Global stocks were pressured during Friday's trading session, as scepticism over the sustainability of the Trump-fuelled market rally and a sense of caution ahead of Yellen's speech kept investors on edge. Asian equity markets swiftly surrendered gains, while European shares descended into red territory as participants re-evaluated the likelihood of higher US interest rates. The bearish domino effect from Europe, coupled with risk aversion may limit gains on Wall Street later today.

Although the stock market rally has been phenomenal this quarter, investors should remain vigilant as the bearish attributes for a selloff still linger in the background. The political risks in Europe, Brexit woes and ongoing Trump uncertainties could still trigger a wave of risk aversion. While the upside momentum may continue to elevate global stocks to gravity-defying levels, an unexpected catalyst could trigger a selloff that brings an end to the overextended market rally.

Sterling slides to seven-week low

Sterling bears were unleashed on Friday following the unexpected decline in UK services in February, rekindling concerns that ongoing Brexit woes are negatively impacting the economy. The visible slowdown in UK services which fell to 53.3 has added to the cocktail of soft economic releases this week that continue to pressure Sterling. With sentiment towards Sterling firmly bearish, further downsides may be expected as anxiety heightens ahead of the Article 50 invocation this month. From a technical standpoint, the GBPUSD is heavily bearish on the daily charts and a breakdown below 1.2200 could encourage a further selloff lower towards 1.2050.

Janet Yellen in focus

The Greenback has been explosively bullish this trading week as expectations mount over the Federal Reserve raising US interest rates in March. The hawkish chorus of Fed officials suggesting an imminent US rate increase has made the Dollar king, while positive US economic data continues to ensure the currency remains buoyed. Much attention will be directed towards Yellen's speech this evening, which could cement expectations of a March rate hike if she reiterates a similarly hawkish mantra as other Fed officials.

Technical traders may pay attention to how the Dollar Index reacts around the 102.00 regions. There is a possibility that previous resistance at 102.00 could transform into a dynamic support, which in turn encourages a further incline higher towards 102.50.

Gold under fresh selling pressure

The growing speculation of the Federal Reserve raising US interest rates in March has exposed Gold to downside shocks, with the metal booking its biggest one-day loss of 2017 during Thursday's trading session. Sellers have exploited the repeated hawkish comments from Fed officials to pressure the yellow metal, while a strengthening Dollar continues to cap upside gains. A scenario where the Greenback continues to appreciate amid the improving sentiment towards the US economy could leave Gold vulnerable to further losses. Although the concerns over political risks in Europe, Brexit woes and Trump developments attract investors to safe haven assets in the medium to longer term, bears currently remain in control on the daily charts. From a technical standpoint, further weakness below $1220 could encourage a selloff lower towards $1200.

Commodity spotlight - WTI Crude

Oil markets were vulnerable to losses on Thursday following reports that Russian crude production remained unchanged in February, rekindling concerns of weak compliance in the global output cut deal. The sharp selloff was fuelled by US government data showing that domestic crude inventories ascended to record highs last week. Oil prices may come under increased pressure from the combination of oversupply fears resurfacing, US shale pumping oil incessantly and a strengthening Dollar. From a technical standpoint, the breakdown below $53 on WTI Crude may open a path lower towards $52.

Daily Pivots: (S1) 1.0550; (P) 1.0590 (R1) 1.0616; More.....

EUR/USD recovers ahead of 1.0493 after forming a temporary low at 1.0494. Intraday bias remains neutral as the pair is still bounded in range of 1.0493/0630. Overall near term outlook stays bearish with 1.0630 resistance intact. Downside breakout is expected sooner or later. Fall from 1.0828 is resuming the larger down trend. Below 1.0493 will target 1.0339 low first. Break will confirm our bearish view and target parity. However, break of 1.0630 will dampen our view and turn focus back to 1.0828 resistance instead.

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.

Dollar stays firm against most major currencies on speculations of Fed March hike. Nonetheless, the greenback trades lower against Euro as EUR/USD defended 1.0493 near term support. Fed fund futures are pricing in more than 77% chance of a March hike after a wave of hawkish comments from Fed officials. The focus will now turn to Fed chair Janet Yellen's speech, as well as that of vice chair Stanley Fischer today. Traders would be eager to get confirmation on their expectations. Meanwhile, next Friday's non-farm payroll report could be the final piece of data policymakers would watch before FOMC meeting on March 14/15.

