Daily Pivots: (S1) 0.9971; (P) 0.9999; (R1) 1.0029; More.....

Intraday bias in USD/CHF remains neutral for consolidation above 0.9958 temporary low. With 1.0121 minor resistance intact, deeper decline is still expected. As noted before, rise from 0.9443 has completed at 1.0342 already, after failing to sustain above 1.0327 key resistance. Fall from there would now target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. On the upside, break of 1.0121 resistance is needed to indicate short term bottoming. Otherwise, near term outlook will stay bearish in case of recovery.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expect the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 113.42; (P) 114.13; (R1) 115.23; More...

USD/JPY is still bounded in range of 112.51/115.61 and intraday bias remains neutral. No change in the view that choppy fall from 118.65 is a corrective move. Break of 115.61 will indicate that it's completed and will turn bias to the upside for retesting 118.65 resistance. Break will resume whole rise from 98.97 and target 125.85 key resistance. Below 112.51 will extend the decline but downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 to complete the correction and bring rebound.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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Dollar's recover lost steam quickly today and is set to end the week mixed. US GDP grew 1.9% annualized in Q4, below expectation of 2.2%. GDP price index rose 2.1%, met consensus. Durable goods orders dropped -0.4% in December, much lower than expectation of 2.6%. Ex-transport orders rose 0.5%, met expectations. UK prime minister Theresa May will meet US president Donald Trump in Washington today and that could be a focus. US futures point to a flat open and markets could turn into profit taking mode after record rerun in stocks.

Eurozone M3 rose 5.0% yoy in December versus expectation of 4.9% yoy. Bank loans to companies rose 2.3%, fastest since mid-2009. Household lending rose 2.0%, fastest since mid-2011. The set of data showed that ECB's cheap money is making its way through the economy. And such development could lift growth and inflation later down the road. Also from Eurozone, German import price index rose 1.9% mom, 3.5% yoy in December versus expectation of 1.3% mom, 2.7% yoy.

Yen falls broadly today on news that BoJ boosted JGB purchases. The move is seen as an act under the so called yield curve control to cap surge in yields, which touched 11 month highs earlier this week. The central bank said today that it would buy JPY 450b of JGBs with maturity of more than five to 10 years. That's nearly 10% above the prior size of JPY 410b. Released from Japan, national CPI core improved to -0.2% yoy in December, up from -0.4% yoy and above expectation of -0.3% yoy. Tokyo CPI core rose to -0.3% yoy in January, up from -0.6% yoy, and above expectation of -0.4% yoy. The set of inflation data showed mild improvement to inflation outlook. But it's still far from hitting BoJ's 2% target. Elsewhere, Australia PPI rose 0.7% qoq, 0.7% yoy in Q4. Import price rose 0.2% qoq in Q4.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.42; (P) 114.13; (R1) 115.23; More...

USD/JPY is still bounded in range of 112.51/115.61 and intraday bias remains neutral. No change in the view that choppy fall from 118.65 is a corrective move. Break of 115.61 will indicate that it's completed and will turn bias to the upside for retesting 118.65 resistance. Break will resume whole rise from 98.97 and target 125.85 key resistance. Below 112.51 will extend the decline but downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 to complete the correction and bring rebound.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

Economic Indicators Update

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Global stocks marched into gains during trading this week after the renewed Trump fuelled optimism bolstered investor risk sentiment. Actions speak louder than words and the fact that Donald Trump has signed numerous executive orders since his inauguration continues to heighten hopes of the proposed fiscal stimulus measures materialising. Asian shares were mostly higher on Friday ahead of the Lunar year holiday while European markets edged lower amid profit taking. With the Trump effect back with a vengeance and optimism rapidly rising over Trump's pro-business policies elevating growth, Wall Street could maintain gains moving forward.

While the current gains displayed across global stocks are highly impressive, the lingering uncertainty could obstruct further upside in the longer term. Concerns are currently heightened over Trump's protectionist rhetoric while political risks across the globe weigh heavily on sentiment. Investors should remain diligent and be prepared to expect the unexpected this quarter when factoring the messy cocktail of market themes that may spark extreme levels of volatility.

