The DAX Index has edged lower in the Wednesday session, but briefly broke above the symbolic 12,000 level. Currently, the index is trading at 11,989.79 points. On the release front, German Ifo Business Climate improved to 111.0, beating the estimate of 109.6 points. Eurozone Final CPI remained at 0.9%, matching the forecast. Over in the US, the Federal Reserve will publish the minutes of the January policy meeting.

German numbers continue to impress this week. German Ifo Business Climate improved to 111.0 in February, up from 109.8 a month earlier. Inflation is pointing upwards, as PPI climbed o.7% in January, above the estimate of 0.3%. This marked a 3-month high. This was followed by strong Manufacturing PMI reports from Germany and the Eurozone, which continue to indicate expansion. On Thursday, Germany releases GDP and Consumer Climate.

Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank's target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and inflation numbers continue to climb, there will be increased pressure and louder voices calling for tighter monetary policy, which would be bearish for the stock market.

Germans go to the polls in September, as Chancellor Angela Merkel seeks a fourth term. However, she could be facing the toughest challenge yet in her lengthy political career. Merkel's Christian Democrats are in for a dogfight, as underscored by a poll by the Emnid Institute showed the center'left Social Democrats (SPD) climbing to top spot for the first time since 2006. The SPD has steadily gained ground since it chose Martin Schultz to lead the party in late January. Schultz is well-respected and is a former President of the European Parliament. Merkel remains a popular leader, but has seen her support erode over her open-door policy on refugees, which led to hundreds of thousands of migrants coming to Germany.

The Federal Reserve will be on center stage on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump's shock win in November, post-election euphoria boosted the markets. However, Trump's first month in office has been marked by controversy and confusion, which has unsettled the markets.

The Japanese yen has improved in the Wednesday session. Currently, USD/JPY is trading at the 113 level. In economic news, the US releases Existing Home Sales and the Federal Reserve will publish the minutes of the January policy meeting. Later in the day, Japan releases SPPI, an important inflation indicator. The forecast for the January report is 0.4%, unchanged from the December reading. On Thursday, the US releases unemployment claims, with an estimate of 242 thousand.

The Federal Reserve will be on center stage on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump's shock win in November, post-election euphoria boosted the markets. However, Trump's first month in office has been marked by controversy and confusion, which has unsettled the markets.

German Feb IFO Survey shows domestic economy back on track; UK GDP annual growth hits at 4-year lows

Notes/Observations

German Feb IFO Survey beats expectations with Business Climate matching high from Feb 2014; German economy back on track

Euro Zone Jan Final CPI reading confirmed that the annual pace hits its highest level since Feb 2013 while core has been in a 0.8%-0.9% range since last May

UK Q4 GDP data mixed (QoQ beat while YoY missed); annual pace slowed to its since Q1 2013

European shares hit new 14-month high, positive earnings boost; Lloyds profit hits 10-year high

Market awaits Fed Feb minutes for more insight on looming rate hikes

Overnight:

Asia:

China Jan Property Prices saw its growth rate slowed for 4th consecutive month as demand cooled in biggest cities (China avg all-70 new home prices y/y: 12.2% v 12.4% prior)

Bank of Japan (BOJ) Gov Kuroda reiterated view that more easing possible if needed to reach price target, but chances were small for a cut of Deposit Rate further into negative territory

Japan Fin Min Aso: No plan to issue negative yield JGB bonds at this time

RBA Gov Lowe reiterated Australia growth expectations of about 3% GDP for next 2 years and a gradual rise in inflation; Debt levels were impacting household spending

Europe:

UK House Of Lords passed draft Brexit Bill without a vote; moves onto its next stage

Senior German ruling party official Friedrich: Germany would not support more loans for Greece if the IMF did not participate in the bailout program

ESM's Regling stated that the fund could not make further payments to Greece without IMF involvement as would not be in line with what Govts have agreed

Americas:

Fed's Harker (hawk, voter) reiterated view that three rate hikes would be appropriate this year;would not take March rate move off the table

Fed's Mester (hawkish, non-voter): Comfortable with interest rates going higher

Energy:

Iran Oil Min Zanganeh: Crude oil above $60/bbl would hurt OPEC

Economic data

(DE) Germany Feb IFO Business Climate: 111.0 v 109.6e (matches high from Feb 2014); Current Assessment: 118.4 v 116.6e, Expectations Survey: 104.0 v 103.0e

(IT) Italy Jan Final CPI (Including Tobacco) M/M: 0.3% v 0.2% prelim; Y/Y: 1.0% v 0.9% prelim

(IT) Italy Jan Final CPI EU Harmonized M/M: -1/7% v -2.0% prelim; Y/Y: 1.0% v 0.7%e

