Sample Category Title

• Fed raises rates as expected but maintains moderate outlook;
• Dutch election a success but not an excuse for complacency;
• BoE decision and US economic data still to come.

It's been a strong start to trading on Thursday, with investors buoyed by the election result in the Netherlands and the optimistic yet cautious rate hike and assessment from the Federal Reserve on Wednesday.

In raising interest rates by 25 basis points – as they strongly hinted they would ahead of the decision – and sticking to their forecasts of three rate hikes this year, the Fed appeared to tick every box. The rate hike shows confidence in the economy and by resisting any urge they may have had to raise expectations, to say four hikes this year, as some anticipated, they've kept investors onside and not raised concerns about the risk of raising too quickly.

In essence, the Fed has struck a good balance and investors are clearly on board. With this outcome fully priced in though we have seen some profit taking on pre-Fed positioning which has weighed on the US dollar in the near term, while US Treasuries have slipped slightly and commodities including Gold have been given a boost.

The result of the Dutch election appears to have filled people with a huge sense of relief, with the populist wave that has seen the UK vote to leave the EU and the US elect Donald Trump having stumbled at the euro hurdle. It would appear that lessons may have been learned from the two votes last year and people turned out in large numbers to ensure that the rot stops here.

But are we just luring ourselves into a false sense of security? Geert Wilders support in the Netherlands was never even close to that of Brexit in the UK or Trump in the US and the fact is that his party still achieved the second highest number of seats and closed the gap dramatically compared to the last election, with Labor being decimated this time around. People may want to celebrate the result now but as we saw in the UK, Wilders is playing the long game and support is growing. If the eurozone doesn't address the very issues that are driving people to support him, they may not be so lucky next time around.

The situation in France was always a much bigger risk, with support for Marine Le Pen being far greater than Wilders – possibly aided by her less extreme views in some areas. While we may see greater voter turnout than normal from those wanting to block Le Pen, as appears to have been the case in the Netherlands, it's far too soon to declare victory. Le Pen is still a serious candidate and will likely use the Dutch election to rally her supporters to head to the polls in droves and make their voices heard to those in Brussels that prefer to bury their head in the sand.

Two of this week's main events may be out of the way but things are unlikely to ease up, with the Bank of England becoming the third central bank to announce its latest monetary policy decision today. While no change is expected, attention will be drawn to the minutes after reports yesterday that they could consider raising interest rates next month, a scenario that seems extraordinarily unlikely at this moment. There's also plenty of US economic data still to come including building permits, Philly Fed manufacturing index, jobless claims, housing starts and JOLTS job openings.

GBP/USD - 1.2259

Original strategy :

Buy at 1.2220, Target: 1.2320, Stop: 1.2185

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2200, Target: 1.2310, Stop: 1.2165

Position : -

Target :  -

Stop : -

As cable rallied again after finding renewed buying interest at 1.2178 yesterday, suggesting the rise from 1.2109 low is still in progress for retracement of recent decline, above 1.2310 resistance would extend gain to 1.2335-40 (61.8% Fibonacci retracement of 1.2479-1.2109), however, previous support at 1.2347 should turn into resistance and limit cable’s upside, bring retreat later.

In view of this, we are looking to buy cable on pullback as 1.2220-30 should limit downside and bring another rise. Only below said support at 1.2178 would abort and signal the rebound from 1.2109 has possibly ended, risk weakness to 1.2145-50 first.

EUR/USD - 1.0722

Original strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

As the single currency found renewed buying interest at 1.0600 yesterday and has rallied, reviving our bullishness for recent erratic upmove from 1.0493 low to extend further gain to 1.0755, break there would encourage for headway to 1.0775-90 but reckon resistance at 1.0799 would limit upside and price should falter well below resistance at 1.0829, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as the Kijun-Sen (now at 1.0677) should limit downside. Below the upper Kumo (now at 1.0657) would signal top is formed, bring weakness to 1.0620-25 but said support at 1.0600 should remain intact.