Dollar Stabilizes above 100.00

The Greenback regained its dominant attitude on Thursday as prices stabilized above 100.00 after the Trump effect and optimism over the health of the US economy re-attracted bulls to install heavy rounds of buying. Sentiment has turned bullish towards the Dollar in the short term and further gains could be expected if buyers exploit the upside momentum created from fiscal stimulus-driven rally. Much attention may be directed towards Friday's fourth quarter GDP report which could offer some clues on how the US economy fared in 2016. A positive release that exceeds expectations may provide the Dollar an additional welcome boost that could propel the Dollar Index higher towards 101.00.

Although Donald Trump has revived the Dollar this week, there is a threat of him exposing the currency to downside risks in the future if the protectionist stance and overall uncertainty repels investor attraction. As of writing, the Dollar Index currently hovers around 100.63 with a breakout above 101.00 encouraging a further incline higher towards 102.00.

Sterling hovering around 1.2500

The Sterling bulls were exhausted on Thursday despite the positive fourth quarter UK GDP of 0.6% and such continues to highlight how the Brexit woes have damaged buying sentiment towards the currency. It has become very clear that the Brexit developments continue to dictate where the Sterling trades with uncertainty to likely limit upside gains. Sentiment remains firmly bearish towards the Pound with sellers potentially exploiting any further uncertainty or even a resurgent Dollar to drag the GBPUSD lower. Technical traders may pay close attention to how the prices react to the previous 1.2500 resistance level. A breakdown and daily close below 1.2500 could encourage a further selloff back towards 1.2350.

Commodity spotlight - Gold

Gold found itself exposed to painful losses this week after the renewed investor risk appetite from the Trump effect and Dollar's resurgence encouraged sellers to attack the metal incessantly. The yellow metal currently trades around a fresh two-week low at $1181 and is at risk of trading lower if the fourth quarter GDP for the United States exceeds expectations. The downside momentum is strong and a breakdown below $1180 could spark a further selloff towards $1160.

GBP/USD has posted losses on Friday, continuing the downward movement in the Thursday session. Currently, the pair is trading at 1.2550. On the release front, there are no UK events on the schedule. Over in the US, it's a busy day, with the release of durable goods orders, UoM Consumer Sentiment and Advance GDP. The markets are expecting the GDP report, the first for Q4, to post a gain of 2.1 percent.

After the Brexit vote in June, many pundits predicted that the economy would tailspin. However, the economy has remained steady. On Thursday, Preliminary GDP beat the estimate, posting a strong gain of 0.6% in the fourth quarter of 2016. At the same time, negotiations with the European Union have not yet started, and even staunch Brexit supporters would be hard pressed to argue that the economy will not take a hit when Britain leaves the continental club, at least in the short term. On Friday, Prime Minister May meets President Trump in Washington, the first foreign leader to meet the new president. Trump has spoken glowingly about the Britain's decision to leave the EU, and May could use Trump's admiration and support to her advantage, in the form of a free-trade deal with the US. May will have to navigate through rough waters when she negotiates the terms of Brexit with the Europeans and is looking to return home with some progress towards a new trade agreement with the United States. Such a deal would be a key achievement for the British leader, who could then demonstrate to her opponents, both domestically and in Europe, that Britain can "go it alone" without the EU.

Barely a week into the presidency of Donald Trump, there are already signs of the economic approach the administration appears to be taking. Trump declared in his inauguration address that he would put "America first", and he has followed up with some protectionist measures. Trump formally withdrew the United States from the Trans-Pacific Partnership, a broad trade agreement that would have covered some 40 percent of gobal GDP. After announcing he would renegotiate the NAFTA agreement with Canada and Mexico, Trump took aim at his southern neighbor and announced that he would build a wall between the US and Mexico. Predictably, Mexico has reacted angrily to this move, and a scheduled meeting between Trump and Mexican President Enrique Peña Nieto has been cancelled. In the latest salvo in the growing crisis, the White House White House suggested imposing a 20 percent tax on Mexican imports to pay for construction of the wall. Trump's unconventional and disjointed approach to international trade could have major ramifications on global trade and could lead to financial instability in global markets.

EUR/USD is almost unchanged in the Friday session. Currently, the pair is trading just below the 1.07 level. On the release front, there are no major Eurozone releases. The US will release Advance GDP, with the estimate standing at 2.1 percent. We’ll also get a look at durable goods orders and UoM Consumer Sentiment.

