the EU's largest economy of using the weak Euro to exploit the US. Meanwhile, imports of goods and services jumped 1.5% to $235.0 billion in December, the highest since March 2015. The key drivers of import growth were attributable to higher oil prices and stronger domestic demand. Separately, the JOLTS monthly report released on Tuesday showed job opening in the US totaled 5.50 million in December, slightly down from November's revised 5.51 million and below a 5.56 million market forecast.

EUR/USD as edged lower in the Wednesday session, as the pair continues to head lower this week. Currently, EUR/USD is trading at 1.0650. In economic news, it's an unusually quiet schedule, with only three minor events. The US will release Crude Oil Inventories, with the markets expecting another strong surplus. The estimate stands at 2.7 million barrels. On Thursday, unemployment claims is expected to rise to 249 thousand.

Early on in 2017, Mario Draghi & Co. can sleep easier, as Eurozone growth and inflation numbers have been moving higher. Inflation, which has been at low levels for years, has climbed in recent months, buoyed by higher oil prices. This is positive news for the ECB, which has long tried to raise inflation with an ultra-loose monetary policy. Still, inflation levels remain well below the ECB's target of 2 percent. On Monday, ECB President Mario Draghi poured cold water on hopes of a change in monetary policy due to the improved economic climate. Draghi said that the Eurozone economy was not yet strong enough to withdraw the bank's stimulus program. Draghi's comments sent the euro lower, as EUR/USD is down 1.2 percent this week. There are also market jitters over the French presidential elections in April. Marie Le Penn, the far-right candidate in the ring, is not only a strong supporter of Donald Trump, but is hoping to pull off a Trump-style upset win. Le Pen has promised a referendum on taking France out of the European Union, which has put further pressure on the euro.

President Donald Trump continues to create controversies on a daily basis, and his brash and undiplomatic style has not endeared him to the markets. Moreover, the lack of an economic policy from the new administration is a major source of concern and the the post-election euphoria which sent the markets higher has dissipated. The Federal Reserve, which had trumpeted that it was planning a series of hikes in 2017, was more cautious in its recent rate statement and is expected to adopt a wait-and-see attitude in the coming months. If the economy continues to grow, there is a strong likelihood of another rate hike in the first half of 2017, which is bullish for the dollar. On the other hand, if Trump makes good on his promises to “make America first” and implement protectionist policies, the greenback could lose ground.

Pullback from fresh highs at 0.7694 found footstep at 0.7600 support zone, where rising 10SMA contained pullback for now.

Correction should ideally end here to keep intact larger bull-channel from 0.7163 (02 Jan low), for fresh extension higher.

However, slow stochastic that reversed from overbought territory shows more room at the downside.

Extended correction would face rising 20SMA (currently at 0.7570) that offers significant support and guards lower breakpoints at 0.7510/89 zone (former consolidation floor / 100/200 SMA’s / Fibo 38.2% of 0.7159/0.7694 ascend.

Weak near-term studies keep the downside at risk, with stronger bounce above 0.7660, needed to sideline n/t bears and re-focus initial barriers at 0.7694.

Res: 0.7640, 0.7660, 0.7694, 0.7730
Sup: 0.7604, 0.7570, 0.7510, 0.7489

Bounce from new lows at 111.61/57 and yesterday’s close above 112.00 handle, prevented the pair from the second daily close below 112.00 pivot and sidelined immediate downside threats for extended consolidation.

Recovery attempts show signals of fading, with overall structure being negative and keeping the downside at risk.

Sustained break below 112.00 would trigger fresh bearish acceleration that may extend towards strong supports at 110.30/109.91 (ascending 100SMA / daily cloud base).

Daily Tenkan-sen marks key near-term barrier at 113.47 and only firm break here would neutralize downside risk.

Res: 112.50, 112.75, 113.00, 113.47
Sup: 111.97, 111.57, 111.34, 110.83

Cable is trading around 1.2500 handle in early Wednesday following Tuesday's spike to 1.2345 support, where fall was contained by daily Kijun-sen. Subsequent sharp recovery confirmed short-lived break below thin daily cloud (spanned between 1.2388 and 1.2426), as yesterday's strong downside rejection that left long-tailed daily candle that now underpins for fresh upside action. Corrective easing from yesterday's high at 1.2544 should stay above daily cloud to keep fresh near-term bulls in play. Cracked daily Tenkan-sen (currently at 1.2525) is still acting as significant resistance and firm break above is to trigger fresh acceleration higher. Conversely, repeated violation of daily cloud would signal fresh weakness.

Res: 1.2500, 1.2525, 1.2544, 1.2567
Sup: 1.2473, 1.2426, 1.2388, 1.2345