UK services growth slowed

Sterling weakens against Euro today after weaker than expected services data. UK PMI services dropped to 53.3 in February, down from 54.5 and missed expectation of 54.0. Markit noted that "UK service sector firms remained in expansion mode during February, but growth momentum eased further from the 17-month peak seen at the end of 2016." And, "the slowdown mainly reflected a softer pace of new business growth, which some respondents linked to more cautious spending among consumers." At the same time, Markit chief business economist Chris Williamson said that "inflationary pressures remained the highest for six years as firms struggled with rising costs associated with the weak pound, but optimism about the year ahead remained elevated by recent standards."

Also released from Europe, Eurozone retail sales dropped -0.1% mom in January. Services PMI was revised down to 55.5 in February. Germany services PMI was finalized at 54.4 in February. German retail sales dropped -0.8% mom in January. France services PMI was revised down to 56.4 in February. Italy services PMI rose strongly to 54.1 in February.

Japan CPI ticked up in January

Japan national CPI core rose to 0.1% yoy in January, up from -0.2% yoy, above expectation of 0.0% yoy. That's also the first uptick in 11 months. Tokyo CPI core, however, dropped -0.3% yoy in February, unchanged from prior month's reading, and missed expectation of -0.2% yoy. The jump in National CPI core is seen mostly as a recent of energy prices. There is still no clear evidence of momentum in underlying inflation, including wages. And, the reading is still far below BoJ's 2% target. It's difficult for BoJ to start scaling back the massive monetary stimulus any time soon. Unemployment rate dropped 0.1% to 3.0% in January. Household spending dropped -1.2% yoy. Consumer confidence dropped 0.1 to 43.1 in February.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.0550; (P) 1.0590 (R1) 1.0616; More.....

EUR/USD recovers ahead of 1.0493 after forming a temporary low at 1.0494. Intraday bias remains neutral as the pair is still bounded in range of 1.0493/0630. Overall near term outlook stays bearish with 1.0630 resistance intact. Downside breakout is expected sooner or later. Fall from 1.0828 is resuming the larger down trend. Below 1.0493 will target 1.0339 low first. Break will confirm our bearish view and target parity. However, break of 1.0630 will dampen our view and turn focus back to 1.0828 resistance instead.

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.

Economic Indicators Update

Friday March 3: five things the markets are talking about

U.S economic data continues to be bullish and above expectations, coupled with the most recent comments from Fed officials this week are supporting growing expectations of a rate hike in a fortnight by the Fed.

Expect Fed Chair Yellen's speech today (01:00 pm EST) to be highly scrutinized. Her remarks are likely to further shape market expectation toward a rate increase. Should Yellen signal to wait a bit longer to act, in other words, deflate expectations on an imminent increase then this Friday afternoon of trading will be rather frantic.

The macro backdrop supports the Fed's plan of a moderate increase in its short-term interest rates - the U.S labor market nears full employment and inflation readings are either above the Fed's 2% target or near it - however, in the past, the Fed has been a fickle bunch usually looking for the 'sure' bet.

The danger the Fed faces currently is that too much jawboning and no action will crush the Fed's credibility and their tool of rhetoric used to prep the market will have dealers/investors take less notice.

For the dove, they have been able to find some cover with the Atlanta Fed lowering its GDPNow forecast yesterday to +1.8% amid slower consumer spending growth, but is it enough?

1. Mixed reaction from global stocks

Concerns over valuations, building expectations of March Fed hike, and political controversy in the White House are being attributed for the decline in global stocks.

In Japan, equities fell as investors took profits before the weekend, after hitting a 14-month high Thursday. The Nikkei dropped -0.5% on the back of a stronger yen (¥114.10). The index rose +1% on the week. The broader Topix dropped -0.4%.

In Hong Kong, the Hang Seng closed at a one month low, down -0.7%. For the week the index is down -1.7%. In China, stocks also fell and snapped a three-week winning streak. The blue-chip CSI300 index fell -0.2% on the day and -1.3% on the week. Aside from some underwhelming China services data (see below) investors are also worried about potential China regulatory reforms.