(CH) Swiss Feb Credit Suisse Expectations Survey: 19.4 v 18.5 prior

(UK) Q4 Preliminary GDP (2nd reading) Q/Q: 0.7% v 0.6%e; Y/Y: 2.0% v 2.2%e (lowest annual pace since Q1 2013)

(UK) Q4 Preliminary Private Consumption Q/Q: 0.7% v 0.7%e, Government Spending Q/Q: 0.2% v 0.1%e; Gross Fixed Capital: 0.0% v 0.2%e; Exports Q/Q: +4.1% v +2.0%e; Imports Q/Q: -0.4% v +0.3%e

(UK) Q4 Preliminary Total Business Investment Q/Q: -1.0% v +0.1%e; Y/Y: -0.9% v +0.3%e

(EU) Euro Zone Jan CPI M/M: -0.8% v -0.8%e; Y/Y (Final Reading): 1.8% v 1.8%e; CPI Core Y/Y (Final Reading): 0.9% v 0.9%e

Fixed Income Issuance:

(IN) India sold total INR110B vs. INR100B indicated in 3-month and 6-month Bills

(ES) Spain Debt Agency (Tesoro) opened its book EUR-denominated July 2033 SGPB bonds via syndicate; guidance seen low +120bps area to mid-swaps

(DK) Denmark sold total DKK2.605B in 2018 and 2027 Bonds

(SE) Sweden sold total SEK3.0B vs. SEK3.0B indicated in 2025 and 2032 bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.1% at 3,341, FTSE +0.3% at 7,295, DAX +0.2% at 11,992, CAC-40 +0.4% at 4,907, IBEX-35 -0.1% at 9,550, FTSE MIB -0.4% at 18,962, SMI -0.1% at 8,560, S&P 500 Futures flat]

Market Focal Points/Key Themes: European equity indices are trading generally positive but mixed after German IFO came in better than consensus, and as market participants await the FOMC meeting minutes scheduled later today; Asian session ending positive overnight adding to positive sentiment; shares of Bayer the notable laggard in the Eurostoxx after releasing their Q4 results; shares of Lloyds Banking Group leading the gains in the FTSE 100 after releasing their Q4 results, with shares of homebuilder Barratt Developments also trading notably higher after releasing their H1 results; Commodity and mining stocks trading sharply lower in the index as copper and energy prices trade lower intraday.

A plethora of upcoming scheduled US earnings (pre-market) include ACCO Brands, Chico's FAS, Clean Harbors, Conduent, DISH Network, Eaton Vance, Expeditors, The Geo Group, Garmin, Welltower, HollyFrontier, HSN, Host Hotels & Resorts, Lamar Advertising, ClubCorp, Norwegian Cruise Line, NiSource, Nationstar Mortgage, Pinnacle Entertainment, Sinclair Broadcast, Six Flags, Stepan, Southern Company, Summit Materials, TJX Companies, Toll Brothers, Tri Pointe Homes, Univar, United Therapeutics, William Lyon, and Wolverine World Wide.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Accor AC.FR -2.0% (FY16 results), Hays HAS.UK -3.6% (H1 results), TER Beke TERB.BE +0.4% (FY16 results), Tom Tailor TTI.DE +5.9% (prelim FY16 results), UBM UBM.UK +4.6% (FY16 results), Wolters Kluwer WKL.NL +2.7% (FY16 results)]

Energy: [Petrofac PFC.UK +2.6% (FY16 results), RWE RWE.DE -0.4% (prelim FY16 results)]

Financials: [Lloyds Banking Group LLOY.UK +3.8% (Q4 results), Scor SCR.FR +3.7% (FY16 results), Serco Group SRP.UK -12.6% (FY16 results)]

Healthcare: [Bayer BAYN.DE -2.2% (Q4 results), Fresenius Medical Care FME.DE +3.1% (Q4 results), Fresenius SE FRE.DE +1.4% (Q4 results), Indivior INDV.UK -13.5% (FY16 results, names new CFO)]

Industrials: [ABB ABBN.CH +0.1% (South Korean subsidiary embezzlement), Air France AIR.FR -0.4% (FY16 results), Barratt Developments BDEV.UK +2.3% (H1 results)]

Technology: [Atos ATO.FR +2.4% (FY16 results)]

Telecom: [Telefonica Deutschland O2D.DE +4.1% (Q4 results)]

Utilities: [Iberdrola IBE.ES -0.4% (FY16 results)]

Speakers

German IFO Economists commented that after a slow start to the year, the economy was back on track and saw no Trump effect on domestic economy while consumption remained solid support

BOJ said to consider announcing specific dates on when it will conduct Japanese government bond-buying operations

Japan Fin Min Aso reiterated govt view that 2nd phase of planned sales tax increase still planned for Oct 2019 - Parliament comments

Russia Feb MTD oil production at 11.10M bpd (compares to 11.11M in Jan)

Russia Energy Min Novak: No plan to convince US oil producers to join production cut

Qatar Energy Min Al Sada (OPEC President): OPEC agreement on oil production would reduce high inventory levels and rebalance the market later in 2017

Currencies

USD was mixed against the majors with diverging rate path remaining the primary price driver. Market awaited Fed Feb minutes for more insight on looming rate hikes

The EUR/USD again failed to respond to better European data for the 2nd staright session. German Feb IFO Survey beat expectations with Business Climate matching high from Feb 2014; German economy back on track. Nonetheless the ECB still seen maintaining its easing mode for an extended period.

