EUR/USD

Current level - 10527

Yesterday's slide reached a local low at 1.0512 and current rebound should be considered corrective, preceding another leg downwards, to 1.0450. Intraday allow one more upswing before renewal of the downtrend.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 114.16

The bias remains positive, for a rise towards 114.95, en route to 115.60 area. Crucial support lies at 113.37.

GBP/USD

Current level - 1.2276

The downtrend is intact, ready for a test of 1.2240 support zone. I favor a break through the latter and continuation of the slide towards 1.2120. Initial intraday resistance lies at 1.2325, followed by the crucial 1.2400.

Sunrise Market Commentary

• Rates: EMU CPI and Friday’s Yellen speech negative for core bonds
  Dovish Fed governor Brainard joined the recent Fed chorus, hinting at a near term rate hike. Ahead of Yellen’s speech tomorrow evening, we expect US Treasuries to remain under downward pressure. The correction lower in the Bund can continue as well, especially if EMU CPI hits the psychological 2%-mark today.
• Currencies: USD extends gains on rate hike expectations, but no USD euphoria
  Yesterday, USD investors adapted positions to rising chances of a March rate hike. The USD gains were substantial, but not excessive. Both EUR/USD and USD/JPY didn’t break major technical levels. Today, some consolidation might be on the cards as there are no important data in the US. EUR/GBP is nearing a first technical resistance.

The Sunrise Headlines

• US and global equities soared, as data reinforced expectations that a Fed rate hike is imminent. Investors see that as a sign of strengthening economic growth. Asian stocks advance modestly despite a buoyant WS yesterday.
• EU states could regain control over matters ranging from regional development to consumer protection, Jean-Claude Juncker, has suggested, setting out ideas to shore up the bloc after Brexit.
• Fed governor Brainard, a dove, said that the Fed should be prepared to increase its benchmark interest rate “soon” as the job market pushes closer to full employment and inflation moves towards the central bank’s target.
• The kiwi dollar pared some of its losses after RBNZ Governor Wheeler said risks to interest rate moves are equally balanced. NZD/USD trades now around 0.7132.
• UK PM May suffered a defeat on her draft Brexit law after the Lords rebuffed a government plea to leave it intact. It voted in favour of an amendment that protects the right of EU nationals to remain living in the UK after Brexit.
• Brent oil dropped to $56/barrel from $57/barrel after EIA data showed US crude stockpiles rose to a record. Gold spot (1246.90$/ounce) recovered in US trading to snap two days of declines, but slid lower overnight on Fed Brainard.
• Today, the market calendar slows down with only EMU inflation as key economic release ECB Lautenschlaeger speaks after European closure, while France and Spain tap the markets

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

Dollar propelled by March rate hike bets

On Wednesday, the rising probability of a March Fed rate hike propelled the dollar. The US currency (and equities) ignored that US president Trump failed to give details on his economic and fiscal plans. The US Manufacturing ISM was very strong, but at the time of the publication, the dollar had already reached the intraday highs. USD/JPY finished the session at 113.73 (from 112.77). The rise of the dollar against the euro was more modest. EUR/USD closed the day at 1.0547.

Overnight, Fed’s Brainard joined the chorus of Fed speakers advocating a rate hike “soon”. The comments caused a limited further dollar uptick early in Asia. However, FX and interest rate markets have largely discounted a March rate hike. USD/JPY hovers sideways in the 114 area, near the recent highs. EUR/USD stabilizes in the 1.0535 area. Most Asian equities show modest gains (except for mainland China), that fall shy though with WS euphoria yesterday. The more modest risk sentiment might slow further USD gains.

Today, the market expects the February EMU HICP inflation to increase from 1.8% to 2.0% Y/Y. So, the ECB target might be reached. The core is expected stable at a rather low 0.9%. The headline inflation number, together with strong eco data, increases chances that the ECB will prematurely dial back its asset purchases in H2 of 2017. Regarding central bankers, ECB Lautensclaeger, a hawk, will speaks after closure. Yesterday, USD investors adapted positions for a March Fed rate hike. The continuation of the risk rally was also slightly USD positive. The trade-weighted dollar gained about 1% since to the start of the rebound Tuesday. This is a good gain, but shows no USD euphoria. Especially the decline of EUR/USD was moderate. The market was probably still a bit ‘euro short’ due to recent uncertainty on France. Today, we expect some consolidation on yesterday’s rally. (no important US data. 2% EMU inflation in theory could be slightly supportive for the euro). At the same time, the dollar is well supported in a context of rising global yields. Equities remain a wildcard. A correction could cause some modest USD profit taking, but for now there is no clear sign that the reflation trade might change course

Global context. The dollar corrected lower since the start of January, but bottomed early February supported by Trump’s tax promise. Underlying euro weakness due to political uncertainty in the area was a factor too. Over the previous days the focus shifted from US fiscal policy to the Fed talk, preparing markets for a rate hike in the near future. We assume EUR/USD 1.0874 to be a solid resistance and favour a sell EUR/USD on upticks approach. 1.0494 is first intermediate support ahead of the 1.0341 correction low. 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. So, USD sentiment is constructive, but for now both EUR/USD and USD/JPY haven’t broken any important technical level yet.

EUR/USD declines as USD rebound, but no important support is broken yet.

