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Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Committee's 2 percent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Neel Kashkari, who preferred at this meeting to maintain the existing target range for the federal funds rate.

West Texas crude is showing little movement in the Wednesday session, as WTI/USD stays close to the $48 level. In North American trade, WTI crude futures are trading at $48.60. Brent Crude is trading at $51.65, as the Brent premium stands at $3.05. On the release front, there were no surprises from key US consumer reports, as retail sales and CPI posted small gains in February. Today's highlight is the Federal Reserve policy meeting, with the central bank widely expected to raise the benchmark rate a quarter-point, from 0.50% to 0.75%. On Thursday, the US will release a host of key indicators, led by unemployment claims.

Oil prices remain under strong pressure. West Texas crude plunged 8.7 percent last week and dipped below the $47 level on Tuesday. This was in response to reports that Saudi Arabia has increased oil production above 10 million barrels a day, raising concerns about a global oil glut. Meanwhile, US Crude Oil Inventories finally reversed directions, posting a drawdown of 0.2 million barrels, compared to an estimate of 3.3 million. This decline comes after the indicator posted 11 surpluses in the past 12 weeks, reflective of increasing US shale production. The string of surpluses has dampened OPEC's hopes of raising prices, as the cartel cut production levels at the beginning of January. Compliance with the agreement stands at an impressive 94% and OPEC had high hopes of pushing crude to $60 or more, but oil prices continue to lose ground in 2017.

All eyes are on the Federal Reserve, which will issue a rate announcement later on Wednesday. With the markets expecting a quarter-point rate hike on Wednesday, will the currency markets react to a Fed move? Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move could boost the dollar at the expense of gold. Strong US employment numbers in February have reinforced market speculation that the Fed will raise rates for the first time this year. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. Wage growth climbed 2.6% compared to February 2016, while the participation rate edged up to 63.0%, up from 62.9%. These solid job numbers have also provided President Trump with a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won't mind giving him some additional breathing room, with the economy performing so well.

Gold is trading quietly at the $1200 level in Wednesday's North American session. On the release front, CPI and retail sales reports proved to be non-events, as the key consumer indicators eked out small gains in February. Later in the day, the Federal Reserve will issue a rate statement, with the markets widely expecting a rate hike for the first time in 2017. Thursday also promises to be busy, with the US releasing several major indicators, led by unemployment claims.

The markets are waiting and ready for the Federal Reserve to raise interest rates on Wednesday from 0.50% to 0.75%. A quarter-point hike is currently priced in at 93%, so it's an open question if a rate move will affect the dollar. At the same time, the sheer magnitude of a rate move could have an impact on the markets and send gold prices lower, as the metal is sensitive to interest rate movement. With the labor market close to capacity and inflation moving higher, the Fed appears ready to press the rate trigger. Still, Fed policymakers remain concerned that President Trump has so far failed to provide any specifics on his promises to reform the tax code and increase fiscal spending. The Fed will likely hike rates on Wednesday, with an eye towards additional small hikes during the year if the economy continues its impressive performance.

Retail sales came in as expected in February, up just 0.1 percent. However, January's number was revised up to 0.6 percent from 0.4 percent, providing encouragement for solid spending growth in Q1.

Retail Sales Revisions to January Set the Stage for the Quarter

Although retail sales were as expected in February, up 0.1 percent, January's retail sales were revised higher, from 0.4 percent to 0.6 percent. Excluding automobile sales, retail sales were up a better-than-expected 0.2 percent. Furthermore, as was the case with the overall retail sales number, the January retail sales measure excluding automobile sales was revised up from an increase of 0.8 percent to 1.2 percent. Motor vehicles and parts dealer sales were down 0.2 percent during the month while furniture and home furnishing stores' sales were up 0.7 percent. Meanwhile, electronics and appliance store sales were down 2.8 percent after increasing 1.1 percent in the first month of the year.