In Europe, equity indices are trading lower as market participants look to realize some weekly profits. Banking stocks are trading mixed in the Eurostoxx while commodity and mining stocks are weighing on the FTSE 100.

U.S equities are set to open in the red (-0.3%).

Indices: Stoxx50 -0.3% at 3,375, FTSE -0.3% at 7,358, DAX -0.5% at 11,998, CAC-40 -0.2% at 4,953, IBEX-35 -0.3% at 9,691, FTSE MIB -0.1% at 19,423, SMI -0.2% at 8,645, S&P 500 Futures -0.3%

2. Oil edges higher after sell-off on weaker dollar, gold under pressure

Oil prices have ticked a tad higher this morning, reclaiming some of yesterday's losses, as a weaker dollar encourages buying. However, the market remains cautious after Russian production figures this week showed weak compliance with a global deal to cut output.

Brent crude futures are up +19c at +$55.27 a barrel, recovering some of Thursday's losses that amounted to more than -2%. U.S light crude (WTI) is trading at +$52.69 a barrel, up +8c on yesterday's close.

The markets remains range bound and expect dealers to take their cue from the dollars direction after Yellen's speech today.

Ahead of the U.S open, gold prices are holding above of some key support levels (-0.3% to +$1,231.31 per ounce) after falling more than -1% yesterday. The yellow metal is on track for its first drop in five-weeks and sitting atop its weakest level since December on expectations of U.S. Fed rate hike on March 15.

Silver prices hit a 3-week low of +$17.64 Thursday, after falling -3.5% - it was metals worst one-day fall since December 15 and is on track to end the week down -3%.

Note: This is silver's first weekly drop in ten-weeks.

3. Fed anxiety keeps yields high

The reflation trade remains on track as bond markets continue to put downward pressure on bond prices and short-term paper.

This week 'hawkish' Fed sentiment has been rattling the bond market hard, sending yields climbing especially those highly sensitive to the Fed's policy outlook.

The panic has sent the yield on the two-year note (+1.316%) to the highest in more than seven-years. While U.S Bills or short-term paper, has been the hardest hit with the yield on the benchmark 3-month bill jumping +5bps to +0.7%.

Yields on 10-year Treasuries are little changed at +2.48%.

4. The pound woes continue

Sterling fell to a fresh six-week low outright (£1.2214) and reached its weakest level in three-weeks against the EUR (€0.8623) after a purchasing managers' survey on the key U.K. services sector for February came in at 53.3, below forecasts for 54.9.

Brexit discussion worries are also hampering the pounds efforts. The U.K's House of Commons is set to debate the Brexit bill amendment on March 13 and 14, keeping PM May's self-imposed deadline to trigger Article 50 on track.

Elsewhere, the EUR is consolidating its recent losses and is holding above the psychological €1.05 level at €1.0536. USD/JPY is trading atop of ¥114.30 in the European session. China's yuan has breached the ¥6.9 handle on the back of the overall USD strength and is poised for its worst week since mid-Dec against the greenback.

5. Eurozone composite PMI unrevised, China disappoints

Data this morning shows that the eurozone's composite PMI for last month was unrevised at 56.0, up from 54.4 in January and at a six-year high that suggests economic growth has picked up in the early months of 2017.

Digging deeper, the details suggest the pickup may be sustained, with new orders and backlogs of work also on the rise, prompting businesses to hire more aggressively than at any time in the past nine-years. And there are also signs that inflationary pressures are building, with costs and prices charged both rising.

In China, February's Caixin Services PMI slowed to a four-month low (52.6 vs. 53.1 m/m), even as the overall composite improved - the employment component rallied for the first time in nearly two-years.

Note: China's annual National People's Congress (NPC) begins on Sunday with anticipated announcement of 2017 economic targets.