EUR/GBP

EUR/GBP nearing first (minor) resistance

Yesterday, the UK manufacturing PMI declined more than expected, but Sterling hardly reacted. Even so, there were tentative signs of underlying sterling softness, as EUR/GBP lost hardly ground despite the EUR/USD decline. Around noon, sterling selling intensified. Uncertainty on the outcome of the Brexit vote in the House of Lords added to sterling caution. Later in the session the Upper House indeed voted for a change in PM May’s Brexit law. The vote probably won’t change the government’s Brexit roadmap in a profound way. Even so, it illustrates that the Brexit process is facing plenty of hurdles. Sterling lost gradually further ground. EUR/GBP finished the day at 0.8579. Cable dropped below the 1.23 level, mostly on USD strength.

Today, the UK construction PMI is expected to decline slightly from 52.2 to 52.00. The report is not so important for markets, but a negative surprise, after yesterday’s miss in the manufacturing measure, might be slightly sterling negative. There will also be headlines on the rejection of the Brexit Bill. Sterling sentiment has softened a bit of late. It was/is difficult for cable to outperform EUR/USD as is often the case with USD strength. Early last week, the euro sell-off pushed EUR/GBP to the 0.84 area, but a sustained break lower didn’t occur. EUR/GBP is currently nearing a first resistance at 0.8592. A break would suggest a further loss of momentum of sterling. Longer term, we have a sterling negative view, as the Brexit will negatively impact the UK economy

EUR/GBP: nearing a first resistance at 0.8592.

Download entire Sunrise Market Commentary

Overnight, Fed Governor Lael Brainard added another touch to the positive picture painted by other Fed policymakers on Tuesday, who hinted that a March rate hike may be on the way. In her speech, Brainard said that a rate hike will likely be appropriate soon given improved global conditions and continued growth. She noted that "constraints" of the past two years, caused by problems from Europe to China are easing. With regards to the domestic economy, she noted that the Fed's employment and inflation goals are nearly met, allowing a continued gradual pace of rate increases. Given that Brainard is a Governor, which implies a permanent vote within the Committee, her comments were taken seriously by the market, which is now pricing in a much higher probability for a March hike than yesterday. According to our model which is based on the yields of the Fed funds futures, that probability has risen to 50% from 36%. Despite the recent fuss around the next hike in the Fed funds rate, and the continued increase of the probability for that to happen in March, we still believe that the recent sentiment around that prospect is more optimistic than it should be. We stick to our call that June is a more likely candidate. Despite getting positive vibes from key voting members, we still believe that the overall voting squad within the Committee has turned more dovish this year. After all, this was evident by the latest FOMC meeting minutes. What's more, yesterday's release of the core PCE index, which is the Fed's favorite inflation measure, showed that the rate remained unchanged instead of rising as many had expected. The spotlight now turns to Fed Chair Yellen and Vice Chair Fisher, who are both scheduled to speak on Friday. In order to reevaluate our view, we need to see the two leading Fed officials unleashing equally hawkish signals to those of their colleagues, as well as a strong employment report next week, especially as far as the earnings are concerned.

EUR/USD traded lower during the European morning yesterday, but rebounded later in the afternoon to hit the resistance of 1.0570 (R1). Subsequently, it came back under renewed selling interest and continued lower after Brainard's remarks. Now the pair looks to be headed for another test near the 1.0500 (S1) territory, where we expect investors to settle and wait for Yellen's and Fisher's speeches. If the two top Fed officials share the view that a near-term rate hike has become increasingly likely, then we may see a dip below the aforementioned key support obstacle, something that could open the way for our next support of 1.0450 (S2). With regards to the bigger picture, we still see a longer-term downtrend. Positive vibes from more FOMC members and a potential strong US employment report next week combined with the political uncertainty surrounding the Euro-area could encourage the bears to stay in the driver's seat. This could eventually lead to another test near the 1.0360 territory, defined by the lows of December and January.

BoC remains on hold amid "significant uncertainties"

The Bank of Canada kept its policy unchanged yesterday, as was widely anticipated. The statement accompanying the decision was upbeat on some aspects of the domestic economy. However, it also warned that exports continue to face competitiveness challenges. With regards to the Loonie, the Bank said that both CAD and bond yields have remained at levels similar to the latest meeting, implying that they are still undesirably high. All these echo comments from the previous policy meeting that the strength of the Canadian dollar is muting the outlook for exports. The Bank ended the statement by noting it will remain attentive to the impact of significant uncertainties weighing on the outlook, and that it will continue to monitor the risks. Given the somewhat worried tone, the reaction in the Loonie was negative.

USD/CAD surged after it hit support near the 1.3300 (S2) territory, to break above the resistance (now turned into support) level of 1.3340 (S1) and the longer-term uptrend line taken from the lows of May 2016. Given the recent optimistic signals from the Fed with regards to the next hike, as well as this cautious tone from the BoC, we believe that the pair could continue higher in the days to come. A clear break above 1.3390 (R1) could pave the way for the 1.3460 (R2) area. As for the broader trend in USD/CAD, as long as the pair remains within the sideways range that has contained the price action since September 2016, between 1.3000 and 1.3600, we consider the overall outlook to be neutral. A clear break above 1.3600 is needed to turn the broader path to the upside as well.

Back to the BoC, we believe that a large part of the uncertainty the Bank sees weighing on the domestic outlook relates to the appreciation of the Canadian dollar late last year. Although we do not expect this appreciation to actually lead to a rate cut, we believe that it could keep the tone of the BoC somewhat dovish in the foreseeable future, as they prefer to keep CAD from strengthening too much.