On the other hand, building material and garden equipment sales were up a healthy 1.8 percent after increasing 1.2 percent in January, showing that the housing market remained strong in the first two months of the year. Furthermore, some of the weakness can also be traced back to a very weak report from gasoline station sales, which dropped 0.6 percent, perhaps due to a decline in gasoline prices during the month after a 2.1 percent increase in January. Food and beverage store sales were flat in the month after inching up 0.4 percent in January while food service and drinking place sales were down 0.1 percent after a very strong 1.7 percent increase the previous month.

Other weak performers were clothing and accessories store sales, down 0.5 percent, sporting goods, hobby, book and music store sales, down 0.4 percent and general merchandise stores' sales, down 0.2 percent. However, all these sectors saw a very strong performance in January so the takeback in February is not much of a surprise. Finally, nonstore retailer sales were up 1.2 percent following a 0.5 percent increase in January. Overall, the retail report for February was relatively weak, especially when comparing it to the upwardly revised January numbers. Furthermore, our expectation is that we may get an upward revision for the February number that will help restore confidence in consumer demand during the first quarter of the year.

Retail Sales Control Group Weak in February

The retail sales control group index, which is used to calculate GDP, was very weak in February, up only 0.1 percent, especially considering that this increase is in nominal terms and inflation has been increasing lately. However, the strong upward revision to this index in January, to 0.8 percent from 0.4 percent, indicates that there may be an upward revision to personal consumption expenditures (PCE) for January. Still, the February report is weak but consumer demand remains a driver of U.S. economic activity.

Headline CPI inflation climbed on a year-ago basis in February, reaching its highest level in nearly five years. Core inflation remains firm, giving little reason for the Fed not to follow through with a March rate hike.

Low Base Effects Support Higher Annual Gains

Following six months of solid gains, including January's sizeable 0.6 percent surge, the headline Consumer Price Index (CPI) took a breather in February, edging up only 0.1 percent on the month. Despite the muted monthly performance, headline CPI increased to its highest annual pace since March 2012 at a 2.7 percent year-over-year rate. Low base effects remain favorable to a high year-over-year calculation and will remain so for the next six months.

Higher energy prices had been the primary driver of headline inflation over the past six months leading into this report. That changed in February with energy prices falling 1.0 percent, its first decline since July 2016 and led by a 3.0 percent drop in retail gasoline prices. With crude oil prices declining as of late, retail gasoline prices may fall further in the coming months.

Conversely, overall food prices have recently started to show some signs of life after months of dormant activity. While the divergence between prices of food at home and prices for food away from home remains wide, both series increased on the month. Ending a nine-month down streak, prices for food at home posted its largest increase since June 2015, up 0.3 percent, as four of six grocery store components rose on the month. Prices for food away from home increased a solid 0.2 percent, bringing its year-over-year pace up to 2.4 percent.

Core CPI inflation rose a trend-like 0.2 percent in February, but increased at a strong 3.0 percent annualized rate over the past three months - the fastest pace since January 2008 - and will no doubt will be taken notice by the Fed. Within the core component, price gains were broad based with noticeable increases in shelter (0.3 percent), recreation (0.6 percent), apparel (0.6 percent), airline fares (2.4 percent) and motor vehicle insurance (0.5 percent). Medical care edged up 0.1 percent, while used cars & trucks fell 0.6 percent due in part to the overflow of off-lease vehicles brought to the sales market.

Inflation Remains on Track for the Fed

Today's report should continue to support most Fed officials' assessment that inflation continues to gradually rise to target. While not the preferred measure of consumer inflation (the PCE deflators), core CPI continues to trend above the Fed's 2.0 percent target, providing officials the scope to gradually hike the fed funds target rate higher this year. As the Fed prepares to deliver its updated economic outlook at today's FOMC meeting, there is a good chance the committee may lift its 2017 inflation calls, currently at 1.9 percent on the headline PCE deflator and 1.8 percent on the core PCE deflator. If it does, it would signal the Fed's confidence that inflation is trending in territory supportive of multiple rate hikes this year.