The DAX Index has edged lower in the Thursday session. Currently, the DAX is at 12,129.05. On the release front, Eurozone Final CPI improved to 2.0%, matching the forecast. Eurozone Final Core CPI also matched its estimate, remaining at 0.9%. It’s a busy day in the US, with the release of three key indicators – Building Permits, Philly Fed Manufacturing Index and unemployment claims. The week wraps up with consumer confidence data, with the release of UoM Consumer Confidence on Friday.

There were no raised eyebrows when the Federal Reserve raised rates by a quarter-point on Wednesday. The hike, the second in just three months, raised the raised the benchmark lending rate to a 0.75%-1% range. What was not expected, however, was the sharp drop of the dollar against its major rivals, including the euro. The markets were hoping that a red-hot US economy would propel the Fed to accelerate its pace of monetary tightening. There was disappointment as Fed Chair Janet Yellen reiterated that further rate hikes would be done gradually, pushing the dollar on Wednesday.

The eurozone continues to post improved inflation and growth data, and this has led to calls in some quarters for the ECB to tighten monetary policy. The ECB has kept the benchmark rate at a flat 0.0%, and its asset-purchase program does not expire until December. Will ECB President Mario Draghi taper the monthly purchases or at least signal such an intent? Draghi is doing his best to perform a complicated balancing act. A stronger economy would favor tighter policy, but he does not want ECB to become entangled in heated political contests in Europe. Dutch voters went to the polls on Wednesday, and France and Germany will hold elections in April and September, respectively.

Governments across Europe breathed a sigh of relief following the results of the election in the Netherlands. The centre-right coalition of Prime Minister Mark Rutte won the most votes, handily defeating the anti-EU Freedom Party, headed by Geert Wilders. The election was closely watched across Europe, as it was viewed as a bellwether of populist sentiment on the continent. Leaders in France and Germany, who are also facing tight races due to rising anti-EU sentiment, are hopeful that they can copy Rutte’s recipe for electoral success. The election results have helped push the euro to its highest level February 5.

USD/JPY - 113.45

Original strategy  :

Sell at 114.00, Target: 113.00, Stop: 114.35

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.00, Target: 113.00, Stop: 114.35

Position :  -

Target :  -

Stop : -

Although the greenback tumbled today and dropped below 113.00 level, lack of follow through selling and current rebound suggest consolidation above support at 112.90 would be seen and recovery to 113.55-60 cannot be ruled out, however, reckon 114.00-05 would limit upside and bring another decline later. A break of said support at 112.90 would extend the fall from 115.51 to 112.76-77, then towards 112.50 but reckon downside would be limited to 112.00-10, bring rebound later.

In view of this, we are looking to sell dollar on recovery as 114.00 should limit upside. Only above previous support at 114.48-52 would abort and signal low is formed instead, risk a stronger rebound to 114.89 resistance first, break there would signal the retreat from 115.51 has ended, then gain to 115.20 resistance would follow.

Central bank decisions remain in focus SNB and Norges keeps policy steady; BOE expected to do the same

Notes/Observations

Easing off the monetary accommodation (Fed and HKMA hike; PBoC tweaks operations)

Netherland PM Rutte beats anti-Islam leader Wilder in national election as PVV party again the the largest component for 3rd time in a row; Dutch say ‘no' to the wrong kind of populism as it stemmed rise of European far-right

SNB leaves policy unchanged and reiterates to remain active on FX as CHF currency (Swiss) seen as significantly overvalued

Norway Central Bank (Norges) Policy Statement tilted on the dovish side

Overnight:

Asia:

Hong Kong Monetary Authority (HKMA) raised its Base Rate by 25bps to 1.25%, tracking FOMC hike (Reminder USD/HKD is pegged)