Today, investors will lock their gaze on the US for two speeches by the Fed's top policymakers, Chair Janet Yellen and Vice Chairman Stanley Fischer. This will be the last time we hear from these officials ahead of the March meeting and as such, their remarks will be closely scrutinized for any hints on whether a March hike is as likely as market pricing currently suggests. The probability for a hike at this meeting skyrocketed this week, boosted by hawkish comments from various influential FOMC officials. The latest of these remarks came overnight, from Fed Board Governor Powell, who stated explicitly that a March rate hike will be on the table when policymakers meet. If Yellen's and Fischer's comments are equally optimistic as those of their colleagues, we could see that probability increase further, something that could add more fuel to the latest dollar rally, at least ahead of next week's employment report. EUR/USD slid yesterday and hit the key support territory of 1.0500 (S1) before rebounding somewhat. In our view, investors are likely to settle near that zone and wait for Yellen and Fisher. If these two elite policymakers sound hawkish as well, then we may see a dip below 1.0500 (S1), which could open the way for our next support barrier of 1.0450 (S2), defined by the low of the 11th of January.

On the other hand, a more moderate tone from these key officials, could suggest that the FOMC can be patient for now and pour cold water on the idea of a March action. Something like that could lead to notable downside correction in USD. In this case, EUR/USD could rebound further from near the 1.0500 (S1) hurdle and could initially aim for the resistance of 1.0570 (R1). A possible break above that territory is likely to set the stage for more upside extensions, perhaps towards the 1.0630 (R2) area, marked by the peaks of the 27th and 28th of February.

On balance, we view the risks surrounding today's reaction in the dollar as asymmetric and as being tilted to the downside. We believe there is likely to be a bigger negative reaction in case the two officials express more moderate comments, rather than the corresponding positive reaction in case of hawkish ones. The March rate hike probability already rests at 77% according to the Fed funds futures, implying that this is the market's base case scenario, and comments hinting anything different than that will come as a surprise.

Having outlined the scenarios, we maintain our view that June is still a more likely candidate than March for the next rate hike. We think that the greater than 50% probability for a March hike is overly optimistic, mainly because there has not been a phenomenal change in the economic outlook in the aftermath of the February meeting to justify such a shift in Fed rhetoric. Let's not forget that the minutes of that meeting showed many officials held a cautious stance, judging that the Fed would have "ample time" to respond if inflation emerged. Since then, wage growth slowed in January, while the core PCE price index for the same month failed to accelerate for the third consecutive time, generating doubts as to whether underlying inflationary pressures have really begun to pick up. What's more, there is still elevated uncertainty around the direction of fiscal policy. Bearing all these in mind, a strong case can be made for the Committee to remain patient, at least for now. In order to reassess this view, we would like to see hawkish signals from both Yellen and Fischer, as well as a rebound in the average hourly earnings rate for February, next week.

As for the rest of today's highlights:

During the European day, we get the final services PMIs for February from the European nations that we got the manufacturing data on Wednesday, and the Eurozone as a whole. All the final indices are expected to confirm their preliminary estimates and as such, the reaction in EUR may be limited. We also retail sales for January from both Germany and the Eurozone.

From Sweden, we get industrial production data for January and the forecast is for a rebound, something that may support SEK somewhat. Norway's unemployment rate for February is also due out.

In the UK, the services PMI for February is due to be released. The forecast is for the index to have declined somewhat. A modest decline could signal that growth in the UK's largest sector is slowing down and may thereby hurt the pound somewhat. GBP/JPY edged south yesterday after it hit resistance at 140.70 (R1) and the prior upside support line taken from the low of the 16th of January. This combined with the fact that the rate remains below the downside resistance line drawn from the peak of the 15th of December keep the short-term outlook somewhat negative. A disappointment in the services PMI today could push the rate below the 139.70 (S1) support, something that could pave the way for our next obstacle of 138.80 (S2), marked by the low of the 28th of February.

We believe that the most closely watched aspect of the report will be how fast inflationary pressures are mounting, as investors try to gauge whether or not the BoE is likely to tighten its policy in the foreseeable future. Following comments from BoE policymakers last week, such a scenario appears rather unlikely. Even Ian McCafferty, a notorious hawk among the Committee, signaled that there is "some hope" that interest rates could start to normalize in two or three years. Even though that depends on how inflation evolves over the coming months, the fact that presently there seems to be very little appetite for rate hikes even by the most hawkish MPC members is important in our view.

With regards to US economic data, we get the ISM non-manufacturing PMI for February. The forecast is for the index to have remained unchanged at a relatively elevated level. However, the greenback's near-term direction is likely to be dictated by Yellen's and Fischer's comments, later during the day.