There was positive news out of Germany, as consumer confidence continues to rise. The GfK Consumer Climate report rose to 10.2 points in December, climbing for a third consecutive month. Still, the Eurozone consumer is not as optimistic, as Eurozone Consumer Confidence, released earlier this week, was unchanged at -5 points. The Eurozone is showing some improvement, as manufacturing and inflation numbers continue to point upwards. On Thursday, an IMF report found that economic growth in the Eurozone was improving and projected growth of 1.6 percent in 2017 and 2018. However, the report also warned that political instability could on the Eurozone economy, with Britain’s departure from the EU and elections in several Eurozone countries where many voters are skeptical about European integration.

The Trump era is barely a week old, but there are already signs of the economic approach the administration appears to be taking. Trump declared in his inauguration address that he would put “America first”, and he has followed up with some protectionist measures. Trump formally withdrew the United States from the Trans-Pacific Partnership, a broad trade agreement that would have covered some 40 percent of gobal GDP. After announcing he would renegotiate the NAFTA agreement with Canada and Mexico, Trump took aim at his southern neighbor and announced that he would build a wall between the US and Mexico. Predictably, Mexico has reacted angrily to this move, and a scheduled meeting between Trump and Mexican President Enrique Peña Nieto has been cancelled. In the latest salvo in the growing crisis, the White House White House suggested imposing a 20 percent tax on Mexican imports to pay for construction of the wall. Trump’s unconventional and disjointed approach to international trade could have major ramifications on global trade and could lead to financial instability in global markets.

Russia's Ministry of Finance (Minfin) announced it will start FX purchases through the central bank (CBR) in February 2017 if the Urals price stays over USD40/bl.

We expect the new framework to brake the RUB's excessive strengthening, pushing volatility down on rising oil, improving fiscal stability and the outlook on public finances. Yet, following the announcement, the markets interpreted the CBR's intention as a partial abandoning of the free float regime, which adds nervousness and can be seen as a move towards 'the oil peg of the RUB'.

We expect Russia to continue with its borrowing plan in 2017. We see the possibility of improvements in country ratings in 2017. We see upside risks for our USD/RUB 1M and 3M FX forecasts (58.70 and 56.30, respectively).

Assessment and outlook

The CBR and Minfin have announced that the impact of excessive oil revenues on public finances will be reduced by the mechanism of buying extra FX flows if the Urals oil price exceeds USD40/bl, which is the assumed price for Russia's budget in the upcoming years. The mechanism is considered to be a temporal solution before budget law introduces the budget rule in 2020. By introducing the 'austerity' mechanism, the monetary authorities seek to improve financial stability and the predictability of internal economic conditions.

How will the mechanism work?

The officials have confirmed that at current oil prices monthly purchases could reach USD1bn, which we see being easily absorbed by the markets. Moscow Exchange monthly trading volumes in FX markets are around RUB31.0trn (circa USD517bn), including spot trades totalling RUB7.5trn (circa USD125bn) accounting for around USD5-7bn daily in spot. The Minfin will announce the intended amount of purchases on the third working day every month before 12:00 Moscow time (the next announcement is due on 3 February 2017). In order to get the daily amount, the total sum will be divided by the number of trading days starting from the fifth trading day of each month until the fourth day (inclusive) of the following month. The purchases will be equally spread over the trading session.

According to the Minfin, while the 'excessive' hard currency flows from oil revenues will be purchased, the ministry will sell the FX on a Urals price below USD40/bl. The amount intended for sale would not exceed the total sum of FX purchased earlier on a higher-than- USD40/bl crude price. In the current form, it is intended the mechanism will be in place until the end 2017.

Market implications and major risks

Within 24 hours of the Minfin's announcement, the USD/RUB jumped 2.5% while the EUR/RUB climbed 2.2%. The latter pair ended the session on 26 January some 1.6% higher following the announcement. While the CBR reconfirmed its commitment to the free floating RUB and the Minfin stated that the planned FX operations will have on the 'whole a neutral impact on [the] money market', the markets became pretty nervous as they digested the statement. We believe many players consider the new mechanism a return to a semi-pegged RUB, putting a cap on the rising oil price.

In our view, if implemented, the mechanism will push RUB volatility lower on an increasing crude price, while fuelling extra swings on falling oil. There is a risk that both citizens and corporations will run back to FX, losing their faith in the RUB strengthening on higher oil, keeping their positions in FX.