Today's highlights:

During the European day, we get Eurozone's preliminary CPI data for February. The forecast is for the headline rate to have risen further, while the core rate is expected to have remained unchanged for the third consecutive month. ECB President Draghi placed a lot of emphasis on Eurozone's core CPI at the latest policy gathering. He said that although the headline rate has risen recently, that reflects primarily transitory effects. He made it clear that until there are convincing signs of an upward trend in core inflation, the Bank is likely to keep its policy stance unchanged. Therefore, we believe that even though further upturn in the headline CPI rate could support the euro somewhat, if the core rate remains unchanged as expected, any positive reaction in the currency is likely to be only modest. We also get the bloc's unemployment rate and the PPI, both for January.

From the UK, we get the construction PMI for February and expectations are for the index to have held steady from the previous month. We see the risks surrounding that forecast as skewed to the downside, considering the somewhat disappointing manufacturing print for the month. In case of a decline, GBP could come under renewed selling interest.

In the US, initial jobless claims for the week ended February 24th are due out.

From Canada, we get GDP data for Q4. In the absence of a forecast, we see the case for GDP growth to have accelerated from the previous quarter, in line with the BoC view at yesterday's meeting. Accelerating GDP growth could cause the CAD to recover some of its losses from yesterday, but bearing the Bank's discontent with regards to a strong domestic currency, we expect such a reaction to remain short-lived.

We have only one speaker scheduled for today: Fed Board Governor Jerome Powell. Considering that he is also a permanent voting member, investors are likely to scan his speech for any additional signals on a March hike.

Equities analysts and strategists including myself have been arguing for some time that if no further details were provided on how and when the proposed U.S. tax reforms and spending plans will take place, the market rally should take a pause. However, U.S. President Donald Trump provided no new details in his speech to Congress on Tuesday, and yet, stocks surged to new highs.

The only surprise we received was Trump's striking shift in tone which was hugely different from his inaugural address and regular messages on Twitter. But is it enough to justify this rally?

What's even more interesting is markets now consider a tighter monetary policy a sign of confidence in economic growth and thus a reason to continue purchasing stocks, when for years post 2008 crisis it had been considered the most significant motive to dump stocks.

The most asked question we receive on a daily basis is whether this rally still ‘haslegs'? Well, fund flows suggest that investors are still willing to take the risk thatwill potentially lead to higher prices.Sooner or later however, investors will realize that valuations are what matter most inthe longer run.

When looking at S&P 500 Shiller's cyclicallyadjusted price-to-earnings ratio (CAPE) which is currently trading at 29.5 x earnings.This takes us back to April 2002;from April to October 2002, S&P 500 dropped from a high of 1,174 to a low of 768, a total of 34.5%.Since then, the Shiller's CAPE never re-visited these levels until just this week.

Low long-term interest rates do justify to some extent higher valuations. For example, back in April 2002, U.S. 10-year treasury yields were trading above 5% as opposed to 2.46% today, but as the Fed tightens more- “probably three rate hikes in 2017” - then risk-free rates will go higher and investors will require more return on their investments.

If this is the case, then expected earnings and dividends growth will be the key metrics to look for going forward. There's no doubt that improved economic conditions, consumer confidence, and higher inflation will all lead to higher earnings growth, but what markets are currently pricing in is more than just these factors. It's mainly about tax reforms, and assuming a reduction in the U.S. corporate tax from 35% to 20%, although difficult to calculate its impact on earnings, is expected to lift net profits from 10% to 15%, and this is what investors are betting on.

If you still want to ride the current bullish momentum wave, pray that Trump's tax reduction plan succeeds as soon as possible.

• No Trump fatigue in this market, yet;
• March hits 70% priced in as we await Yellen on Friday;
• Does Gold's resilience indicate underlying risk?
• Eurozone CPI, UK PMI, Spanish and Italian unemployment to come this morning.

European equity markets are expected to open a little higher on Thursday, continuing the trend over night that saw most Asian markets in the green and US indices smash their way to new all-time highs.

Just as it seemed that investors were starting to suffer a little bit of Trump fatigue, Wednesday produced the biggest daily gains we've seen this year in the US. It would appear that not only are investors not yet losing patience with Trump's vague rhetoric, they're also buying into the Fed's view that more rate hikes are needed to prevent the economy running too hot.

Not all investors will agree with this belief of course but the very fact that March has gone from being almost fully priced out to almost 70% priced in and the probability of three rate hikes this year is almost 50%, and yet equity markets are rallying, is a good sign. It's not too long ago that investors would have freaked at the prospect of one rate hike, let alone three in one year.

Of course, this may only be the case as long as investors continue to buy what President Trump has to sell and there is still a significant amount of underlying risk in the markets right now – largely political – which may explain why Gold – a traditional safe haven asset - is only trading 1.5% below its near-four month high. The yen, another safe haven play, has also continued to perform quite well throughout all of this, another sign that all is not as rosy as they may seem.

Still, the dollar hit its highest level since early January on Wednesday, busting through what had been a stubborn resistance along the way, and with interest rate expectations rising ahead of the Fed meeting in two weeks, further upside may be on the horizon which could further pressure Gold. Should the polls for the second round of voting in France continue to show a widening gap between Emmanuel Macron and Marine Le Pen – the likely two candidates to make it through the first – in favour of the former, then this may aid Gold's move lower with the latter seen as being potentially disastrous for the euro area.

