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Cable remains in red on Monday but so far holding above two-day pullback low at 1.2515 that was contained by the top of daily Ichimoku cloud.

Signal of deeper correction of 1.1986/1.2671 upleg come from daily Slow Stochastic that reversed from overbought territory and shows room for further downside.

Fresh bearish extension would look for probe through thinning daily cloud (spanned between 1.2426 and 1.2486) and test of another strong support at 1.2409 (Fibo 38.2% of 1.1986/1.2671/55SMA), which should ideally contain correction before broader bulls resume.

Otherwise, risk of deeper pullback towards daily Kijun-sen pivot at 1.2328, could be expected on loss of 1.2400 zone.

Res: 1.2600, 1.2671, 1.2726, 1.2772
Sup: 1.2515, 1.2486, 1.2426, 1.2409

The Euro eases from session high at 1.0738 in early Europe, but holding so far within near-term 1.0657/1.0773 congestion.

Weaker dollar keeps the single currency supported, along with bullishly aligned daily studies.

Daily Tenkan-sen is underpinning at 1.0680 and guarding pivot at 1.0657 (26/27 Jan higher base).

However, weekly close in long-legged Doji may signal stall of the rally from 1.0339 (03 Jan low), while 1.0773 peak stays intact.

Break out of 1.0657/1.0773 range is needed to give initial direction signal as near-term technicals are mixed.

Loss of 1.0657 trigger would risk weakness through 1.0607 (Fibo 38.2% of 1.0339/1.0773) and 1.0586 (55SMA) that would expose key near-term support at 1.0560 (daily cloud base, reinforced by Kijun-sen line).

On the other side, violation of multiple rejections at 1.0770 zone, would open upper pivot at 1.0824 (daily Ichimoku cloud top) and signal resumption of bull-leg from 1.0339 on firm break higher.

Res: 1.0738, 1.0773, 1.0824, 1.0872
Sup: 1.0680, 1.0657, 1.0607, 1.0586

'Three major central banks meet in the week ahead, and there are several important reports due out that will give investors more insight into how the economies have begun the new year.' - BBH (based on investing.com)

Pair's Outlook

With the start of a new week, on Monday, the common European currency began the day's trading session a lot higher than the previous close against the US Dollar. The reason for that are the signed policies and actions taken by US president Donald Trump during the weekend. However, the pair slightly retreated during the first trading hours. Afterwards, it met with the weekly PP at 1.0709, which provided support to the pair. Due to this factor it is most likely that the currency exchange rate will surge up to the first weekly resistance level, which is located at 1.0761.

Traders' Sentiment

SWFX traders have slightly decreased their bearish outlook, as 54% of trader set up orders are short on Monday, compared to 56% on Friday. In the meantime, 57% of trader set up orders are to sell the Euro.

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'We think that market focus will be on any signals regarding the possibility of a US-UK trade deal. If the two parties send optimistic messages with regards to this prospect, sterling could extend its recent gains.' – IronFX (based on Business Recorder)

Pair's Outlook

As was anticipated, the demand cluster around 1.2515 limited downside volatility on Friday, also causing the GBP/USD pair to close at 1.2550, namely a 44-pip loss. However, the Cable opened with a small bullish gap today, which resulted in Friday's losses getting erased. Bears, on the other hand, are refusing to give in, as they continue pushing the Sterling lower. The support area around 1.2515 remains the closest one, where the exchange rate is expected to encounter an obstacle on its journey to the bottom. Meanwhile, technical indicators suggest the Cable could still erase its intraday losses and end the day in the green zone above the 1.26 mark.

Traders' Sentiment

Bullish market sentiment remains unchanged, with 62% of traders being long the GBP. The share of sell orders edged up from 49 to 54%.