We expect the new mechanism to be RUB negative, especially in the short run, and RUB liquidity positive, pushing money markets rates down, if it is fully implemented. Yet, believe the CBR would be able to absorb easily any extra liquidity that appears during the operations.

While the CBR says that the new mechanism would not pose any risks to its 4% y/y inflation target for the end of 2017, a slightly weaker RUB would stop the decrease in inflation expectations. Thus, the CBR could be more cautious in cutting the key rate in 2017. Before the announcement on the FX operations mechanism, we expected the key rate to go down to 7.0% by the end of 2017. If the mechanism is implemented, we expect the key rate to reach 8.0% by the end of 2017.

We see significant upside risks for our short-term USD/RUB forecast (58.70 in 1M and 56.10 in 3M) before we see the results of the Minfin's steps in February. However, the RUB remains oil price driven. For now, we have not changed our medium- and long-term forecasts for the USD/RUB (55.10 in 6M and 51.15 in 12M), remaining in wait-and-see mode.

News and Events:

US GDP data in focus, USD stronger

Even though the market is almost exclusively focussed on Trump and the implementation of its first presidential orders, investors are keeping an eye on US data, just to make sure that the momentum has not reversed. The first estimate of the fourth quarter’s GDP growth (2.2% median forecast versus 3.5% in Q4) is due for release at GMT 13:00, together with personal consumption (expected at 2.5% versus 3% in Q3). After a solid third quarter, US growth is expected to ease down in the December quarter amid faltering retail sales as oil prices took the elevator and against the backdrop of a rising US dollar. At worst, the US economy could stabilise slightly above 2% growth, while on the other there is substantial upside risk as Trump’s promise of a tax cut, together with infrastructure spending could help to boost household spending, which accounts for roughly 70% of GDP growth.

December durable goods orders are also due for release today and are expected to print at 2.5%m/m compared to a contraction of 4.5% in the previous month. The core measure, which excludes transportation, is anticipated to rise 0.5%m/m compared to 0.6% in November. Over the last 6-months, the trend has risen to an average increase of 0.6% per month. However, this improvement was mainly driven by stable demand for defence-related goods.

The US dollar is rallying for a second straight day after outperforming almost every currency on Thursday. The dollar index surged 0.60% yesterday as the Japanese yen slid 1.10%, the euro 0.60%, the kiwi 0.75% and the pound 0.30%. This morning it was up another 0.25% with the measure testing the 100.80 level ahead of the economic data. We expect the market to have a positive bias toward the US data as if it prints below estimates, the US economy can still hope that Donald Trump will fix it in the coming months.

US equity markets rally continues

Is this a never-ending increase or should we expect a correction in the near term? The Dow Jones has broken the widely awaited 20K mark, while the S&P hit 2300 points before bouncing lower.

If stocks are trading at record highs, this is not indicative of strong US fundamentals. For the time being, eagerness to better understand Trump’s policies is what is driving US equities. We confirm our standpoint that Trump now needs to deliver and it seems he will. Markets are being misled about the future effects of Trump's Presidency and he now needs to provide far greater detail on this policies to support this rally.

The new president has also been critical of dollar strength in particular against the Chinese Yuan. And while the dollar index has surged back above 100$ we would start reloading bearish US dollar.

We must not forget that central banks are still in the game and that interest rates remain low, underpinning the asset bubble. US data is still not sufficient to trigger a rate hike, while its massive debt needs strong inflation to be killed.

Today's Key Issues (time in GMT):