The focus this morning will be on the flash CPI number from the eurozone, where inflationary pressures have been building – albeit largely driven by commodity prices and the weaker euro – fuelling the discussion on whether a further reduction in asset purchases from the central bank is warranted. We'll also get the latest construction PMI from the UK, and unemployment data from Spain and Italy. This afternoon we'll get jobless claims data from the US followed later on in the evening by a speech from the Fed's Loretta Mester who, given her very hawkish stance, will likely add her voice to those pushing a hike in March.

Australia trade surplus shy of estimates

Asia Mid-Session Market Update: Another Fed dove endorses more tightening; Australia trade surplus shy of estimates

US Session Highlights

(EU) ECB's Weidmann (Germany): inflation to be somewhat lower by end 2017 but running well above expectations currently

(US) JAN PCE CORE M/M: 0.3% V 0.3%E; Y/Y: 1.7% V 1.7%E

(US) JAN PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.2% V 0.3%E

(US) Q4 PRELIMINARY GDP PRICE INDEX: 2.0% V 2.1%E; CORE PCE Q/Q: 1.2% V 1.3%E

(US) FEB ISM MANUFACTURING: 57.7 V 56.2E; PRICES PAID: 68.0 V 68.0E (Manufacturing Activity highest since Aug 2014)

(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED

(US) DOE CRUDE: +1.5M V +2.5ME; GASOLINE: -0.5M V -1.5ME; DISTILLATE: -0.9M V -1ME

US markets on close: Dow +1.5%, S&P500 +1.4%, Nasdaq +1.4%

Best Sector in S&P500: Financials

Worst Sector in S&P500: Utilities

Biggest gainers: LOW +9.5%, MYL +7.2%, WYNN +6.8%, SCHW +6.4%, CFG +5.9%

Biggest losers: EVHC -6.3%, ENDP -6.1%, BBY -4.5%, FSLR -3.2%, FE -2.7%

At the close: VIX 12.5 (-0.4pts); Treasuries: 2-yr 1.29% (-1bps), 10-yr 2.46% (+10bp), 30-yr 3.07% (+10bps)

US movers afterhours

MNST: Reports Q4 $0.30 v $0.30e, R$753.8M v $724Me; Adds $500M to buyback plan; +14.0% afterhours

AVGO: Reports Q1 $3.63 v $3.48e, R$4.14B v $4.06Be; Guides Q2 Rev $4.1B +/- $75M v $3.91Be; +4.0% afterhours

ANW: Reports Q4 $0.41 v $0.39e, R$1.19B v $1.06Be (2 est); +3.8% afterhours

SHAK: Reports Q4 $0.09 v $0.09e, R$73.3M v $70.5Me; Raises FY17 R$349-353M v $356Me ($348-352M); Op margin 25.4% v 28.2% y/y; -4.0% afterhours

PLNT: Reports Q4 $0.20 v $0.19e, R$116.4M v $116Me; Guides initial FY17 $0.72-0.75 v $0.76e, R$405-415M v $407Me, SSS +6-8%; -5.7% afterhours

RTRX: Reports Q4 $0.00 v -$0.21e, R$37.3M v $36.5Me; Guides FY17 net product sales $150-160M v $163Me; -8.3% afterhours

Politics

(US) AG Jeff Sessions met with Russia ambassador to US twice in 2016 while he was an advisor to the Trump campaign - US press

(US) Health and Human Services Sec Price: Getting very close to ACA replacement - US press

Asia Key economic data:

(AU) AUSTRALIA JAN TRADE BALANCE (A$): +1.3B V +3.8BE; 3rd straight surplus

(AU) AUSTRALIA JAN BUILDING APPROVALS M/M: +1.8% V -0.5%E; Y/Y: -12.0% V -11.6%E

(KR) SOUTH KOREA FEB PMI MANUFACTURING: 49.2 V 49.0 PRIOR (6th consecutive contraction)

(KR) SOUTH KOREA JAN INDUSTRIAL PRODUCTION M/M: 3.3% V 0.3%E; Y/Y: 1.7% V 2.1%E

Asia Session Notable Observations, Speakers and Press

Asia equity markets are generally higher, tracking a sharp rise in US indices widely attributed to Pres Trump's well-received speech to Congress last night. Australia and Japan are at the top among key indices. In Sydney, miners are at the forefront of the rally, with S32 and Alumina the best performing stocks on ASX200 following reports of Aluminium output cuts in China. Nikkei remained supported by weaker Yen, with USD/JPY pair up for the 5th straight day.

The case for March Fed rate hike has been building rapidly over the past few days amid improving economic data, Trump's fiscal spending ambitions, and receding global concerns, sending Fed funds futures probability above 65% on the CME. Today, that case got another endorsement from Fed's Lael Brainard

a voting member and typically a rather dovish speaker. Brainard said it is appropriate to increase rates soon given that US economy is closing in on full employment and inflation is close to target, though she also warned that strong USD may weigh on sentiment. Brainard also hinted that her FOMC colleagues are mostly in agreement about the time for the hike. USD added to gains after the hawkish Brainard comments, particularly vs JPY and NZD. USD/JPY hit a 2-week high above ¥114, NZD/USD approached 6-week lows around $0.71, and EUR/USD fell about 20pips below 1.0530.

