Sample Category Title

USD/JPY - 114.10

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 113.94

Kijun-Sen level                  : 113.92

Ichimoku cloud top             : 114.16

Ichimoku cloud bottom      : 113.95

Original strategy  :

Sell at 114.50, Target: 113.35, Stop: 114.80

Position :  -

Target :  -

Stop : -

New strategy  :

Sell at 114.55, Target: 113.55, Stop: 114.85

Position :  -

Target :  -

Stop : -

As the greenback recovered after finding support at 113.56 yesterday, suggesting consolidation with initial upside bias would be seen and corrective bounce to 114.50-55 cannot be ruled out, however, if our view that a temporary top formed at 114.75 last week is correct, upside should be limited to 114.50-55 and bring another decline later, below said support at 113.56 would bring retracement of recent rise to 113.20-25 (50% Fibonacci retracement of 111.69-114.75), however, downside would be limited to 113.00 and 112.84-86 (previous resistance and 61.8% Fibonacci retracement), bring rebound later.

In view of this, we are looking to sell dollar on recovery for such move as 114.50-55 should limit upside, bring another decline. Only above said resistance at 114.75 would abort and signal the rise from 111.69 has resumed and extend gain to 114.96 (previous resistance) but price should falter well below resistance at 115.38.

• The US January trade deficit, as expected, represented an increase from December's -$44.3B.
• The deterioration resulted from a strong 2.3% rise in imports partially offset by a modest 0.6% rise in exports.

The increase in imports represented the fourth consecutive monthly increase that averaged a robust 1.6% per month. This strength in part reflects the impact of the strong U.S. dollar lowering the price of imports. The nominal increase in January imports was also helped by rising oil prices that sent petroleum imports up a sizeable 18.4%. However, it was not just a price story with the volume of petroleum imports up a solid 9.2%. Excluding the petroleum component, imports we up a solid 1.3% on a nominal basis and 1.4% on a volumes basis.

The increase in exports in January was largely a petroleum story with this component up 13.7% in the month. A lion's share of the increase reflected volumes which jumped 12.7%. Excluding this component, exports dropped 0.6% on a nominal basis and 0.5% on a volumes basis.

The report showed a deteriorating trade deficit with China and Canada but an improving deficit with Mexico, the EU and Japan.

Our Take:

The deterioration in the January deficit occurred largely as a result of imports rising for the fourth consecutive month. For 2017 as a whole imports are expected to increase 3 1/2% that would be up from 1% gain achieved in 2016. This strengthening is consistent with the U.S. dollar appreciating further this year reflecting a Fed continuing to tighten monetary policy in the face of steady policy in most other major economies. Exports are expected to recover this year following two years of underperformance though the strong currency will limit the increase to a moderate 2%. Imports outpacing exports results in net exports continuing to be a small drag on growth in 2017. The expected strengthening in U.S. business investment along with still robust consumer spending will contribute to overall GDP growth strengthening this year to an above-potential rate despite the drag from trade.

• The merchandise trade surplus was $0.8 billion in January, up from a revised $0.4 billion surplus (was $0.9 billion) in December
• Exports rose 0.5% (despite a modest dip in energy exports). Imports dipped 0.3%, but entirely due to lower prices.

Although encouraging, the gain in exports in January was not particularly broadly based with declines in 6 of 11 subsectors. The nominal increase was led by higher exports of motor vehicles and parts (up 7.7%) and a 12.8% jump in farm, fishing and intermediate food products (boosted by a 38.4% jump in Canola exports.) The decline in imports was led by a 5.5% decline in metal and non-metallic mineral product purchases that Statistics Canada noted was largely a result of lower gold imports. Industrial machinery imports (an important indicator of domestic investment trends) declined 4.3% but that only partially retraced a 7.2% jump in December. Motor vehicle imports increased 3.6% to provide the main source of partial offset.

In volume terms, exports rose 0.8%, although with a somewhat stronger increase of close to 2% in non-energy exports. Import volumes rose 1.1% (significantly stronger than the 0.3% nominal decline) to leave, on balance, a less favourable report in terms of the real trade balance.

Our Take:

Non-energy export volumes rebounded 2% in January following a similar-sized drop in December. The measure was still down about 2% from a year ago (albeit with much of that year-over-year decline due to an ultimately temporary surge in non-energy export volumes from November through January of last year). The data is volatile and today's report does not change our view that underlying export volumes remain on a modestly positive upward path. Perhaps more encouraging is that imports of machinery, on balance, are still up significantly over December and January (January industrial machinery imports are 12%, at an annualized rate, above their Q4 average), potentially pointing to stronger M&E investment early in 2017. In terms of near-term GDP implications, the deterioration in the volume trade balance in January (led by higher import volumes) remains consistent with our expectation that net trade will subtract about a percentage point from growth in Q1/17 after adding an average 3.2 percentage points per quarter over the second half of 2016. That remains consistent with our call for GDP growth to slow to a (still above-trend) 1.9% rate in Q1 after a solid, and stronger-than-expected, 2.6% Q4/16 gain.