Besides Chair Yellen and Vice Chairman Fischer, we have one more Fed speaker on today's schedule: Dallas Fed President Robert Kaplan.

EUR/JPY - 120.28

EUR/JPY: Wave v as well as larger degree wave (C) ended at 94.11 and first leg of larger degree wave C upmove has possibly ended at 149.79 and wave 2 correction has possibly ended at 109.49.

Although the single currency fell briefly to 118.24 late last week, the subsequent rebound suggests low is possibly formed there and consolidation above this level would be seen with mild upside bias for gain to 121.00, however, a daily close above resistance at 121.34 is needed to provide confirmation, bring at least a strong retracement of the fall from 124.10 to 122.00-10. Looking ahead, only a break of resistance at 122.52 would retain bullishness and signal the pullback from 124.10 has ended, bring subsequent test of resistance at 123.31, a firm break above this level would indicate early upmove has resumed for retest of 124.10 (Dec high).

The daily chart is labeled as attached, early selloff from 169.97 (July 2008) to 112.08 is wave (A) of B instead of end of entire wave B and then the rebound from there to 139.26 is wave (B), hence, wave (C) has possibly ended at 94.12 with a diagonal triangle as labeled in the daily chart, hence upside bias is seen for further gain. Recent rally above indicated retracement level at 116.69 (50% Fibonacci retracement of the intermediate fall from 139.26-94.12) adds credence to this view and signal major reversal has commenced but first leg of this wave C has possibly ended at 149.79, hence wave 2 has commenced with wave A ended at 126.09, followed by wave B at 141.06, wave C commenced and could have ended at 109.49, above 125.00 would add credence to this view.

On the downside, whilst initial pullback to 119.80 cannot be ruled out, reckon downside would be limited to 119.20-25 and bring another rebound later. Only a drop below said last week's low at 118.24 would abort and signal the erratic fall from 124.10 top is still in progress for further fall to 117.50-60 but reckon downside would be limited to 117.00 (61.8% Fibonacci retracement of 112.61-124.10) and price should stay well above previous resistance at 116.29, bring another rally later this month or in Q2.

Recommendation: Buy at 119.20 for 121.20 with stop below 118.20.

To re-cap the corrective upmove from the record low of 88.93 (18 Oct 2000), the wave A from there is subdivided as: 1:88.93-113.72, 2:99.88 (1 Jun 2001), 3:140.91 (30 May 2003), 4:124.17 (10 Nov 2003) and 5 ended at record high of 169.97 (21 Jul 2008). The brief but sharp selloff to 112.08 is viewed as a-b-c x a-b-c wave (A) of B. The subsequent rebound to 139.26 is (B) of B and (C) of (B) has possibly ended at 94.12 and in any case price should stay well above previous chart support at 88.93, bring rally in larger degree wave C towards 150.00.

USD/CHF – 1.0128

USD/CHF – Wave IV ended at 1.1730 and wave V has possibly ended at 0.7068

The greenback found renewed buying interest at 1.0009 earlier this week and has risen again, suggesting the erratic rise from 0.9861 is still in progress and may extend further gain to 1.0200 and possibly test of resistance at 1.0248, however, a daily close above there is needed to signal the retreat from 1.0344 has ended at 0.9861, bring eventual retest of 1.0344. Looking ahead, only break of said resistance at 1.0344 would retain bullishness and extend the major rise from 0.7401 (2015 low) to 1.0400 and later towards 1.0470-75 but upside should be limited to 1.0500 and price should falter below 1.0600.

Our preferred count on the daily chart is that early selloff to 0.9630 is an end of the larger degree wave III and major correction is unfolding from there with a leg ended at 1.2298 (Nov 2008 with (a): 1.0625, (b):1.0011 and (c):1.2298), wave b ended at 0.9910 with (a): 1.0370, (b): 1.1967, (c): 0.9910. The rise from there to 1.1730 is the wave c which also marked the end of wave IV and wave V has possibly ended at 0.7068.