AUD/USD was hit more notably by the shortfall in the Aussie trade surplus, falling over 30pips from the highs below 0.7650. Australia trade surplus came in at about a third of its consensus (+1.3B V +3.8BE), as exports fell 3% following last month's 5% increase. Shipment value to China slowed to a 3-month low, while exports value of Coal and Iron Ore fell m/m for the first time in 6 months and 4 months respectively.

A potential political wrinkle for Pres Trump in the wake of his popular speech came late in the Asia session, as Washington Post reported that AG Sessions held talks with Russian
Embassador Kislyak in 2016 and then subsequently denied contact with Moscow officials during his confirmation hearings.

North Korea had some harsh words directed at South Korea and US before the two countries start their annual joint military exercises in Asia, threatening "toughest counteractions". Earlier, press report citing US govt officials stating White House is considering its options against North Korea, including possible use of force.

China

(CN) According to a poll by American Chamber of Commerce (ACC) in South China 79% of foreign companies are optimistic about China - Chinese press

(CN) Shanghai Centaline Property Consultants: Area of new homes sold in Feb fell 6.7% m/m to 363K sqm - Shanghai Daily

Japan

(JP) Japan Fin Min Aso: A wider US/Japan interest rate differential would cause USD/JPY to rise further

Australia

(NZ) RBNZ Gov Wheeler: sees risks around future rate movements as equally balanced; comfortable with economic projections

(AU) ANZ economist:: Australia still likely to be at or close to peak in residential construction - AFR

Asian Equity Indices/Futures (00:00ET)

Nikkei +1.0%, Hang Seng +0.4%, Shanghai Composite flat, ASX200 +1.2%, Kospi +0.5%

Equity Futures: S&P500 -0.1%; Nasdaq -0.1%; Dax flat; FTSE100 -0.1%

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.0525-1.0550; JPY 113.65-114.15; AUD 0.7640-0.7680; NZD 0.7110-0.7150

Apr Gold -0.2% at $1,247/oz; Apr Crude Oil -0.6% at $53.53/brl; May Copper -0.2% at $2.73/lb

(JP) Japan MoF sells ¥2.18T in 10-year 0.1% JGBs; Avg yield: 0.082% v 0.087% prior; bid to cover: 3.74x v 3.62x prior

(CN) PBOC SETS YUAN MID POINT AT 6.8809 V 6.8798 PRIOR; 2nd straight weaker setting

(CN) PBOC to inject combined CNY30B v CNY30B prior in 7-day, 14-day and 28-day reverse repos

Asia equities / Notables / movers by sector

Consumer discretionary: 9843.JP Nitori Holdings -1.1% (FY16/17 result speculation)

Consumer staples: 1262.HK Labixiaoxin Snacks Group -3.5% (FY16 result)

Financials: 2777.HK Guangzhou R&F Properties +0.7% (Feb result)

Industrials: WOR.AU WorleyParsons +1.2% (Dar Group stake purchase); 6301.JP Komatsu Ltd +2.1%, 6305.JP Hitachi Construction Machinery +3.3% (Jefferies raises outlook)

Technology: 6727.JP Wacom Co Ltd +14.9% (Nomura raises rating)

Materials: IGO.AU Independence Group +8.9% (RBC raises rating); AWC.AU Alumina +9.1%, S32.AU South32 +9.8% (China may curb aluminum); YAL.AU Yancoal Australia +11.6% (guidance); MML.AU Medusa Mining +1.5% (CitiGroup raises rating); 5105.JP Toyo Tire & Rubber Co +5.8% (non-auto business sale speculation); 4004.JP Showa Denko -7.3% (delays earnings again); MRC.AU Mineral Commodities -8.3% (FY16 prelim result)

Market movers today

The inflation figures in Germany, France, Italy and Spain point to an increase in the euro area HICP inflation figure due today of 0.2pp, which is slightly higher than our and consensus expectations of an increase from 1.8% to 1.9%. We lift our forecast to 2.0% y/y given the country figures where the driver behind the higher inflation seems to be higherthan- expected food price inflation. We still see some downside risk to the forecast as the 1.8% y/y print in January was low when looking at the unrounded figure.

February has seen DKK climb to its highest levels against EUR since Lars Rohde began as governor of Danmarks Nationalbank (DN) in 2013, so the market will be keeping a particularly close eye on whether this has prompted the central bank to sell DKK in FX intervention when February's FX reserve data is published today.

Norwegian retail sales figures for January are hotly awaited after the surprise 2.1% slide in December. We estimate a 0.9% m/m rebound, although the surprisingly weak inflation figures may have been due to lower sales.

Selected market news

The Federal Reserve's Lael Brainard stated yesterday, ‘Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path', thus adding further support to expectation of a near-term US rate hike fuelled by hawkish comments from other members of Federal Reserve earlier this week.

PCE core inflation was unchanged at 1.7% y/y in January as we had estimated. Total PCE inflation rose from 1.6%. to 1.9%. As PCE core inflation remains somewhat below the 2% target and has been around the same level for some time, the Fed can afford to stay patient. We are looking forward to hearing more from Janet Yellen, who is due to speak tomorrow.

In general, demand for riskier assets has done quite well over the recent period of rising expectations of a near-term Federal Reserve rate hike. US stocks rose almost 1.5% yesterday and Japanese stocks are up about 1% today. Commodity prices are also holding up fairly well. The global economy seems to be progressing at a decent pace, supporting this development.