Exports and imports appear to be turning around. Unfortunately for U.S. GDP growth, however, real imports are growing faster than real exports at present.

Real Net Exports Continue to Exert Drag on GDP Growth

The U.S. deficit in international trade in goods and services widened to $48.5 billion in January from $44.3 billion in December (top chart). The outturn came as little surprise because preliminary data on goods trade that were released last week indicated that an increase in the overall trade deficit in goods and services was in the cards. Although the value of exports rose by $1.1 billion in January, the deficit increased sharply due to the $5.3 billion jump in the value of imports of goods and services.

Some of the increase on the import side of the ledger reflects higher imports of petroleum products, which were up by $2.6 billion in January. That said, there was broad-based strength in imports in the first month of 2017, with capital goods ($668 million), auto vehicles and parts ($899 million) and consumer goods ($2.4 billion) all higher on the month. Overall exports would have been stronger had exports of civilian aircraft and parts, which are notoriously volatile on a monthly basis, not dropped $1.2 billion in January. Outside of capital goods, the other broad categories of exports were either essentially unchanged or higher on the month.

Taking a step back from the volatility that is inherent in monthly data shows that growth in exports and imports is starting to pick up again. As shown in the middle chart, the value of exports in the November-to- January period was up 4.3 percent on a year-over-year basis. The value of imports grew 5.3 percent during that period. Some of this acceleration in export and import values reflects higher commodity prices in recent months. That said, growth in real exports and real imports have strengthened as well in recent months. This pick-up in real export growth is consistent with signs of stronger economic growth, at least on the margin, in many of America's major trading partners. Domestic demand in the United States, which influences real import growth, has also been generally resilient recently.

Speaking of real measures, real exports of goods rose 0.4 percent in January, which follows on the heels of the 3.6 percent gain in December. In other words, export growth entered 2017 with a fair amount of momentum. Unfortunately for U.S. GDP growth, however, there is even more momentum on the import side of the ledger as real imports of goods have grown in excess of 1 percent per month over the past four months (bottom chart). Real net exports sliced 1.7 percentage points off of overall GDP growth in Q4-2016 as real exports fell 4.0 percent while real imports jumped 8.5 percent. Although real net exports likely will not depress overall GDP growth in Q1-2017 as much as they did last quarter, the drag from the external sector could amount to as much as a full percentage point of GDP growth due to continued strength in real imports.

Solid labour market data in February

The jobs report for February due on Friday seems to be the last thing which potentially could halt a Fed hike at the upcoming meeting (see next section). Preliminary labour market data for February have been solid, with low initial claims and Markit PMI employment index pointing to significant labour market progress. We estimate non-farm payrolls increased by 190,000 in February in line with the recent trend and in line with the consensus. We estimate private services was the main contributor to job growth with 160,000 new jobs but we also expect the progress in manufacturing employment observed during the last two months continued in February, with an increase in manufacturing employment of 20,000 as manufacturing activity indicators continue to point towards progress. We estimate unemployment remained flat at 4.8% and that average hourly earnings increased 0.3% m/m, implying a small increase in the wage growth rate of 2.8% y/y. The pickup in wage growth is due to a correction from the January figures, where wages in financial activities fell 1.0% m/m and thus dragged down total wage growth.

The January report showed that 227,000 new jobs were created. However, the unemployment rate increased from 4.7% to 4.8%. The increase in unemployment is mainly due to an increasing participation rate and should therefore not be considered a sign of labour market weakness - on the contrary.

As growth has picked up pace after the slowdown in H1 16, we expect jobs growth to continue around the current pace in coming months, which should be sufficient to tighten the labour market further. That said, there is still slack left in the labour market (see spider web chart on the next page), as the number of marginally attached and part-time workers for economic reasons is still high and the number of long-term unemployed is still elevated.

Fed is set to hike unless the jobs report is extremely weak

In Friday's speech, Fed Chair Janet Yellen confirmed that the Fed is set to hike at the upcoming meeting ending on 15 March, unless the jobs report for February is extremely weak. We probably need to see jobs growth below 100,000, a higher unemployment rate and no improvement in the weak earnings data in January before the FOMC members change their minds. As we expect the jobs report to be good, we expect the Fed to deliver. Markets have priced in an 85% probability of a Fed hike in March.

We now expect the Fed to hike three times this year in March, July and December, as the Feb seems less worried about inflation and has increased its weighting on labour market and growth data. In her speech, Yellen hinted that four hikes this year means that monetary policy becomes neutral and we think the Fed wants to keep monetary policy slightly accommodative, as there is still slack left in the labour market. We still expect the Fed to hike three-four times next year, as the neutral rate should move higher.