Mixed Q4 GDP data for the UK weighed upon the GBP currency. GBP/USD pair saw its small gains dissipate as the annual pace slowed to its since Q1 2013

USD/JPY was softer in the wake of BOJ Gov Kuroda comments in Asia that oil prices had likely stopped weighing on CPI which dealers took as a potentially diminishing the need for bolder easing from the central bank.

Fixed Income:

Bund futures trade at 165.01 up 60 ticks trading at the highest level seen since November despite stronger Equities and better then expected German IFO data. Continuation higher targets 165.29 followed by 165.64. Support remains at 164.05 then 163.62, 163.13, 162.92 followed by 162.44.

Gilt futures trade at 126.41 up 34 ticks after mixed prelim GDP figures out of the UK with an improvement m/m, but a revision lower on a y/y basis. Resistance remains at 126.70 followed by 127.16. Support remains at 125.63 then 125.30. Short Sterling trade flat to up 1bp with Jun17Jun18 remaining at 13/14bp

Wednesday liquidity report showed Tuesday's excess liquidity fell to €1.285T down €16B from €1.301T prior. Use of the marginal lending facility fell sharply to €177M from €1.54B prior.

Corporate issuance saw $5.15B come to market via 5 issuers headlined by Korea Dev Bank $1.5B 3 part offering. and Parker Hannifin $1.3B 2 part offering. Analysts see weekly issuance to be in the $15-20B range.

Looking Ahead

(DE) German Chancellor Merkel with IMF chief Lagarde in Berlin

05:30 (EU) ECB allotment in 3-month LTRO tender

05:30 (DE) Germany to sell €1.0B in 2.5% July 2044 Bunds

06:00 (IE) Ireland Jan PPI M/M: No est v 0.5% prior; Y/Y: No est v 1.3% prior

06:00 (BR) Brazil Feb FGV Consumer Confidence: No est v 79.3 prior

06:00 (BR) Brazil Feb FGV Construction Costs M/M: 0.4%e v 0.3% prior

06:00 (RU) Russia to sell combined RUB30B in 2022 and 2031 OFZ Bonds

06:00 (CZ) Czech Republic to sell Bonds

06:30 (TR) Turkey Feb Real Sector Confidence (Seasonally Adj): No est v 100.5 prior; Real Sector Confidence NSA (unadj): No est v 97 prior

06:30 (TR) Turkey Feb Capacity Utilization: 74.7%e v 75.5% prior

06:30 (CL) Chile Central Bank's Traders Survey

06:45 (US) Daily Libor Fixing

07:00 (US) MBA Mortgage Applications w/e Feb 17th: No est v -3.7% prior

07:00 (BR) Brazil Mid-Feb IBGE Inflation IPCA-15 M/M: 0.5%e v 0.3% prior; Y/Y: 5.0%e v 5.9% prior

07:00 (UK) PM May weekly question time in House of Commons

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Dec Retail Sales M/M: 0.6%e v 0.2% prior; Retail Sales Ex Auto M/M: 0.6%e v 0.1% prior

08:55 (US) Weekly Redbook Sales

09:00 (BE) Belgium Feb Business Confidence: 0.9e v 0.5 prior

09:00 (MX) Mexico Q4 Final GDP Q/Q: 0.0%e v 0.6% prelim; Y/Y: 2.2%e v 2.2% prelim, 2016 GDP Y/Y: No est v 2.5% prior

09:00 (MX) Mexico Dec IGAE Economic Activity Index (Monthly GDP) Y/Y: No est v 3.7% prior

10:00 (US) Jan Existing Home Sales: 5.54Me v 5.49M prior

11:00 (CO) Colombia Q4 GDP Q/Q: No est v 0.3% prior; Y/Y: No est v 1.2% prior; 2016 GDP: No est v 3.1% prior

11:30 (US) Treasury to sell 2-Year Floating Rate Notes Reopening

12:00 (CA) Canada to sell 2-Year Bonds - 13:00 (US) Treasury to sell 5-Year Notes

14:00 (US) FOMC Meeting Minutes from Feb 1st

14:00 (CO) Colombia Dec Economic Activity Index (Monthly GDP) Y/Y: No est v 1.1% prior

16:00 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to cut Selic Rate by 75bps to 12.25%

16:30 (US) Weekly API Oil Inventories

(CO) Colombia Jan Industrial Confidence: No est v -1.2 prior; Retail Confidence: No est v 20.3 prior

EUR/USD briefly breaks 1.0500 as French political worries continue to weigh on the single currency.