This was highlighted by the US ISM manufacturing index for February released yesterday. It moved higher from 56.0 in January to 57.7 in February – we are not far from the highs around summer 2014. Nevertheless, Atlanta Federal Reserve's ‘nowcast' GDP model revised down its estimate for Q1 US GDP growth to 1.8% following the data releases in the US yesterday.

The Energy Information Administration reported that US crude stocks rose 1.5mb last week. Hence, the US crude stock build has picked up pace again after posting only a small rise last week. Overall, since OPEC implemented its output cut deal, world floating storage of oil has declined around 40mb, but it has more or less been mitigated by a similar rise in US crude stocks. Thus, so far OPEC has failed to force world crude stocks markedly lower.

A note on lower timeframe confirming price action...

Waiting for lower timeframe confirmation is our main tool to confirm strength within higher timeframe zones, and has really been the key to our trading success. It takes a little time to understand the subtle nuances, however, as each trade is never the same, but once you master the rhythm so to speak, you will be saved from countless unnecessary losing trades. The following is a list of what we look for:

• A break/retest of supply or demand dependent on which way you're trading.
• A trendline break/retest.
• Buying/selling tails ... essentially we look for a cluster of very obvious spikes off of lower timeframe support and resistance levels within the higher timeframe zone.
• Candlestick patterns. We tend to only stick with pin bars and engulfing bars as these have proven to be the most effective.

EUR/USD

For those who read Wednesday's piece you may recall that our desk underlined the 1.05/1.0520 area (yellow H4 rectangle) as a promising buy zone. The reason for selecting this base was due to the following converging structures: a round number at 1.05, a H4 trendline support taken from the low 1.0339, January's opening level at 1.0515, daily support at 1.0520 and let's not forget that all of this is further reinforced by the weekly support area at 1.0333-1.0502. As is evident from the H4 chart the zone held beautifully! Well done to any of our readers who managed to jump aboard this move.

Going forward, we can see that the H4 candles are now kissing the underside of the H4 mid-way number 1.0550. This level, in our humble opinion, is likely going to give way since there is not only a daily support currently in motion, but also a yearly opening level as well (see above). The next upside objective beyond this mid-way point is December's opening level at 1.0590, shadowed closely by 1.06, and then the H4 supply at 1.0632-1.0620 that happens to merge with a H4 trendline resistance extended from the high 1.0714.

Our suggestions: Despite H4 price trading at a mid-level resistance, we would not be comfortable selling this market. A H4 close above this number, followed by a retest and a lower-timeframe confirming signal would, however, be something of interest. Ultimately, we'd be looking for either the following to take shape on the lower timeframes to confirm this line: an engulf of supply followed by a retest as demand, a trendline break/retest or simply a well-defined collection of buying tails printed around 1.0550. We typically search for lower-timeframe confirmation between the M15 and H1 timeframes, since most of our higher-timeframe areas begin with the H4. Stops are usually placed 3-5 pips beyond confirming structures.

Data points to consider: EUR CPI data at 10am. US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: Watch for a H4 close above 1.0550 and look to trade any retest seen thereafter ([we would also advise waiting for a lower-timeframe confirming signal to form following the retest before looking to execute a trade] stop loss: dependent on where one confirms the level).
• Sells: Flat (stop loss: N/A).

GBP/USD

The pair, as you can see, sustained further losses during the course of yesterday's sessions. After enduring and finally conquering the 1.23 handle in recent trade, the H4 mid-level support at 1.2250 is in firing range. What's interesting here is the fact that this H4 level also fuses with a H4 AB=CD 127.2% Fib ext. at 1.2244 taken from the high 1.2706, and of course, the nearby 1.22 handle (yellow box). This – coupled with price also trading within the lower limits of a daily demand seen at 1.2252-1.2342, and also considering that 1.22 represents a weekly Quasimodo support, we believe the bulls may make an appearance from here today.

Our suggestions: Quite simply, watch for buyer intent to form within the above noted H4 yellow zone. We personally will want to see a reasonably sized H4 bull candle form, before pulling the trigger. Of course, this does not guarantee a winning trade, but what it will do is show buyer intent within a high-probability reversal zone.

Data points to consider: UK construction PMI at 9.30am. US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: 1.22/1.2250 ([wait for a reasonably sized H4 bull candle to form before looking to pull trigger here] stop loss: ideally beyond the trigger candle).
• Sells: Flat (stop loss: N/A).

AUD/USD

Bolstered by stronger-than-expected Aussie GDP and Chinese manufacturing data, the commodity-linked currency gravitated north to a high of 0.7699 in the early hours of yesterday's session. As can be seen from the H4 chart, an array of H4 buying tails printed from the H4 mid-level support at 0.7650, and its intersecting H4 channel support line taken from the low 0.7605.

Despite this, we feel that this area is on the verge of giving way. Our reasoning lies within the higher-timeframe structures. Over on the weekly chart, price is currently selling off from a weekly trendline resistance stretched from the high 0.8163, and shows room to trade as far down as the weekly support area drawn from 0.7524-0.7450. Along the same vein, daily structure indicates that there is space to continue selling off down to a daily support level coming in at 0.7609. Also noteworthy on the H4 chart is that we see very little active demand to left of current price beyond the H4 0.7650 line (see green arc).