Bank of Japan (BOJ) keeps policy unchanged (as expected). Leaves Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintain its policy framework of "QQE with Yield Control" and asset purchases at annual pact of ¥80T; maintains its economic assessment of a gradual moderate recovery

PBoC raised interest rates on operations for the 3rd straight month by 10 basis points on medium-term lending facility (MLF) loans and its open market operation reverse repurchase agreements; by 20bps on Short-Term Lending Facility (SLF) to help steady yuan currency and address debt issue; PBoC reiterated that no change in its overall monetary policy stance after rate moves

Australia Mar Consumer Inflation Expectation hits a 3-month low (4.0% v 4.1% prior)

Australia Feb Employment Change disappoints as it registers its first decline in 5 months (-6.4K v +16.0Ke) while Unemployment Rate hits a 13-month high (5.9% v 5.7%e)

Europe:

Dutch political parties preparing to start a long process of coalition talks after PM Rutte's VVD party easily won national elections; VVD has 33 seats, eight fewer than in 2012. The far-right populist Party for Freedom of Wilders is second with 20 seats, five more than the last time but still a stinging setback

Americas:

Fed raises Interest Rates by 25bps (as expected) with vote at 9-1 with Kashkari dissenting (unanimous was expected)

Hawaii federal judge blocks President Trump's new travel ban hours before it was due to begin

President Trump budget plan said to cut 10% from overall budget; request $30B in supplemental funds for defense and border security in FY17; cut EPA funds by 31% and State Dept by 28% - Moody's raised Brazil sovereign outlook to stable from negative; affirmed its Ba2 rating

Economic data

(CH) Swiss National Bank (SNB) left its Sight Deposit Interest Rate unchanged at -0.75% and maintained the 3-Month Libor Range from between -0.25 to -1.25% (as expected)

(SE) Sweden Feb Unemployment Rate: 7.4% v 7.3%e; Unemployment Rate (Seasonally adj): 6.8% v 6.8%e

(HK) Hong Kong Feb Unemployment Rate: 3.3% v 3.3%e

(NO) Norway Central Bank (Norges) left Deposit Rates unchanged at 0.50% (as expected)

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €4.18B vs. €4.0-5.0B indicated range in 2022, 2026, 2028 and 2046 bonds

Sold €1.67B in 0.4% Apr 2022 SPGB; Avg yield: 0.548% v 0.487% prior; Bid-to-cover: 1.45x v 1.88x prior

Sold €1.39B in 1.30% Oct 2026 SPGB; Avg yield: 1.682% v 1.450% prior; Bid-to-cover: 1.56x v 1.41x prior

Sold €1.08B in 5.15% Oct 2028 bono; Avg Yield 1.935% v 1.894% prior; Bid-to-cover: 1.33x v 1.67x prior

Sold €674M in 2.90% Oct 2046 Oblig; Avg Yield 3.044% v 2.761% prior; Bid-to-cover: 1.56x v 1.43x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 09:40 GMT)

Indices [Stoxx50 +1.1% at 3,447, FTSE +1.0% at 7,439, DAX +1.0% at 12,134, CAC-40 +0.8% at 5,025, IBEX-35 +1.6% at 10,142, FTSE MIB +1.6% at 20,085, SMI -0.3% at 8,666, S&P 500 Futures +0.2%]

Market Focal Points/Key Themes: European equity indices are trading sharply higher after the Fed decided to hike interest rates overnight as expected; Market participants await the BoE monetary policy decision and post-decision comments scheduled later today; Banking stocks leading the gains once again across Europe with the heavily peripheral-lender weighted Spanish IBEX and FTSE MIB indices the outperformers as a result; Energy, commodity and mining stocks trading notably higher in the FTSE 100 as copper and oil prices trade sharply higher intraday; shares of Anglo American leading the gains in the index after Peru's Volcan announced plans to acquire up to a £2B stake.

Upcoming scheduled US earnings (pre-market) include Dollar General, JA Solar, and Moneygram International.