• janv..20 Money Supply Narrow Def, last 8.83t RUB / 08:00
• Nov Total Mortgage Lending YoY, last -3,70% EUR / 08:00
• Nov House Mortgage Approvals YoY, last 16,80% EUR / 08:00
• Dec Retail Sales YoY, last 4,00%, rev 3,90% EUR / 08:00
• Dec Retail Sales SA YoY, exp 3,20%, last 3,30%, rev 3,20% EUR / 08:00
• Jan Consumer Confidence, exp 103,6, last 103,2, rev 103 SEK / 08:00
• Jan Manufacturing Confidence s.a., exp 115, last 121,1, rev 120,9 SEK / 08:00
• Jan Economic Tendency Survey, exp 111,4, last 113,8, rev 113,7 SEK / 08:00
• Dec Household Lending YoY, last 7,20% SEK / 08:30
• Dec Retail Sales MoM, exp -0,30%, last 0,90%, rev 1,70% SEK / 08:30
• Dec Retail Sales NSA YoY, exp 3,50%, last 3,60%, rev 3,80% SEK / 08:30
• Dec M3 Money Supply YoY, exp 4,90%, last 4,80% EUR / 09:00
• Jan Economic Sentiment, last 100,3, rev 100,2 EUR / 09:00
• Jan Manufacturing Confidence, exp 103,3, last 103,5, rev 103,7 EUR / 09:00
• Jan Consumer Confidence Index, exp 110, last 111,1, rev 110,9 EUR / 09:00
• Dec Hourly Wages MoM, last 0,00% EUR / 10:00
• Dec Hourly Wages YoY, last 0,40% EUR / 10:00
• Jan FGV Construction Costs MoM, exp 0,29%, last 0,36% BRL / 10:00
• Nov House Price Index YoY, last 12,85% TRY / 11:30
• Nov House Price Index MoM, last 0,47% TRY / 11:30
• Dec Tax Collections, exp 124800m, last 102245m BRL / 12:30
• 4Q A GDP Annualized QoQ, exp 2,20%, last 3,50% USD / 13:30
• 4Q A Personal Consumption, exp 2,50%, last 3,00% USD / 13:30
• 4Q A GDP Price Index, exp 2,10%, last 1,40% USD / 13:30
• 4Q A Core PCE QoQ, exp 1,30%, last 1,70% USD / 13:30
• Dec P Durable Goods Orders, exp 2,50%, last -4,50% USD / 13:30
• Dec P Durables Ex Transportation, exp 0,50%, last 0,60% USD / 13:30
• Dec P Cap Goods Orders Nondef Ex Air, exp 0,20%, last 0,90% USD / 13:30
• Dec P Cap Goods Ship Nondef Ex Air, exp 0,50%, last 0,20% USD / 13:30
• Portugal Central Bank Governor Costa Speaks at a Conference EUR / 14:30
• Jan F U. of Mich. Sentiment, exp 98,1, last 98,1 USD / 15:00
• Jan F U. of Mich. Current Conditions, exp 112, last 112,5 USD / 15:00
• Jan F U. of Mich. Expectations, last 88,9 USD / 15:00
• Jan F U. of Mich. 1 Yr Inflation, last 2,60% USD / 15:00
• Jan F U. of Mich. 5-10 Yr Inflation, last 2,50% USD / 15:00

The Risk Today:

EUR/USD's momentum is still largely positive despite ongoing bearish consolidation. Hourly resistance is given by resistance implied by the upper bound of the uptrend channel 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 clearly bearish. The pair has broken parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is 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.

Month-end keeps participation light

Notes/Observations

US-Mexico relationship hits a wall; rising possibility that the US will shift towards protectionism beyond pulling out of the TPP

Overnight:

Asia:

Japan CPI tracking in right direction with Headline annual pace hitting a 10-month high (0.3% v 0.2%e); CPI Ex-Food (Core) improved but saw its 10th straight decline for its longest streak since 2011

BOJ increased the size in its medium-term JGB purchases (Note: signals that it won't tolerate an increase in interest rate)

Europe:

Eurogroup chief Dijsselbloem stated that could envisage future bailouts in Euro Zone without IMF, but its participation in Greece now was non-negotiable due to IMF's expertise and financial contribution - EU official: the Greek bailout review is not making progress; creditors have asked Greece for more austerity beyond 2018(Note: Greece has vowed not to comply with such requests)

Economic data

(JP) Japan Dec BOJ National CPI Ex Fresh Food, Energy (core-core) Y/Y: 0.1% v 0.1%e

(DE) Germany Dec Import Price Index (beat) M/M: 1.9% v 1.3%e; Y/Y: 3.5% v 2.7%e

(FI) Finland Jan Consumer Confidence: 21.0 v 19.5 prior; Business Confidence: 2 v 1 prior

(FR) France Jan Consumer Confidence (in-line): 100 v 100e

(SE) Sweden Jan Consumer Confidence (beat): 104.6 v 103.6e; Manufacturing Confidence: 119.1 v 115.0e, Economic Tendency Survey: 112.0 v 111.4e