'The weak U.S. GDP is doing the dollar no favours. But it also takes courage to keep buying the dollar considering what Trump has said about the kind of a currency policy he could pursue.' – Mizuho Bank (based on Reuters)

Pair's Outlook

In spite of a weaker US GDP reading on Friday, the Greenback still managed to outperform the Japanese Yen, successfully reclaiming the 115.00 level. The Buck is expected to retain its strength and continue outperforming the Yen, but there is still an issue that could prevent the pair from edging higher: the USD/JPY opened with a bearish gap under 115.00, while also having the 20 and the 55-day SMAs providing immediate resistance just above the opening price. The US Dollar's rally is unlikely to last, as we are about to have a sell signal, implying the pair is to edge lower by week's end. At the moment, technical studies are unable to confirm either scenario.

Traders' Sentiment

Today 52% of all open positions are short (previously 50%). Meanwhile, the portion of buy orders inched down from 69 to 59%.

'We've seen a rise in the amount of safe-haven buying in the past few weeks around the critical uncertainty in the U.S. and Europe, and the executive order signed by Trump has raised the uncertainty even higher.' – Daniel Hynes, ANZ (based on Reuters)

Pair's Outlook

The yellow metal began the week higher due to US Dollar weakness. The fall in the Greenback during the weekend was caused by uncertainty caused by US politics. Particularly, Donald Trump's signed policies are making their impact of uncertainty on the financial markets due to their unforecastable nature. From a technical perspective, the bullion is likely to surge up to the newly calculated weekly PP at 1,196.86. However, the commodity price is most likely to bounce off from the resistance level afterwards.

Traders' Sentiment

SWFX traders still remain almost neutral, as 51% of open positions are long on Monday. In the meantime, 58% of trader set up orders are to buy the bullion.

'It's good that banks are lending more to companies. But the whole thing is still fragile, because of the weak growth in Europe '. -Dirk Gojny, National Bank

Bank lending to the Euro zone's companies rose at the strongest pace in more than four years in December, while the total amount of money in circulation advanced more than expected, official data revealed on Friday. According to the European Central Bank, corporate bank loans in the 19-member state currency bloc climbed 2.3% in the reported month, following November's upwardly revised gain of 2.1%. Furthermore, household lending rose 2.0% in December, the largest gain since the middle of 2011, compared to the preceding month's 1.9% increase. The figure came in right in line with analysts' expectations. The Central bank also released its monthly data on the amount of money in circulation, which is an important indicator for predicting future economic activity. According to the Bank's report, the M3 Money Supply climbed 5.0% on an annual basis in the same month, following the prior month's 4.8% and slightly surpassing economists' forecasts for 4.9%.

Other data released by Destatis showed that German import inflation accelerated at a stronger than expected pace last month. Import prices climbed 1.9% in December, after growing just 0.7% in the previous month. Markets expected prices to increase 1.3% in the reported month.

'Prospects for future activity look better than they have in some time, pointing to the need for companies to increase activity for what seems to be better demand '. -Mickey Levy, Berenberg Capital Markets

US economic growth slowed markedly in the last quarter of 2016 amid lower shipments of soybeans that bolstered exports. The Commerce Department reported the economy grew at an annualized pace of 1.9% in the three month period to December, after expanding 3.5% in the Q3. Market analysts expected the economy to grow at a 2.2% rate in the Q4. For all of 2016, growth was 1.6%, the weakest sine 2011. Low oil prices and the strong US Dollar put downward pressure on the economy last year. In the Q4, exports posted a 4.3% decline, the largest since the Q1 of 2015, compared to a 10% surge in the prior quarter. Weak exports contributed most to the fourth-quarter drop, offsetting strong consumer spending and business investment. The Commerce Department reported also that orders for durable goods dropped 0.4% month-over-month in December, missing expectations for a 2.7% increase. Meanwhile, November's fall was revised up to 4.5% from 4.6%. The December decline was mainly driven by low orders for defense capital goods, which fell 33.4%, the largest monthly drop since May 2014. Excluding automobiles and transportation equipment, orders for core durable goods climbed 0.5%, in line with analysts' forecasts, whereas the previous month's gain of 0.5% was revised up to 0.6%.