Elliott Wave sequence analysis of SPX Index from 11/4/2016 low (2083.79) suggests the Index is rallying in a 5 swing bullish sequence and has not reached the 100% – 123.6% target area of 2453 – 2500. The structure of the rally is unfolding as a double three WXY Elliott wave structure or often called a 7 swing structure. Up from 2083.79, Intermediate wave (W) or third swing ended at 2277.53 and Intermediate wave (X) or fourth swing ended at 2257.02. The Index has since broken above 2277.53 and extended higher. SPX is currently in the 61.8 – 76.4 extension area (2378.75 – 2407.29) of the Intermediate wave (W) and wave (X) where fifth swing usually ends. The fifth swing or Minor wave W is proposed complete at 2400.98 within above area and a pullback in Minor wave X or the sixth swing is expected to take place to correct rally from 12/30/2016 low (2233.73).

4 Hour SPX Index Elliott wave chart

We believe SPX correction lower is going to take place as RUT (Russell 2000) has already corrected lower and also showing incomplete sequence to the downside. When we look at Russell and other instrument in the market, the overall market correlation suggests SPX should pull back in Minor wave X. Once the pullback is over, then the Index should rally again towards new high at 2453 – 2500 area. We don't like selling the Index and expect dip buyers to appear once Minor wave X pullback is complete for a new high or at least 3 waves bounce.

1 Hour SPX Index Elliott wave chart

The 1 hour Elliott wave view above suggests that while the Index stays below wave ((x)) at 2376.86, it is expected to turn lower within Minute wave ((y)) towards 2319.3 – 2330.33 area to end Minor wave X pullback. In the above mentioned area, the Index is expected to find buyers and would have a chance to extend rally in 7th swing to a new high towards 2453 – 2500 area or at least bounce in 3 waves. If Russell does a FLAT from 3/9 low, then SPX could still see 2380 – 2385 area to complete wave ((x)) as a FLAT before making the next push lower to complete wave X pull back. We do not like selling the proposed pullback as the Elliott wave sequence in the higher degree from 11/4/2016 low remains bullish and prefer to use the dips as a buying opportunity at

1 Hour SPX Index Chart with FLAT wave ((x))

GBP/USD has posted gains in the Wednesday session. In North American trade, the pair is trading slightly above the 1.22 level. On the release front, British unemployment rolls declined by 13.2 thousand, much better than expected. Wage growth dipped to 2.2%, shy of the estimate of 2.4%. In the US, it's a very busy day. There were no surprises from key consumer reports, as retail sales and CPI posted small gains in February. Today's highlight is the Federal Reserve policy meeting, with the central bank widely expected to raise the benchmark rate a quarter-point, from 0.50% to 0.75%. On Thursday, the Bank of England is expected to maintain the benchmark rate at 0.25%. The US will release a host of key indicators, led by unemployment claims.

The political machinations over Brexit have continued this week. On Monday, the House of Lords backed down and voted through the Brexit bill without making any changes. This move means the bill will be passed into law, allowing Theresa May's government to trigger Article 50 and formally declare Britain's intent to leave the European Union. There had been speculation that May might invoke Article 50 on Tuesday, but the government said it will not do so until later in March. Under Article 50, the negotiations are slated to take up to two years. Relations between Britain and the EU have nosedived since the stunning Brexit vote in June. The timing of invoking Article 50 comes at a particularly delicate time for Europe, as the Netherlands holds elections on Wednesday and France goes to the polls in April.

All eyes are on the Federal Reserve, which will issue a rate announcement later on Wednesday. With the markets expecting a quarter-point rate hike on Wednesday, will the currency markets react to a Fed move? Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move could boost the dollar at the expense of gold. Strong US employment numbers in February have reinforced market speculation that the Fed will raise rates for the first time this year. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. Wage growth climbed 2.6% compared to February 2016, while the participation rate edged up to 63.0%, up from 62.9%. These solid job numbers have also provided President Trump with a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won't mind giving him some additional breathing room, with the economy performing so well.