Equities (as of 09:30 GMT)

Consumer Discretionary: [Bechtle BC8.DE +1.3% (final FY16 results, div increase), Lufthansa LHA.DE +4.1% (Q4 results)]

Consumer Staples: [Sainsbury SBRY.UK -0.1% (Q4 sales)]

Energy: [Bourbon GBB.FR -6.3% (final FY16 results)]

Financials: [Generali G.IT +2.7% (FY16 results), OneSavings Bank OSB.UK -1.3% (FY16 results)]

Healthcare: [Emis EMIS.UK -2.3% (FY16 results), Medivir MVIRB.SE +0.7% (out-licensing agreement with Janssen), Shire SHP.UK -0.5% (EU approval for CINRYZE)]

Industrials: [Anglo American AAL.UK +9.1% (Peru's Volcan plans to acquire £2B stake), Balfour Beatty BBY.UK -1.9% (FY16 results), Salini Impregilo SAL.IT +3.4% ($435M Dubai contract)]

Materials: [K+S SDF.DE -0.9% (Q4 results)]

Technology: [IMImobile IMO.UK +0.6% (signs global agreement with Telenor)]

Speakers

ECB's Liikanen (Finland) reiterated Council view that Euro-area growth has become more broad-based but stimulus was still needed as inflation not yet on target

SNB Quarterly Statement reiterated that the CHF currency (Franc) remained significantly overvalued and would remain active in FX markets and intervene if necessary. It also reiterated that it saw a moderate economic recovery but marked with considerable uncertainty due to international factors

Norway Central Bank (Norges) Policy Statement noted that it saw the key rate at current level in 'period ahead' and prospects that inflation would be lower than expected earlier. Reiterates it still saw slightly higher chance of rate cut vs. hike

Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that it policy was expansionary and that the Outlook on growth was that it would accelerate while inflation was seen lower than forecasted earlier

Italy Fin Min Padoan reiterated that domestic economic growth pace will accelerate in both 2017 and 2018

Turkey Presidential advisor Gedikli reiterated view that TRY currency (Lira) FX fluctuations die to manipulation and speculation

German Fin Min Schaeuble commented on upcoming G20 (Germany hosts it): Communique should send message that international cooperation continues during a time of growing geo-political risks. To pursue US as to its trade and tax policies; does not expect US to roll back all of its financial market regulations that were introduced. Rejection of foreign exchange rate manipulation likely to remain in final communique

Poland Central Bank's Lon stated that he saw no need to change rates over the next 12 months as did not see any bad effects of negative real interest rates

BOJ Gov Kuroda post rate decision press conferencereiterated view that domestic recovery was on a moderate trend and would adjust policy as needed. Reiterated that BOJ continue with its powerful easing via QQE (bond buying) and Yield Curve Control (YCC) as long as necessary to achieve the 2% inflation target as momentum for 2% inflation target was not strong enough. Saw no change on Ministry of Finance (MOF) stance on FX

Currencies

The USD retraced some of its post FOMC losses after US yields plunged after the Fed hiked interest rates by 25bps (as expected) but maintained its outlook for gradual hikes (aka ‘dovish hike'). Dealers had noted that the greenback rally needed the expectations of a faster pace of rate hikes to maintain its post Trump election rally. The USD was at 1-month lows against numerous pairs as a result that two more Fed hikes were seen in 2017 (in-line with prior Fed views).

EUR/USD stayed above the 1.07 handle to test 5-week highs neat 1.0750 area after Dutch PM Rutte beat anti-Islam leader Wilder. Party for Freedom of Wilders came in 2nd place with 20 seats (5 more than the last time) but the overall results was viewed as a stinging setback

USD/JPY tested the 113.00 during the BOJ Kuroda post rate decision press conference but rebounded during the European morning. The pair was little changed from its Asian opening of 113.45 as the NY morning approached

China's CNY currency (yuan) also firmed and was bolstered by hikes in its short-term rates for reverse reops, SLF and MLF operations (3rd such hike this year).