On the downside, whilst initial pullback to 1.0065-70 cannot be ruled out, reckon said support at 1.0009 would remain intact and bring another rise later to aforesaid upside targets. A daily close below support at 1.0009 would abort and suggest the rebound from 0.9861 has possibly ended, bring test of 0.9967, break there would add credence to this view and bring further fall to 0.9900. A drop below there would confirm and signal the fall from 1.0344 has resumed for a retest of said support at 0.9861, once this level is penetrated, this would extend this decline to 0.9850-53 (61.8% Fibonacci retracement of 0.9550-1.0344), then 0.9800, having said that, reckon downside would be limited to 0.9735-40 and 0.9675-80 should hold from here, bring rebound later.

Recommendation: Buy at 1.0065 for 1.0265 with stop below 0.9965.

Dollar's long-term downtrend started from 2.9343 (Feb 1995) and it was unfolding as a (A)-(B)-(C) with (A): 1.1100, (B): 1.8310 (26 Oct 2000), then followed by another impulsive wave (C) with wave III ended at 0.9630 (Mar 2008). Under this count, correction in wave IV has possibly ended at 1.1730 and wave V already broke below support at 0.9630 and met indicated downside target at 0.7500 and 0.7400. The reversal from 0.7068 suggests the wave V has possibly ended and the breach of resistance at 0.9595 add credence to this view and indicated upside target at 1.0000 had been met, however, the sharp retreat from 1.0296 to 0.7401 suggests choppy trading would be seen but price should stay above said record low at 0.7068.

EUR/JPY - 120.27

Recent wave: wave v of (C) ended at 94.12 and major correction in wave A has ended at 149.79

Trend: Sideways

Original strategy:

Buy at 119.85, Target: 121.35, Stop: 119.25

Position: -
Target: -
Stop: -

New strategy :

Buy at 119.65, Target: 121.35, Stop: 119.05

Position: -
Target: -
Stop:-

As the single currency has eased after rising to 120.50 yesterday, suggesting consolidation below this level would be seen and pullback to 120.00 is likely, however, reckon downside would be limited to 119.60-65 and bring another rise later, above said resistance at 120.50 would extend the rebound from 118.24 low for retracement of recent decline to 120.90-00, then towards 121.30-35 but overbought condition should limit upside to 121.90-00 and price should falter well below resistance at 122.52, bring another decline later.

In view of this, we are looking to turn long on dips as 119.60-65 should limit downside. Below previous resistance at 119.47 would defer and risk weakness to 119.00-10 but reckon support at 118.67 would contain downside and bring further consolidation. Only below this support would signal the rebound from 118.24 has ended, bring retest of this level later. A drop below there would extend recent decline from 124.10 top to 118.00 and later towards 117.50.

Our latest preferred count is that wave (ii) is ABC-X-ABC which ended at 123.33 and wave (iii) is unfolding with wave iii ended at 100.77, followed by wave iv at 111.57 and wave v as well as the wave (iii) has ended at 97.04, followed by wave (iv) at 111.43 and wave (v) has ended at 94.12 which is also the end of the larger degree v, this also implied the major wave (C) has also ended there, hence major correction has commenced from there with (A) leg unfolding in its lower degree wave c which has possibly ended at 145.69. Under this count, A-B-C wave (B) has commenced with A leg ended at 136.23, wave B at 143.79 and wave C has possibly ended at 149.79.

Our larger degree count is that the decline from 139.26 is wave (C) and is sub-divided into a diagonal triangle i-ii-iii-iv-v with wave i - 105.44, wave ii- 123.33, wave iii - 97.03, wave iv - 111.43, followed by the final wave v as well as the end of wave (C) at 94.12, this also mark the bottom of larger degree wave B. Under this count, major rise in wave C has commenced as an impulsive wave with minor wave III ended at 145.69, wave V is still in progress for further gain to 150.00. Having said that, this so-called wave V could well be the first leg of larger degree 5-waver wave C and this wave C should bring at least a retest of wave A top at 169.97 (July 2008).