(IT) Italy Jan Consumer Confidence (miss): 108.8 v 110.0e; Manufacturing Confidence (beat): 104.8 v 103.3e, Economic Sentiment: 102.5 v 100.2 prior

(EU) Euro Zone Dec M3 Money Supply (beat)Y/Y: 5.0% v 4.9%e

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR110B indicated in 2022, 2026, 2034 and 2046 bonds

(ZA) South Africa sold total ZAR815M vs. ZAR650M indicated in I/L 2029, 2033 and 2046 bonds

(IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg yield: --0.286% v -0.317% prior; Bid-to-cover: 1.56x v 1.49x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.6% at 3,295, FTSE -0.1% at 7,154, DAX -0.3% at 11,808, CAC-40 -0.7% at 4,832, IBEX-35 -0.8% at 9,439, FTSE MIB -0.9% at 19,272, SMI -0.4% at 8,373, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading lower as market participants look take profits from recent gains ahead of the weekend; Banking stocks trading lower in the morning session, with the heavily financial sector weighted Italian and Spanish indices underperforming; shares of Tesco the notable gainer in the FTSE 100 after announcing a merger with Booker Group valued at £3.7B.

A plethora of upcoming scheduled US earnings (pre-market) include American Airlines, AbbVie, Air Products and Chemicals, Franklin Resources, Colgate-Palmolive, Chevron, General Dynamics, Gentex, Honeywell International, Hill-Rom, Moog, NextEra Energy, and PolyOne.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Booker Group BOK.UK 16.7% (to merge into Tesco for 205.3p/shr valued at £3.7B), Elior ELR.FR +1.4% (Q1 sales), SHW AG SW1.DE -0.5% (Tesla cancels €100M order), Tesco TSCO.UK +10.1% (to merge with Booker Group)]

Financials: [UBS UBSN.CH -3.6% (Q4 results), Vestjysk Bank VJBA.DK +2.5% (raises FY16 outlook)]

Healthcare: [Adocia ADOC.FR -29.2% (Eli Lilly terminates BioChaperone Lispro collaboration), Stallergenes GENP.FR +2.3% (positive phase 3 results)]

Industrials: [Alhstrom AHL1V.FI -1.5% (Q4 results), NCC AB NCCB.SE -1.7% (Q4 results), ThyssenKrupp TKA.DE +0.8% (CEO outlook comments)]

Materials: [Ferrexpo FXPO.UK -1.4% (Wigmore to sell 78M shares at 129p/shr)]

Technology: [Eltel ELTEL.SE -21.1% (Cuts FY16 outlook)]

Telecom: [BT Group BT.UK -0.1% (Q3 results), Telia TLSN.SE -0.9% (Q4 results)]

Speakers

German Finance Ministry reiterated opposition to reports that EU Commission to propose the bundling of some Euro regions bonds into "European safe bonds"

German Finance Ministry Monthly Report noted that the domestic economy was on a solid growth trajectory and expected economic upswing to continue in 2017 with domestic demand the main driver

Turkey President Erdogan reiterated his view that raising interest rates would negative impact inflation. He called the central bank to change its current policy framework

Turkey Central Bank increase size of 1-week FX swap auction from $0.5B to $1.0B (Note: largest amount since it re-initiated the measure on Jan. 18th)

Nigeria Central Bank noted that its economic challenges had worsened with pressure on FX reserves persisting. To maintain reserves to safeguard NGN currency (Naira) and aimed to meet genuine demand for FX

Brazil govt said to see change that CPI could come in below the 4.5% target in 2017 and the Selic Target Rate falling to single digit this year (Note: currently at 13.00%)

Currencies

USD rebounded from recent 7-week lows but overall ranges with tight for the most part as month-end kept participation low.

EUR/USD holding below the 107 handle

USD/JPY stayed above the 115 level in the session after BOJ announced size in upcoming bond buying operation. Dealers noted that BOJ increased the size in the 5-10yr JGB maturity from ¥410B to ¥450B sending the meassage that BOJ did not tolerate an increase in interest rates. There had been some speculation that BOJ might be scaling back its asset-buying program after BOJ forgoed a buying operation on Wednesday

Fixed Income:

Bund futures trade at 161.81 up 38 ticks fading some of the sharp move lower seen this week as European Equities trade down paring some of the week gains. A reversal back past 161.48 lows targets 161.19 followed by 160.80. A continuation higher targets 162.19 then 162.60 to close the gap followed by 163.38 and 163.82.