Fixed Income:

Bund futures trade at 159.81 down 29 ticks reversing opening gains as initial strength from a more dovish FED was countered by strong gains in European indices. A move back towards highs targets 160.47 followed by 160.66. Support lies 159.42 followed by week and contract low at 158.73.

Gilt futures trade at 126.40 down 3 ticks fading earlier gains in line with Bunds ahead of the BoE rate decision later today. Support moves to 126.14 followed by 125.75 then 125.57 with further weakness eyeing 125.24. Resistance moves to 126.75 then 126.87 followed by 127.35. Short Sterling futures trade flat to slightly higher with Jun17Jun18 spread flattening to 15/15.5bp.

Thursday liquidity report showed Wednesday's excess liquidity rose to €1.373T a rise of €0.4B from €1.3726T prior. Use of the marginal lending facility fell to €128M from €976M prior.

Corporate issuance saw just one issuer coming to market with CA Inc selling $850M in a 2 part offering. This puts weekly issuance at $19.2B. Issuance is expected to pick up following the conclusion of the FED rate decision.

Looking Ahead

(ID) Indonesia Central Bank (BI) Interest Decision: Expected to leave 7-Day Reverse Repurchase Rate unchanged at 4.75%

05:50 (FR) France Debt Agency (AFT) to sell €6.0-7.0B in 2020 and 2022 Oats (3 tranches)

06:00 (EU) Euro Zone Feb CPI M/M: +0.4%e v -0.8% prior; Y/Y (Final reading): 2.0%e v 2.0% advance; CPI Core Y/Y: 0.9%e v 0.9% advance

06:00 (GR) Greece Q4 Unemployment Rate: No est v 22.6% prior

06:00 (EU) Daily Euribor Fixing - 06:00 (SE) Sweden to sell I/L Bonds

06:30 (HU) Hungary Debt Agency (AKK) to sell Bonds (3 tranches)

06:30 (IE) Ireland Debt Agency (NTMA) to sell €500M in 12-month Bills

06:50 (FR) France Debt Agency (AFT) to sell €1.5-2.0B in 2023, 2030 and 2040 I/L bonds (Oatei)

07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave Benchmark Repurchase Rate unchanged at 8.00%

07:45 (US) Daily Libor Fixing

08:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25%

08:30 (US) Mar Philadelphia Fed Business Outlook: 30.0e v 43.3 prior

08:30 (US) Initial Jobless Claims: 240Ke v 243K prior; Continuing Claims: 2.05Me v 2.058M prior

08:30 (US) Feb Housing Starts: 1.26Me v 1.246M prior; Building Permits: 1.27Me v 1.293M prior (revised from 1.285M)

08:30 (CA) Canada Jan Int'l Securities Transactions (CAD): No est v 10.2B prior

08:30 (US) Weekly USDA Net Export Sales

08:30 (DE) German Fin Min Schaeuble participates on panel at IIF Conference, Frankfurt

09:00 (RU) Russia Gold and Forex Reserve w/e Mar 10th: No est v $393.4B prior

09:00 (PL) Poland Jan Current Account: +€0.3Be v -€0.5B prior; Trade Balance: +€0.4Be v -€0.2B prior

09:00 (PL) Poland Feb Employment M/M: 0.1%e v 2.8% prior; Y/Y: 4.5%e v 4.5% prior

09:00 (PL) Poland Feb Average Gross Wages M/M: 0.7%e v -7.7% prior; Y/Y: 4.0%e v 4.3% prior

09:15 (UK) Baltic Dry Bulk Index

10:00 (US) Jan JOLTS Job Openings: 5.562Me v 5.501M prior

10:30 (US) Weekly EIA Natural Gas Inventories

11:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills

11:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

15:00 (AR) Argentina Q4 Unemployment Rate: 8.0%e v 8.5% prior

17:00 (CL) Chile Central Bank (BCCH) Interest Rate Decision: Expected to cut Overnight Rate Target by 25bps to 3.00%

On the hourly chart of GBPUSD, we are looking a a new reversal higher being made, after some support came kicking in at the 1.2109 level. We see blue wave one, which may have just found some resistance around the 1.2308 zone and current intraday weakness may be wave two, which can see some support around the 50.0 or 61.8 Fibonacci ratio.