AUD/USD – 0.7563

Recent wave: Wave 5 ended at 1.1081 and major correction has commenced for fall to 0.7000 and then towards 0.6500-10

Trend: Near term up

Original strategy :

Sold at 0.7690, met target at 0.7550

Position: - Short at 0.7690
Target: - 0.7550
Stop: -

New strategy :

Stand aside

Position: -
Target: -
Stop:-

Aussie has finally dropped yesterday and our short position entered at 0.7690 finally met our indicated downside target at 0.7550 (with 140 points profit), adding credence to our view that top has been formed at 0.7741 and consolidation with mild downside bias remains for this fall from there to bring retracement of recent upmove to 0.7512, however, near term oversold condition should prevent sharp fall below previous support at 0.7493 and price should stay above support at 0.7449, bring rebound later.

As we have taken profit on our short position entered at 0.7690, would not chase this fall here and would be prudent to stand aside in the meantime. On the upside, expect recovery to be limited to 0.7600 and price should falter below previous support at 0.7637, bring another decline later. Only break of 0.7700 would signal the retreat from 0.7741 (last week's high) has ended and bring retest of this level first.

On the 4-hour chart, the move from 0.8066 is the wave 5 with i: 0.8860, ii: 0.8315, wave iii is an extended move ended at 1.0183, iv: 0.9706 and wave v has ended at 1.1081 (also the top of entire wave 5). The subsequent selloff is the major correction which is unfolding as ABC-X-ABC and 2nd A leg has ended at 0.8848, followed by a-b-c wave B which ended at 0.9758, hence, 2nd C wave is now in progress and indicated downside target at 0.7000 and 0.6950 had been met, so further fall to 0.6710-20 cannot be ruled out.

Sunrise Market Commentary

• Rates: Sell-the-rumour, buy-the-fact as Yellen delivers.
  Main events today are speeches by Fed vice chair Fischer and Yellen. We expect them to seal the deal for a March rate hike, which is by and large already completely discounted. We believe that there is room for some minor profit taking going into the weekend, especially if stock markets continue to correct lower.
• Currencies: Dollar rally continues amid higher rates and yields
  Yesterday evening's equity correction on Wall Street deepened overnight in Asia. Fed Yellen will probably seal the March rate hike deal today, but it is largely discounted, opening the possibility for a sell the dollar before/on the fact. However, we consider it as a correction and remain dollar positive longer term.

The Sunrise Headlines

• US couldn't hold on to record gains after Trump's speech and Fed governors' hints on a March rate hike. They corrected 0.5% lower yesterday. Overnight, losses on Asian stock markets are even slightly bigger.
• Core inflation has returned to Japan for the 1st time since 2015, with consumer prices ex. fresh food rising by 0.1% Y/Y in January. The return to positive territory was driven by energy.
• An independent gauge of activity in China's services sector indicates growth slowed further last month, contrasting with a pick-up in bustle at the country's manufacturers. The Caixin Services PMI declined from 53.1 to 52.6.
• Fed Governor Powell said the case for a rate increase at the US central bank's March meeting has “come together,” joining the chorus of Fed officials signalling a hike is coming soon.
• China's leaders are expected to telegraph their willingness at this year's annual parliamentary meeting to let reforms overtake policy stimulus as their priority amid concerns over financial instability in the world's second-largest economy.
• Catalonia is organising the logistics for a referendum on independence from Spain it plans to hold by the end of September, even if it goes against the wishes of the national government, the Catalan government's foreign policy chief said.
• Today's eco calendar contains services PMI's/ISM in EMU (final), UK and the US. Fed vice chair Fischer speaks on monetary policy decision making and chairwoman Yellen discusses the economic outlook.

Currencies: USD Extends Gains On Rate Hike Expectations, But No USD Euphoria

USD uptrend continues, albeit a slower pace

The revived reflation trade took a breather (equities lower) yesterday. Even so, the dollar uptrend remained intact, as yields maintained an upward bias. Investors continued to adjust positions for a March Fed rate hike. The 2-yr US/German yield spread widened 4 bps to 215 bps, matching the cycle high, to close at 213 bps, after a late session “rebound” of Treasuries. The dollar rally initially shifted into a lower gear, but got extra fuel from hawkish comments of Fed Powell who explicitly mentioned a March rate hike. Some correction started late in the session. EUR/USD approached 1.0494 support and USD/JPY neared the 114.94 resistance. EUR/USD finally closed at 1.0507 (intraday low 1.0495), while USD/JPY closed at 114.41 (intraday high 114.59). The eco data (EMU inflation and US jobless claims) supported the reflation trade, but had no immediate impact on currency trading.

