'Participants still look to play on the long side. However, we may see profit-taking push the metal towards the 100-day moving average at $1,220.25.' – Sam Laughlin, MKS PAMP Group (based on Reuters)

Pair's Outlook

On Tuesday morning the yellow metal's price declined, and the decline in the price can be explained by using not only technical but also fundamental analysis. From a fundamental perspective, profit taking occurred due to large jump, which occurred on Monday. Meanwhile, from a technical perspective it can be seen that the bullion's price jumped out of the borders set by the Bollinger bands and encountered the weekly R1. Due to that reason the commodity price is declining, and it is most likely to retreat to the 1,220 levels, where the next notable support cluster is located at.

Traders' Sentiment

SWFX traders are neutral on the metal, as 50% of trader open positions are long. In the meantime, 60% of trader set up pending commands are to buy the metal.

'All recent data point to a very strong start for 2017 in Germany and in the euro area after a very good fourth quarter'. - Julian Trahorsch, Landesbank Baden-Wuerttemberg

Germany factory orders rose markedly in the last month of 2016, driven by a sharp increase in demand for investment goods, official figures revealed on Monday. According to the Economy Ministry, German industrial orders advanced at seasonally adjusted rate of 5.2% in December, following the preceding month's downwardly revised fall of 3.6% and surpassing market analysts' expectations for an increase of 0.6%. The December pace was the strongest since July 2014. On an annual basis, factory orders grew 8.1% in December. Monday's data provided evidence that economic growth accelerated in the final quarter of 2016 after climbing just 0.2% in the Q3 of 2016. The Q4 2017 GDP data is scheduled to be released on February 2014. The majority of analysts suggest the economy expanded at a 0.5% pace during the Q4. However, their long-term forecasts are less optimistic in large due to the upcoming German federal elections. Yesterday's data also showed export orders climbed 10% month-over-month in December, driven by a 19.5% increase in demand for capital goods from the Euro zone. Meanwhile, domestic orders advanced 6.7% during the same period. On a quarterly basis, factory orders grew 4.3% in the Q4. After the release, the Euro extended its losses, falling to 1.0746 against the US Dollar.

'With this in mind we expect that the RBNZ will keep the OCR unchanged this Thursday when it releases its February Monetary Policy Statement. We also expect that they will retain the neutral stance of its November statement'. - Westpac

New Zealand's inflation expectations advanced markedly in the first quarter of 2017, the latest quarterly survey revealed on Tuesday. In a report, the Reserve Bank of New Zealand said two-year inflation expectations climbed to 1.92% in the first quarter, the highest level since 2014, from 1.68% in the preceding quarter. However, inflation is expected to remain below the Central bank's inflationary target of 2%. The survey also showed that one-year inflation expectations that are less important for the Bank's monetary policy advanced to 1.56% from 1.29% in the previous quarter. Inflation expectations are closely followed by the RNBZ, as they provide advance knowledge of future inflation. Inflation expectations remained low over the past several years amid low headline inflation. Nevertheless, Tuesday's promising data combined with December's rise in headline inflation above 1% suggest that inflation might actually improve in the upcoming months. However, analysts say that inflation is unlikely to return to 2% in the near term. Moreover, rapid population growth and the economy's productive capacity put pressure on economic growth. After the release, the New Zealand Dollar rose from 67.90 to 68.72 against the Euro, from 58.65 to 59.02 against the British Pound.

'This is very clearly a message from a central bank that does not want to cut interest rates any further'. - Paul Bloxham, HSBC

As markets expected, Australia's Central bank left its key interest rates unchanged at a record low of 1.5% at the end of its monetary policy meeting on Tuesday and signaled it would keep the rates on hold for a considerable period. According to the Reserve Bank of Australia's latest forecasts, the economy is expected to expand at an annualized pace of 3% over the next several years, while inflation is likely to rise above the Central bank's 2% inflationary target already this year. In the final quarter of 2017, Australian inflation rose 1.5% year-over-year, missing forecasts and staying below the RBA's 2% target. Since the world's major central banks are unlikely to ease their monetary policies in the near term, analysts suggest that the RBA would follow the exact same pattern. Moreover, some analysts say that the Central bank is likely to keep its interest rates steady until 2018. After the release, the Aussie rose against other major currencies, climbing against the Greenback from 0.7637 ahead of the release to 0.7675. Tuesday's statement also pointed to the inconsistent housing market trends, saying that while some regions see sharp increases in prices, others experience subdued price growth. A report released by CoreLogic last week showed prices in capital advanced 10.7% in 2016 after climbing 7.4% in the preceding year.

The Aussie dollar eased on stronger greenback today, following repeated rejection under 0.7700 barrier.

Risk of reversal is increasing as daily RSI / slow Stochastic emerge from overbought territory and generate negative signal.

Dips for now hold above initial supports at 0.7607/02 (former high / daily Tenkan-sen) but firm break lower would be a signal of correction.