GBPUSD, 1H

'All told, the combination of meagre wage growth despite very low unemployment supports the Monetary Policy Committee's view that enough slack remains in the labour market to warrant keeping rates on hold during the imminent period of high inflation'. - Samuel Tombs, Pantheon Macroeconomics

The British unemployment rate hit its lowest level since 1975 in the three-month period to January, while the number of Britons filing for unemployment benefits dropped for the third consecutive month in February. The Office for National Statistics reported on Wednesday that the claimant count fell 11,300 to 734,700, the lowest level since May 1975, last month, following January's downwardly revised decline of 41,400 and surpassing analysts' expectations for a rise of 3,200. The ONS also reported that the unemployment rate dropped to 4.7%, the lowest since the summer of 1975, in three months to January, amid a 31,000 decline in the number of unemployed people. Meanwhile, analysts expected the rate to remain unchanged from the prior period at 4.8%. On the downside, average earnings rose just 2.2% on an annual basis in January, after climbing 2.6% in the prior month, whereas economists penciled in a 2.4% increase. The ONS senior statistician David Freeman said that even though the unemployment rate hit its lowest since 1975, slow wage growth and surging inflation raised concerns over the health of the UK labour market. After the release, the British Pound rose markedly against the US Dollar, touching its intraday high at 1.2257.

'We have seen the economy progress over the last several months in exactly the way we anticipated'. - Janet Yellen, Federal Reserve

As analysts expected, the US Federal Reserve raised interest rates at its March monetary policy meeting on Wednesday amid rising inflation, solid economic growth and the strong labour market. The Central bank lifted its overnight interest rate by 25 basis points to a range of 0.75% to 1.00%. This was the necessary step to get the Bank's monetary policy back to a normal footing. The Fed Chair Janet Yellen said in a statement that the economy performed strong over the last couple of months, in line with policymakers' forecasts. The Fed also confirmed its intention to raise rates at least two more times this year, if the economy remains on the track. Fed officials noted that inflation was close to the Bank's target of 2% and corporate investment rebounded after a few months of weakness. Analysts suggest that interest rates are unlikely to return to a neutral level until the end of 2019. Moreover, some analysts see a faster pace of increases in 2017. Earlier on the day, the Bureau of Labour Statistics reported consumer prices rose 0.1% last month, following January's gains of 0.6% and surpassing analysts' expectations for a 0.0% reading. Meanwhile, core inflation advanced 0.2%, slightly down from a 0.3% climb seen in January but in line with forecasts. Other data released showed retail sales and core retail sales rose 0.1% and 0.2%, respectively.

The pair came under strong pressure after dovish Fed on Wednesday and extended losses in early Thursday, probing below 113.00 support.

Sharp reversal after multiple failures to break above daily cloud, turned near-term picture into full bearish mode, with long red candle that was left on Wednesday, signaling reversal and weighing strongly on the market.

Fresh weakness cracked 113.13 support (Fibo 61.8% of 111.67/115.49 upleg) with close below it to generate another bearish signal for extension towards next target at 112.57 (Fibo 76.4%).

Broken daily Kijun-sen offers initial resistance at 113.58, with thickening daily cloud (cloud base lies at 114.17 today), maintaining strong pressure and expected to cap upticks.

Res: 113.58' 114.07' 114.17' 114.87
Sup: 113.13' 112.89' 112.57' 112.00