Overnight, the risk-off sentiment deepened. Japanese data were on the softer side and Chinese Caixin services sector and composition business sentiment were mixed versus January. Asian stocks are lower, with Japan underperforming as the yen strengthens. USD/JPY trades currently around 114.10 (from 114.41 opening). Risk off and slightly lower US yields drive the move. Commodities stabilise after yesterday's slide, and so does EUR/USD for now (1.0514). US Services ISM and Yellen in the spotlight today

The US Services ISM is expected to have stabilized at a lofty 56.5 in February. However, the manufacturing ISM accelerated in February to 57.7 from 56 previously and both indices have a strong monthly correlation. Therefore, we put the risks on the upside of expectations for the US services ISM despite its high level. No less than 5 Fed governors will appear and give their opinions on the economy and likely policy ahead of the black period that precedes the March 15 FOMC meeting. However, the key speeches will be given by Fed chairwoman Yellen and Vice-chair Fischer at 19:00 CET. Fed governors like Dudley, Williams, Powell and Brainard prepared the road for a March rate hike. It is now the “task” of Yellen/Fischer to seal the deal. This looks highly likely. If not, expect some panic and wild repositioning

Regarding FX trading today, the service ISM may be dollar positive. As markets have now nearly completely discounted a March Fed rate hike, the risk is nevertheless for a counter-intuitive “buy-the-rumour, sell the fact” reaction in various markets before and/or after Yellen's speech. Yesterday, some traces of such behavior were visible in the equity markets, but not yet in FX markets. The risk-off equity moves and slightly lower US yields overnight may be the precursor of what will follow today. The dollar hit key resistance levels which might also be an invitation for some dollar profit taking. We would take that as a “normal” reaction and no sign of a turnaround in the trend. In this respect, we stay dollar positive longer term and hope to be able to buy it at lower levels in case the correction is more than a superfluous event.

Global context: Over the previous days the focus shifted from US fiscal policy to the Fed's monetary policy, as the Fed prepares markets for a rate hike in March. EUR/USD 1.0874 is a solid resistance and we favour a sell EUR/USD on upticks approach. The focus is now on the downside of the pair with 1.0494, first intermediate support ahead of the 1.0341 correction low. Too difficult to break ahead of Yellen and the weekend? The downside test of USD/JPY is also rejected. USD/JPY 111.60/111.16 (Range bottom/38% retracement of the 99.02/118.66 rally) remains key support. On the topside, 114.96 is a first point of reference, but some correction pre/post-Yellen may delay a test.

EUR/USD decline continued yesterday, nearing 1.0492 support, last gate before cycle lows. Risk off may make a break difficult today, unless Yellen helps

EUR/GBP

EUR/GBP fails to take out first resistance at 0.8592

Yesterday, cable slid lower for the fifth consecutive session, but the pace of the downturn slowed and cable closed around 1.2267 from 1.2293 on Wednesday evening. The intraday decline of EUR/USD was only a small and temporary help for sterling versus the euro. EUR/GBP closed at about 0.8565,virtually unchanged from the previous close (0.8579). The pair came again within reach of the 0.8592 resistance (ST top), but a real test didn't occur. There were plenty of comments on the Brexit amendment in the Upper House. However, (FX) markets don't see these as a hurdle for respecting the Brexit timetable.

Today, the UK February services PMI is expected to have declined slightly from 54.5 to 54.1. A negative surprise, after the miss in the manufacturing measure earlier this week, might be slightly sterling negative, but will it be enough for EUR/GBP to break above 0.8592 resistance? Sterling sentiment has softened a bit of late, but an EUR/USD rebound is likely needed to push EUR/GBP above resistance. If the euro loses further ground against the dollar and EUR/USD drops below 1.0494, a break of EUR/GBP above resistance would be difficult at this point. Early last week, the euro sell-off pushed EUR/GBP to the 0.84 area, but a sustained break lower didn't occur. A break of EUR/GBP above 0.8592 resistance would suggest a further loss of sterling momentum. Longer term, we have a sterling negative view, as the Brexit will negatively impact the UK economy

EUR/GBP: testing first resistance at 0.8592.

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