The U.S. trade deficit widened to $48.5 billion in January from a $44.3 billion deficit in December. The trade deficit was right on the consensus expectation.

January exports rose for the second consecutive month (+0.3% month-on-month), driven higher by automotive exports (+10.8%) and industrial supplies (+5.8%). In real terms, exports rose 0.4%.

Imports rose 2.5% month-on-month in January owing to increases in the import of consumer goods ex autos (+4.9%), and capital goods (+1.3%). In real terms, imports of goods rose 2.1%, marking the fourth consecutive month of advance.

Key Implications

Another month, another unsurprising trade report. The pop in the U.S. dollar late last fall is likely a factor that has fed into the widening of the nominal trade deficit in January. Since U.S. dollar strength makes foreign goods cheaper for Americans, and is also a sign of a healthy economic expansion relative to other countries in the world, we expect to continue to see imports to rise in upcoming months.

The elevated level of the trade-weighted dollar along with firming of domestic demand is a major theme behind our view that net trade will likely exert a drag on U.S. economic growth this year. However, uncertainty about the future of U.S. trade policy makes this view less clear.

Canada's trade balance started the year in a surplus position, extending the string of surpluses to three months. Exports were up 0.5%, while imports slipped 0.3%. As such, the surplus widened from $447 million in December to $807 million in January. In real terms, exports were up by 1% and imports rose by 2.5%.

The strength in exports was driven in large part by a bounce back in motor vehicle and parts exports (+7.7%), as well as a 13% increase in farm fishing and intermediate food products. In contrast, exports of the volatile aerospace products (-9%), consumer goods (-4%) and metal and non-metallic mineral products (-5%) provided some offset.

Weakness in imports was widespread, led by metal ores and non-metallic minerals (-10%) and metal and non-metallic mineral products (-5.5%). Imports of energy products (+12%) and motor vehicles and parts (+3.6%) provided some offset.

Canada's trade surplus with the U.S. widened to $4.5 billion in January (previously $3.8 billion), as exports rose 2.3% and imports were up by a more modest 0.3%. Canada's trade deficit with the rest of the world widened to $3.7 billion (previously ($3.4 billion) as exports (-4.4%) fell more than imports (-1.3%).

Key Implications

With growth in import volumes expected to outpace exports, net trade is likely to be a drag on growth in the first quarter of this year. However, exports are expected to gain some traction in the coming months, which will allow trade to be supportive of growth over the remainder of the year.

Indeed, strong U.S. demand - stemming in part from an expected uptick businesses investment - combined with the Canadian dollar hovering in the mid-70 US cent range throughout the year, should bode well for Canadian-made goods. Of course, the potential for protectionist measures to be implemented south of the border presents some downside risk to this outlook.

All told, the rotation in the Canadian economy towards export-driven growth should gain some traction by the second half of this year. However, with the cloud of uncertainty stemming from the potential policies of the new administration stateside unlikely to abate any time soon, we expect the Bank of Canada to remain on the sidelines for the foreseeable future.

Daily Pivots: (S1) 1.0557; (P) 1.0598 (R1) 1.0622; More.....

Intraday bias in EUR/USD remains neutral for the moment as it's stay in established range of 1.0493/1.0630. On the upside, firm break of 1.0630 resistance will argue that pull back from 1.0828 is completed. Also, rise from 1.0339 could possibly be resuming. In that case, intraday bias will be turned back to the upside for 1.0828 resistance and above. On the downside, below 1.0493 support will affirm the case that fall from 1.0828 is resuming the larger down trend. In that case, intraday bias will be back to the downside for resting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

Daily Pivots: (S1) 1.0084; (P) 1.0107; (R1) 1.0141; More.....

USD/CHF's rise resumed after brief consolidation and took out 1.0145 resistance. The pair reaches as high as 1.0164 so far. Intraday bias is back on the upside. Rebound form 0.9860 should target a test on 1.0342 key resistance next. As noted before, based on neutral medium term outlook, we'd be cautious on topping at around 1.0342. On the downside, break of 1.0008, however, will indicate completion of the rebound from 0.9860. And intraday bias will be turned back to the downside for 0.9860.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

Daily Pivots: (S1) 113.58; (P) 113.85; (R1) 114.16; More...

USD/JPY continues to stay in tight range below 114.74 for the moment. As the pair is bounded in range of 111.58/114.94, intraday bias remains neutral. Near term outlook is a bit mixed as the corrective fall from 118.65 might not be completed yet. But still, in case of another fall, we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, decisive break of 114.94 will indicate that it's completed with a double bottom pattern (111.58, 111.68). In such case, intraday bias will be turned to the upside for retesting 118.65.

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.