USD/CHF - 1.0077

Most recent candlesticks pattern : N/A

Trend                                    : Sideways

Tenkan-Sen level                  : 1.0086

Kijun-Sen level                    : 1.0090

Ichimoku cloud top                 : 1.0101

Ichimoku cloud bottom              : 1.0090

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

Although the greenback retreated after meeting resistance at 1.0109 and mild downside bias is seen for test of 1.0060 support, however, break there is needed to signal the fall from 1.0171 top has resumed and extend weakness to 1.0035-40 but support at 1.0009 should remain intact, risk from there has increased for a rebound to take place later.

On the upside, above said resistance at 1.0109 would bring rebound to 1.0120 but break of resistance at 1.0142 is needed to signal low is formed and suggest the fall from 1.0171 has ended, bring another rise towards this level later. As near term outlook is still mixed, would be prudent to stand aside in the meantime.

GBP/USD - 1.2215

Most recent candlesticks pattern   : N/A

Trend                                 : Near term down

Tenkan-Sen level                 : 1.2208

Kijun-Sen level                    : 1.2198

Ichimoku cloud top              : 1.2180

Ichimoku cloud bottom        : 1.2170

Original strategy :

Buy at 1.2140, Target: 1.2250, Stop: 1.2105

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2140, Target: 1.2250, Stop: 1.2105

Position : -

Target :  -

Stop : -

Although cable resumed recent decline and extend weakness to 1.2109 yesterday, the subsequent rebound suggests low is possibly formed there and consolidation with upside bias is seen for gain to 1.2260-65, above there would add credence to this view, bring retracement of recent decline to 1.2290-95 (50% Fibonacci retracement of 1.2479-1.2109), however, resistance at 1.2301 should limit upside and price should falter below 1.2335-40 (61.8% Fibonacci retracement), bring another decline later.

In  view of this, we are looking to buy cable on dips as 1.2135-40 should limit downside. Only below said support at 1.2109 would extend recent decline to 1.2090, however, loss of downward momentum should prevent sharp fall below 1.2070 and reckon 1.2040-50 would hold from here, sterling may stage another rebound from there later.

The growing anticipation of an interest rate increase by the Federal Reserve in a few hours has boosted the Greenback with bullish investors propelling the Dollar Index back above 101.50 as of writing. With the March rate hike a done deal, investors may direct their attention towards the FOMC statement and economic projections which could provide markets some clarity on rate hike timings this year. A hawkish tone in this evening's FOMC press conference coupled with a potential upwards shift in the "dot plot" could reignite the bull rally as speculations heighten over the Federal Reserve raising US rates on repeated occasions in 2017. With the improving sentiment towards the U.S economy supporting the Greenback, Dollar Index bulls could be back in action once 101.50 has been properly conquered.

Commodity spotlight - Gold

The looming US interest rates hike this evening has punished Gold with price stumbling back below $1200 as of writing. This zero-yielding metal has found itself at the mercy of rate hike expectations with a strengthening Dollar fueling the downside losses. Although risk aversion from the Brexit developments and elections in Europe have somewhat supported the metal this week, bears have maintained dominance with prices under noticeable pressure. From a technical standpoint, Gold is bearish on the daily charts as there have been consistently lower lows and lowers highs. Sellers may use the probable US rate increase this evening to attack Gold prices lower towards $1190.

Currency spotlight - EURUSD

The uncertainty gravitating around the elections in Europe have left the Euro vulnerable to heavy losses this week. Euro weakness has become a key theme with further downside expected as fears heighten over Eurosceptic parties destabilizing the unity of the European Union. The EURUSD has struggled to maintain gains on the daily charts this week with prices hovering around 1.0620. A rising Dollar from the prospects of higher US rates could provide permission for sellers to send the currency pair back towards 1.0500. From a technical standpoint, a break below the daily 20 simple moving averages could signal a further decline back towards 1.0500 in the short term.