News and Events:

Double whammy for Turkey

On Friday, Fitch downgraded Turkey's sovereign debt to junk, while Standard & Poor's cut its outlook for the country “from stable” to “negative”. S&P already cut Turkey two notches below the investment grade threshold back in November last year, while Moody's downgraded it to junk last September. Fitch was therefore the last agency to offer an investment grade. In a statement on Friday, Fitch explained its motive: "Political and security developments have undermined economic performance and institutional independence”. Even though the move was broadly expected, it still sent a negative signal to investors.

The Turkish lira's reaction was relatively muted as the decision was already priced in. USD/TRY has been moving sideways at around 3.87 as investors are reluctant to increase their short TRY positions. Indeed, the central bank increased its overnight lending rate by 75bps to 9.25% but kept its two other benchmarks unchanged. Right now, the CBT is stuck between a rock and a hard place. We believe that it is doing its best to maintain order itself despite pressure from investors, who want tighter monetary policy, and the government which is pressurising the bank to keep lending rates as low as possible. CBT's behaviour moving forward will be key in determining the outlook for the lira. Ultimately, the bank will either decide to protect its credibility or to obey the government.

Weak US data but markets are instead focused on Trump

US GDP came in on Friday at 1.9% y/y, marking the 11th consecutive year of growth below 3% (estimates were about 2.2%). The decrease in exports, associated with more significant imports, has driven GDP lower. In addition, consumption is somewhat sluggish with a decline.

Markets on Friday ended slightly lower. The S&P 500 closed below 2300 points. Markets remain upbeat about Trump's plan to stimulate the economy through tax cuts and infrastructure spending. In the latest revelations, Trump stunned this weekend with his selective immigration ban, providing a clearer picture of his aggressive political intent. The dollar has been weakening since the opening last night.

Looking at the markets, we believe that it is unlikely that the Fed will raise rates in the first half of 2017. Data is barely moving markets and Trump's ability to deliver is actually a key factor for the Fed to assess the US economic situation. Inflation is needed in the US and we maintain our view that the US central bank will let it run in order to kill its massive debt. For this reason, we remain bullish EUR/USD over the medium-term.

Today's Key Issues (time in GMT):

• 4Q P GDP QoQ, exp 0,70%, last 0,70% EUR / 08:00
• 4Q P GDP YoY, exp 3,00%, last 3,20% EUR / 08:00
• Jan KOF Leading Indicator, exp 102,9, last 102,2, rev 102,1 CHF / 08:00
• Nov Wages Non-Manual Workers YoY, last 1,90% SEK / 08:30
• janv..27 Total Sight Deposits CHF, last 532.3b CHF / 09:00
• janv..27 Domestic Sight Deposits CHF, last 464.3b CHF / 09:00
• ECB's Nowotny Briefs Vienna Business Journalists' Club EUR / 09:00
• Jan FGV Inflation IGPM MoM, exp 0,70%, last 0,54% BRL / 10:00
• Jan FGV Inflation IGPM YoY, exp 6,71%, last 7,17% BRL / 10:00
• Jan Economic Confidence, exp 107,8, last 107,8 EUR / 10:00
• Jan Business Climate Indicator, exp 0,8, last 0,79 EUR / 10:00
• Jan Industrial Confidence, exp 0,2, last 0,1 EUR / 10:00
• Jan Services Confidence, exp 12,7, last 12,9 EUR / 10:00
• Jan F Consumer Confidence, exp -4,9, last -4,9 EUR / 10:00
• Central Bank Weekly Economists Survey (Table) BRL / 10:25
• Dec South Africa Budget, last -16.33b ZAR / 12:00
• Jan P CPI YoY, exp 2,00%, last 1,70% EUR / 13:00
• Jan P CPI MoM, exp -0,50%, last 0,70% EUR / 13:00
• Jan P CPI EU Harmonized MoM, exp -0,70%, last 1,00% EUR / 13:00
• Jan P CPI EU Harmonized YoY, exp 2,00%, last 1,70% EUR / 13:00
• ABRAS December Supermarket Sales BRL / 13:00
• Dec Personal Income, exp 0,40%, last 0,00% USD / 13:30
• Dec Personal Spending, exp 0,50%, last 0,20% USD / 13:30
• Dec Real Personal Spending, exp 0,30%, last 0,10% USD / 13:30
• Dec PCE Deflator MoM, exp 0,20%, last 0,00% USD / 13:30
• Dec PCE Deflator YoY, exp 1,70%, last 1,40% USD / 13:30
• Dec PCE Core MoM, exp 0,10%, last 0,00% USD / 13:30
• Dec PCE Core YoY, exp 1,70%, last 1,60% USD / 13:30
• janv..27 Bloomberg Nanos Confidence, last 56,4 CAD / 15:00
• Dec Pending Home Sales MoM, exp 1,10%, last -2,50% USD / 15:00
• Dec Pending Home Sales NSA YoY, last 1,40% USD / 15:00
• Jan Dallas Fed Manf. Activity, exp 15, last 15,5 USD / 15:30
• Dec Central Govt Budget Balance, exp -68.7b, last -38.4b BRL / 16:30
• Dec Net Migration SA, last 6220 NZD / 21:45
• janv..29 ANZ Roy Morgan Weekly Consumer Confidence Index, last 117 AUD / 22:30