Our suggestions: With the above points in mind, our desk will not be looking to buy from the 0.7650 region today. Instead, we'll be watching for a H4 close beyond this number. Should this be followed up with a retest and a reasonably sized H4 bearish candle, we'll look to short, targeting the 0.76 region (which, as we're sure you're aware by now, also represents the daily support level mentioned above).

Data points to consider: Australian housing data and trade balance at 12.30am. US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Watch for a H4 close below 0.7650 and look to trade any retest seen thereafter ([we would also advise waiting for a reasonably sized H4 bear candle to form following the retest before looking to execute a trade] stop loss: ideally beyond the trigger candle).

USD/JPY

Try as it might, the USD/JPY bulls couldn't muster enough strength to breach the 114 handle going into yesterday's US session, and as a result, pulled back to a low of 113.47. However, in recent hours the bulls managed to push to a high of 114.15, and are, at the time of writing, seen trading above 114.

Although the buyers look in good form at the moment, this momentum will likely diminish should price continue to rally beyond 114. Not only is there a reasonably strong H4 trendline resistance taken from the high 115.62 seen just above here, but there is also the daily resistance area coming in at 115.62-114.60 and a H4 mid-way resistance at 114.50 to contend with.

Our suggestions: On account of the above notes, we will be looking for shorting opportunities (lower-timeframe confirmation – see the top of this report) around the H4 mid-level resistance drawn from 114.50, which, as you can see, sits a mere 10 pips beneath the lower edge of the daily resistance area mentioned above.

Data points to consider: US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 114.50 region ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).

USD/CAD

The USD/CAD rallied for a third consecutive day yesterday, resulting in price clipping the underside of a H4 Quasimodo resistance level at 1.3353. This barrier, as mentioned in Wednesday's report, is firmly located within the walls of a daily supply zone coming in at 1.3387-1.3317.

While we believe the current H4 level could force this unit to test the nearby H4 support area at 1.3299-1.3265, it may be worth noting that the weekly chart shows room to rally up to 1.3434: a 2017 yearly opening level that happens to intersect with a weekly trendline resistance coming in from the high 1.4689.

Our suggestions: To take advantage of any selloff seen from the aforementioned H4 Quasimodo resistance line, we would strongly recommend waiting for at least a lower-timeframe confirming sell signal to form beforehand (see the top of this report).

Data points to consider: US Jobless claims at 1.30pm. Canadian GDP data at 1.30pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.3353 region ([wait for a lower-timeframe signal to form before looking to pull the trigger] stop loss: dependent on where one confirms the zone).

USD/CHF

In recent sessions, the Swissy pair aggressively pushed through the 1.01 handle and tapped a high of 1.0129. The buyers, however, failed to sustain gains beyond this number and dropped to a low of 1.0065 going into the later hours of the US segment.

As of now, we see little reason to short the 1.01 level since there is a far more attractive area above (in yellow) at 1.02/1.0170.The zone comprises of the following converging structures: both December and January's opening levels at 1.0170/1.0175, a potential H4 AB=CD 127.2% Fib ext. at 1.0185, another potential minor H4 AB=CD symmetrical formation completing also around the 1.0185 region (see black arrows), an upper H4 channel resistance line pegged from the high 1.0044, a H4 Quasimodo resistance at 1.0197, a 1.02 psychological handle and let's not forget that all of this is seen housed within the daily supply zone coming in at 1.0248-1.0168.

Our suggestions: In light of this confluence, our team will, dependent on the time of day, look to sell from the H4 127.2% Fib ext. level with stops placed a few pips above 1.02.

Data points to consider: US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: 1.0185 region ([an area one could possibly trade at market] stop loss: 1.0205).

DOW 30

US equities surged over 250 points (open/close) yesterday, crossing the 21000 hurdle and tapping fresh record highs of 21170! The big question for us now is, where do we go from here? Well, given that there is absolutely no weekly resistance levels in sight, the best we can do for the time being is continue looking to ‘buy the dips'. The closest higher-timeframe area can be seen at 20714-20821: a daily demand zone.

Over on the H4 chart, the next downside support target can be seen at the 21000 mark. Although this zone boasts no higher-timeframe (structural) convergence, it is still a widely watched number in this market and thus could form a support! Therefore, it remains of interest to our desk today.

Our suggestions: Just to be clear here though, placing pending orders at 21000 is not advised, since there's little stopping price from ignoring this area and heading to the H4 demand zone below at 20837-20869. Waiting for additional confirmation such as a lower-timeframe buy signal (see the top of this report) or a reasonably sized H4 bull candle is, at least in our opinion, the safer, more logical, path to take.

Data points to consider: US Jobless claims at 1.30pm GMT.

Levels to watch/live orders:

• Buys: 21000 region ([waiting for additional confirmation is advised before looking to execute a trade] stop loss: dependent on how one chooses to confirm the zone).
• Sells: Flat (stop loss: N/A).

GOLD

Coming in from the top this morning, we can see that price is currently retesting the weekly support level seen at 1241.2. Providing that the bulls are able to defend this line, this could lead to a move north up to weekly resistance pegged at 1306.0. Looking down to the daily candles, yesterday's action printed a beautiful-looking daily bullish pin bar, which pierced into the above noted weekly support line. The next upside objective on this scale, nevertheless, stands at 1262.1: a daily resistance barrier. Swinging over to the H4 chart, H4 action is currently capped between a H4 ascending trendline support taken from the low 1216.5 and a H4 resistance area drawn from 1247.6-1249.8.