Gilt futures trade at 123.08 up 25 ticks reclaiming the 123 handle as risk off sentiment put pressure on yields. Support moves to 122.60, 122.23 then Dec low at 122.08. Resistance moves to 123.18 followed by 123.62, then 124.13 to close the gap. Short Sterling futures trade flat with Jun17Jun18 remaining steady at 28/29bp.

Friday's liquidity report showed Thursday's excess liquidity remained unchanged at €1.259T. Use of the marginal lending facility fell to €31M from €290M prior.

Corporate issuance saw just the one issuer sell $2B in a 2 part offering bringing Week to date issuance to $23.65B, someway below the $30B consensus, but Jan issuance of $144.6B marks a record for the month.

For the week ending Jan 25th Lipper Fund flows reported IG Net inflows of $1.59B bringing YTD inflows to $9.70B, High Yield funds reported outflows of $532.4M bringing YTD outflows to $121.9M.

Looking Ahead

(BR) Brazil Jan CNI Consumer Confidence: 100.5e v 100.3 prior

06:00 (IE) Ireland Dec Retail Sales Volume M/M: No est v 0.9% prior; Y/Y: No est v 4.3% prior

06:00 (UK) DMO to sell combined £4.0B in 1-month, 3-month and 6-month bills (£0.5B, £1.5B and £2.0B respectively)

06:30 (IN) India Weekly Forex Reserves - 06:45 (US) Daily Libor Fixing

07:30 (BR) Brazil Dec Tax Collections (BRL): 124.8B v 102.2B prior

08:00 (ES) Spain Debt Agency (Tesoro) announces upcoming bond auctions

08:15 (US) Baltic Dry Bulk Index

08:30 (US) Q4 Advance GDP Annualized Q/Q: 2.2%e v 3.5% prior; Personal Consumption: 2.5%e v 3.0% prior

08:30 (US) Q4 Advance GDP Price Index: 2.1%e v 1.4% prior; Core PCE Q/Q: 1.3%e v 1.7% prior

08:30 (US) Dec Preliminary Durable Goods Orders: +2.5%e v -4.5% prior; Durables Ex Transportation: 0.5%e v 0.6% prior; Capital Goods Orders (Non-defense ex aircraft): 0.2%e v 0.9% prior, Capital Goods Shipments (Non-defense/ex- aircraft): 0.5%e v 0.2% prior; Durables Ex-defense: No est v -6.5% prior

10:00 (US) Jan Final Michigan Confidence: 98.1e v 98.1 prelim

10:00 (CO) Colombia Dec National Unemployment Rate: No est v 7.5% prior; Urban Unemployment Rate: 9.6%e v 8,7% prior

11:00 (EU) Possible sovereign analyst action after European close

(UK) United Kingdom and Finland Sovereign Debt to be rated by Moody's; Denmark, Spain and Turkey Sovereign Debt to be rated by Fitch; Germany Sovereign Debt to be rated by Canada rating agency DBRS

13:00 (US) Weekly Baker Hughes Rig Count data

15:00 (CO) Colombia Central Bank Interest Rate Decision: Expected to cut Overnight Lending Rate by 25bps to 7.25%

Weekend:

Sun: (DE) German Social Democratic Party candidate Schulz announces platform:

'EUR/USD dropped to its lowest in a week at 1.0658; bids and stop-loss sell orders were filled under 1.0700 in the drop.' - Dennis Pettit, Bloomberg

Pair's Outlook

As it was forecasted, the common European currency dropped to the weekly PP, which is located at 1.0666, against the US Dollar. In addition, during the move the pair touched the 1.0658 mark. The currency exchange rate is still set to move even lower before a rebound occurs, as the next support level is near the 1.0610 mark. That support cluster is made up of three levels of significance and two trend lines, which makes a rebound an almost clear certainty. However, that might not occur during Friday's trading session, as daily aggregate technical indicators for the pair forecast a surge by the end of the day.

Traders' Sentiment

SWFX traders remain bearish, as 56% of open positions are short on Friday. In the meantime, 60% of trader set up orders are set up to sell the Euro.