The Risk Today:

EUR/USD's momentum is still largely positive despite ongoing bearish consolidation. Hourly resistance area is given at around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued increase towards 1.0800. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD's demand has largely increased towards 1.2771 fading around 1.2550. The technical structure is still anyway showing positive potential. Hourly support is given at 1.2254 (19/01/2016 low). Expected to show further bullish move. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY has surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Hourly resistance is given at 115.62 (19/01/2016 high) while hourly support is given at 111.36 (28/11/2016 low). Expected to see further downside moves. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF's momentum is bearish. Yet, the selling pressures are being reduced below parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is nonetheless wide-open for further decline. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Although Donald Trump policies will remain to be the key moving indicatorsfor financial markets in the days and weeks to come, central banks and economic data will attract some attention the week ahead.

The Fed

In December, the Federal Reserve signaled that they may rise rates three times in 2017 however it looks certain that Wednesday's meeting won't be one of the three.

The U.S. economy grew at slowest pace in five years in 2016 by only 1.6%, but another favored indicator for the Federal Reserve, the final domestic sales number which excludes inventories and trade, expanded by 2.5% in Q4 compared to 2.1% in the previous quarter.

In contrast, consumer prices rose in 2016 at the fastest pace in five years to break above 2.0% suggesting that the Fed's favored PCE data will edge closer to the 2% targeted inflation.

However, the biggest unknown factor remains to be fiscal policies and since there's no clear roadmap yet the Fed will take no action and like us they will keep monitoring Trump's announcements.

Since Wednesday's interest rate decision won't be accompanied by a press conference or economic and rate projections, it's going to be all about the released statement. A hawkish tone that opens the door for a rate hike in the following meeting will likely give another push for the dollar given that only 25% is being priced in for a rate increase in March.

Other Central Banks

Sterling traders will also be interested in Bank of England's Super Thursday, when the central bank announces interest rate decision along with its quarterly inflation report. Just like the Fed, the BoE isn't likely to take any actions on Thursday leaving interest rates and quantitative easing measures unchanged. But given that the pound has dropped by more than 15% against the dollar and around 12% on trade weighted basis since the Brexit vote - inflation expectations will probably push the central bank towards a more hawkish tone giving a reason for traders to buy the pound on the dips.

The least interesting central bank meeting is going to be Bank of Japan. Although we believe that the next step is likely to be tightening monetary policy, I think it's still very early to announce any future tightening measures. Thus, the Yen will likely take its cue from risk appetite/aversion in financial markets.

Friday's NFP

On the data front, the U.S. is expected to have added 171K non-farm payroll jobs in January, up from 156K in December. Meanwhile, average hourly earnings are forecasted to rise by 0.3% compared to 0.4% in the previous month. If the data doesn't deviate a lot for expectations the impact on the dollar will be limited, and investors' attention will turn back to the White House.