Our suggestions: Quite frankly, there is still not much room for the H4 candles to stretch their legs at present. A push above the 1247.6-1249.8 zone shows little room for maneuver given the overhead H4 supply at 1264.7-1254.6. A selloff from this zone has not only the H4 trendline support to contend with, but there's also a H4 demand sitting nearby at 1235.7-1238.1. As such, in the absence of clearer price action our desk will humbly take a back seat today and look to reassess going into tomorrow's session.

Levels to watch/live orders:

• Buys: Flat (stop loss: N/A).
• Sells: Flat (stop loss: N/A).

Weekly

• Last Candlesticks pattern: N/A
• Time of formation: N/A
• Trend bias: Near term up

Daily

• Last Candlesticks pattern: Hammer
• Time of formation: 3 Feb 2016
• Trend bias: Up

EURGBP – 0.8511

Despite falling to 0.8403 last week, the subsequent rebound suggests a temporary low has possibly been formed there and consolidation with mild upside bias is seen for test of resistance at 0.8592, however, a daily close above there is needed to signal the fall from 0.8857 has ended at 0.8403, bring retracement of this fall towards another previous resistance at 0.8646, however, reckon upside would be limited to 0.8680-85 (61.8% Fibonacci retracement of 0.8857-0.8403) and price should falter below 0.8705-10, bring retreat later.

On the downside, expect pullback to be limited to the Kijun-Sen (now at 0.8525) and the Tenkan-Sen (now at 0.8498) should hold, bring another rise later. Below 0.8460-65 would suggest the rebound from 0.8403 has ended instead and bring another test of said support, once this level is penetrated, this would revive bearishness and extend recent decline from 0.8857 to 0.8385-90, break there would confirm the rebound from 0.8304 has ended and subsequent weakness to 0.8350 would follow, having said that, previous support at 0.8304 should remain intact, risk from there has increased for a rebound to take place later.

Recommendation: Stand aside for this week.

On the weekly chart, as euro found good support at 0.8403 last week and has recovered, suggesting consolidation above this level would be seen and test of the Tenkan-Sen (now at 0.8630) is likely, however, break of resistance at 0.8646 is needed to signal the retreat from 0.8857 has ended, bring further gain to 0.8660-65, then 0.8705-10. Having said that, only break of latter level would suggest another leg of rebound from 0.8304 is underway for test of 0.8800, then towards resistance at 0.8857, break there would extend the rise from 0.8304 to 0.8940 (50% Fibonacci retracement of 0.9576-0.8304 and current level of the Kijun-Sen) but price should falter below resistance at 0.9026.

On the downside, whilst pullback to 0.8520-25 cannot be ruled out, reckon 0.8495-00 would limit downside and bring another rebound. Below 0.8460-65 would bring retest of 0.8403 but break there is needed to revive bearishness and extend the fall from 0.8857 to 0.8350-55. Looking ahead, below there would signal decline from 0.9576 top has resumed for retest of 0.8304 but only break there would extend the fall from 0.9576 top for retracement of medium term upmove to previous support at 0.8251, then 0.8200.

Weekly

• Last Candlesticks pattern: Shooting star
• Time of formation: 1 Feb 2016
• Trend bias: Up

Daily

• Last Candlesticks pattern: Doji
• Time of formation: 1 Sep 2016
• Trend bias: Near term down

EUR/CHF – 1.0657

As the single currency has remained under pressure after recent selloff, retaining our bearishness for a retest of 2016 low of 1.0622, however, a sustained break below there is needed to confirm the erratic decline from 1.1201 (2016 high) has resumed for further fall to 1.0590-00, then towards 1.0530-35 but near term oversold condition should prevent sharp fall below 1.0500, price should stay well above 1.0400-10, risk from there has increased for a strong rebound to take place later this month.

On the upside, whilst recovery to the Kijun-Sen (now at 1.0690) cannot be ruled out, reckon minor resistance at 1.0710 would limit upside and bring another decline later. Only a daily close above resistance at 1.0752 would abort and suggest low is possibly formed, bring a stronger rebound to the upper Kumo (now at 1.0789). Looking ahead, a sustained breach above this level is needed to signal recent decline has ended instead, bring further gain to 1.0850 but price should falter below key resistance at 1.0899 (Dec high).

Recommendation: Sell at 1.0705 for 1.0505 with stop above 1.0805.

On the weekly chart, as the single currency has continued trading defensively after recent selloff, suggesting the erratic fall from 1.1201 is still in progress and retest of 1.0622 (2016 low) is underway, break there would add credence to this view and extend further weakness to 1.0500-10, however, near term oversold condition should prevent sharp fall below 1.0400-10 (100% projection of 1.1201-1.0622 measuring from 1.1001) and price should stay well above previous support at 1.0314, risk from there is seen for a rebound to take place later.

On the upside, expect recovery to be limited to resistance at 1.0710 and bring another decline later to aforesaid downside targets. Only a break above the previous resistance at 1.0752 would defer and suggest low is possibly formed, bring a stronger rebound to the Kijun-Sen (now at 1.0817) but reckon the lower Kumo (now at 1.0848) would limit upside and price should falter below the upper Kumo (now at 1.0912), bring another decline. In the event euro breaks above indicated key resistance area at 1.1001-18, this would signal recent entire correction from 1.1201 has ended at 1.0622 earlier, bring further rise to 1.1095-00 and later towards resistance at 1.1129.