Rising daily 20SMA (currently at 0.7560) should ideally contain to keep intact pivots at 0.7510 (higher base) and 0.7489 (200 SMA / Fibo 38.2% of 0.7159/0.7694 rally).

Break below the latter is needed to confirm reversal.

Res: 0.7679, 0.7694, 0.7730, 0.7776
Sup: 0.7602, 0.7560, 0.7510, 0.7489

The pair eventually broke and closed below strong 112.00 support and cracked the top of weekly Ichimoku cloud (111.77), on extension below.

Bearish technicals on all timeframes favor further weakness, with light supports at 111.34 (28 Nov trough) and 111.00 (round-figure) seen on the way towards next target at 110.00 zone (110.19, ascending 100SMA and 109.91, daily cloud base / 50% retracement of 101.17/118.65 upleg).

Repeated close below 112.00 handle is needed to confirm break.

Former base at 112.50 offers solid resistance, guarding 112.75/113.00 barriers, which are expected to ideally cap extended corrective rallies.

Daily Tenkan-sen (currently at 113.47) marks the upper breakpoint.

Res: 112.50, 112.75, 113.00, 113.47
Sup: 111.34, 110.83, 110.19, 109.91

Cable broke below thin daily cloud and met next target at 1.2345 (daily Kijun-sen) on today’s strong acceleration lower.

Rising bearish pressure sees risk of further downside action towards 1.2260 (Fibo 61.8% of 1.1986/1.2704 rally).

Meantime, the fall may pause at Kijun-sen support, as slow stochastic is breaking into oversold territory.

Corrective upticks are expected to precede of fresh weakness, as sentiment is negative.

Broken daily cloud (spanned between 1.2388 and 1.2426) marks good resistance, with extended correction to be capped by broken falling 100SMA (currently at 1.2457).

Res: 1.2388, 1.2426, 1.2457, 1.2485
Sup: 1.2345, 1.2300, 1.2260, 1.2200

The Euro broke below daily Tenkan-sen (1.0723) and 20SMA (1.0691) supports and extended losses on today's fresh acceleration lower.

With 1.0700 support zone that held during past two days being taken out, the pair heads towards next pivot at 1.0641 (Fibo 38.2% of 1.0318/1.0827 ascend).

Break here is needed to confirm reversal and open way for extension towards daily Kijun-sen at 1.0583, possibly to daily cloud base at 1.0550.

Broken Tenkan-sen now acts as resistance (1.0723) which should limit corrective attempts and keep fresh near-term bears in play.

Res: 1.0692, 1.0723, 1.0754, 1.0789
Sup: 1.0641, 1.0600, 1.0583, 1.0550

EUR/USD

Current level - 10685

The intraday bias remains bearish, as the pair is currently testing the dynamic support around current levels. Crucial on the upside is 1.0750 and only a break through the latter will reinstate the positive outlook for 1.0870.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 111.98

The bias remains negative, for a break through 111.40 major support, towards 109.80 area. Crucial on the upside is 113.00 zone.

GBP/USD

Current level - 1.2435

There is no sign of a reversal here and and eventual break through 1.2415 support could challenge 1.2240 area. Crucial on the upside is 1.2535 high.

Sunrise Market Commentary

• Rates: Eyes on EMU bond markets; technical picture Bund improves
  The short term technical picture of the Bund improved as yesterday's safe haven bid pushed the contract above resistance, suggesting further gains towards 164.90. Worries about Italy/France/Greece caused spread widening on EMU bond markets and generated the risk aversion. Today's eco calendar is empty, suggesting eyes will remain on EMU bond markets..
• Currencies: Euro weakness to prevail?
  Yesterday, European political uncertainty weighed on the euro and this process continues this morning. The dollar shows a mixed picture. USD/JPY dropped below a first line of defensive. A break below 111.16 support would be USD negative. Sterling is trading soft as the Brexit debate in the UK parliament continues.

The Sunrise Headlines

• US equities ended flat to marginally lower (S&P), withstanding European risk aversion. Overnight, most Asian stock markets marginally lose ground.
• German industrial production unexpectedly fell in December, signalling that Europe's largest economy isn't immune to heightened global uncertainty. Production declined 3% M/M, while consensus expected a 0.3% M/M increase.
• Australia's central bank held rates steady at its first policy meeting of the year, playing down a recent soft patch in economic growth as a temporary hiccup that would not prevent a pick up to a healthy 3-percent pace over time.
• A stand-off with European authorities over the terms and future of Greece's bailout has led to a rare public split on the International Monetary Fund's board, amid growing questions over the fund's participation.
• French conservative presidential candidate Fillon, moved to stabilize his faltering campaign by apologizing to the country for having employed his wife and children as parliamentary aides rejecting accusations the jobs were phony.
• Philly Fed president Harker, who votes on policy this year, said he could support raising short-term interest rates at the central bank's next meeting in March. He also reiterated that he supports around three rate hikes this year.
• British lawmakers rejected the first set of proposed amendments to legislation that would give Prime Minister Theresa May the right to notify the European Union of Britain's intention to leave the bloc.
• Japan will stick to a G7/G20 agreement against competitive currency devaluation and continue to use monetary policy to achieve its inflation goal, without targeting currencies, Finance Minister Taro Aso said.
• Today's eco calendar only contains US trade balance. Supply is heavy with Austria, the Netherlands, Germany (inflation), the US and Belgium (probably syndication 7-yr & 40-yr OLO) tapping the market. ECB Weidmann speaks

Currencies: Euro Weakness To Prevail?

Euro weakness prevails

On Monday, sentiment turned risk-off as markets focused on political uncertainty in Europe, in particular in France. Intra-EMU spreads widened and EUR/USD declined to finish the day at 1.0750 (from 1.0783). At the same time, risk-off sentiment and declining core yields support the yen. USD/JPY tested again the 112 area and finally dropped below this area to close the session at 111.74 (from 112.61). EUR/JPY also dropped below the mid-January correction low/support at 120.55.

Overnight, Asian equity markets trade in line with US yesterday evening (minor losses). The dollar is in the defensive against the yen. USD/JPY touched an intraday low in the 111.60 area and trades currently in the 111.80 area. At the same time, the dollar is rebounding against most regional currency (KRW, TWD, CNY …). EUR/USD is trading in the 1.0710 area, within reach of the post-payrolls low. The Reserve bank of Australia left its policy rate unchanged at 1.5%. The Bank remains positive on growth, but the return of inflation north of 2% will continue at a gradual pace. The rise in commodity prices is a positive, but a rise in the Aussie dollar could complicate the transition process in the economy. The Aussie dollar jumped from the 0.7640 area to the 0.7680 area.

Today, the German industrial production is the only important event during the European session. It was weak, but after strong orders yesterday, it had FX impact. In the US, the trade balance is expected to show a deficit of $ 45 bln in December. A bigger than expected deficit might get some more attention as president Trump tries to bring back production to the US and attacks countries with currencies he considers too weak. A negative surprise might be slightly USD negative. Yesterday, euro weakness and a global risk-off sentiment dominated currency trading. Markets keep an eye on the French political scene. Will presidential candidate Fillon be able to change fortunes after yesterday's speech? Euro uncertainty might persist even as the pace of the euro decline may slow. The price action in USD/JPY is also interesting. The pair dropped below the 112 support. Risk sentiment and interest rate differentials are an important driver, but yen traders also look forward to the meeting between PM Abe and President Trump later this week. The weak yen might be a point of debate at this meeting.

Global context. The dollar is in a (presumed) corrective downtrend against most majors since the start of January. The USD rally due to the Trump reflation trade petered out. Interest rate differentials in favour of the dollar narrowed. Trump politics/communication has become a sources of global uncertainty for the dollar. EUR/USD broke a minor resistance at 1.0775. Next resistance is at 1.0874. A return above EUR/USD 1.0874 would question the short-term USD positive outlook. At some point, the absolute interest rate support should provide a USD floor, especially as the Fed is still expected to continue its monetary policy normalisation. Yesterday's price action illustrated that euro weakness might still be a factor too. The 1.0874 resistance looks solid. A cautious sell EUR/USD on upticks can be considered. USD/JPY is trading well off the post-Trump highs (118.60/66) and dropped below the112 support. USD/JPY 111.16 (38% retracement of the 99.02/118.66 rally) is the next key support. A break below this area is clearly USD negative.

EUR/USD: Topside test rejected. Euro weakness dominates

EUR/GBP

Sterling caution as Brexit debate continues

On Monday, sterling trading was driven by global sentiment on risk and by the Brexit debate in the Lower House. Cable extended the decline that started after the BoE policy assessment last week. The pair finished the session at 1.2439. The euro was in the defensive across the board due to political uncertainty in continental Europa. This euro weakness was also a bit visible in EUR/GBP. The pair closed the session at 0.8622. However, the decline of EUR/GBP remains modest given the losses in other euro cross rate. This suggests some Brexit driven caution, too.

This morning, UK BRC like for like sales disappointed at (-0.6% Y/Y). Is this another signal that the positive domestic momentum is waning? Later today on the Halifax house prices will be published. The focus will remain on the Brexit debate in Parliament. Until now a series of amendments were rejected, but the process might go a bit less smooth today. The debate in Parliament might be neutral to slightly negative for sterling in a day-to-day perspective. Last week's balanced approach of the BoE capped the topside of sterling and helped to start a cautious bottoming out process for EUR/GBP. EUR/GBP 0.8450 support looks again a bit better protected. The sterling momentum is waning, but euro weakness is becoming on issue, too. Even so, yesterday's loss of EUR/GBP remained modest. A cautious buy-on-dips approach is preferred. The price action in cable also suggests that further sterling gains against the dollar won't be easy.

EUR/GBP: 0.8450 support better protected after soft BoE policy assessment

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