Euro briefly touched 1.0497 in early Europe trading, ignoring better than expected German IFO data (actual 111 vs 109.6 expected). Political considerations seem to be closer to the front of traders minds as Ms Le Pen continues to extend her lead in French Presidential polls.

Readers will remember that we have consistently said since last year that political risk in the form of Federal Elections in France, Netherlands and Germany represent the greatest source of volatility in Europe for 2017. Make no mistake that the populism that has sacked the status quo in Britain and the United States is alive and well i9n Europe as well.

Yield spreads in the 10-year France/Germany bonds have moved out to 78 bps with the German 2-year yield falling to around -0.90%. Better data generally in the Eurozone seems unable to hide the shaky foundations of the Euro at the moment.

Rattling the Euro's cage will also be better than expected UK Q4 GDP data (+0.7% vs 0.6% expected), and the passing of the Brexit Bill's 1st reading in the House of Lords. As history has repeatedly shown, those British just won't roll over in the face of being told what to do by the Europeans. Some history lessons are just never learnt.

In fairness the GBP is also a little lower this morning as the USD, in general, is stronger across the board (for now), further compounding Euros woes.

Looking at the daily chart, EUR/USD has resistance at 1.0600, the 55-day moving average, with support at 1.0497 the daily low and then 1.0450 the low from the 11th January. A daily close below here from a technical perspective sets up a move to 12-month lows in the 1.0340/50 region. This, however, may be difficult to sustain ahead of Trumps 28th February speech and the mid-March FOMC meeting. A break back above 1.0600/20 moves us back into the 1.0500/1.0800 holding pattern we have been circling in since the start of the year.

As a final note Eurozone Annual CPI has just come out at +1.8% YoY, as expected. This is the highest level apparently since early 2013. The EUR/USD is unmoved at 1.0505 and although CPI seems to be responding to the ECB's stimulus, the price action, or lack or reaction further reinforces the view that it is politics, not economics driving the markets at the moment. As if this is a surprise!!

The AUD/USD has been ranging with a very low ATR (58), indicating low momentum in the market. At this point we can spot 2 possible zones for either a trend (POC) or counter trend move (POC CT). Slightly bullish bias has been prevailing in the market and POC for long trading opportunities comes within 0.7660-70 (trend line, 78.6, L3, ATR pivot). Target is 0.7725. However if the pair gets to POC CT (historical sellers, ATR projection high) 0.7720-35 it could provide a counter trend opportunity towards 0.7660. Drop below 0.7645 would put the pair in a high range scenario.

EURUSD

The EURUSD had a bearish momentum yesterday bottomed at 1.0525. The bias remains bearish in nearest term testing 1.0520/00 support area which remains a good place to buy with a tight stop loss. Immediate resistance is seen around 1.0575. A clear break above that area could lead price to neutral zone in nearest term testing 1.0620 or higher. On the downside, a clear break and daily close below 1.0500 would expose 1.0400 – 1.0350 region. Fundamental focus will be on the FOMC meeting minutes. Overall I remain neutral.

GBPUSD

The GBPUSD attempted to push lower yesterday bottomed at 1.2400 but closed higher and hit 1.2505 earlier today in Asian session. The bias is neutral in nearest term probably with a little bullish bias testing 1.2580 resistance area. Immediate support is seen around 1.2465. A clear break below that area could trigger further bearish pressure retesting 1.2400 area. Fundamental focus will be on the FOMC meeting minutes. Overall I remain neutral.

USDJPY

The USDJPY had a bullish momentum yesterday topped at 113.77 but traded a little bit lower earlier today in Asian session hit 113.32. The bias is neutral in nearest term. Immediate support is seen around 113.20. A clear break below that area could trigger further bearish pressure testing 112.65 area. Immediate resistance is seen around 113.70. A clear break above that area could trigger further bullish pressure testing 114.00/30 region but overall I still prefer a bearish scenario at this phase and any upside pullback should be seen as a good opportunity to sell. Fundamental focus will be on the FOMC meeting minutes.

USDCHF

The USDCHF had a bullish momentum yesterday topped at 1.0105. The bias remains bullish in nearest term testing 1.0150 – 1.0200. Immediate support is seen around 1.0060. A clear break below that area could lead price to neutral zone in nearest term testing 1.0000 region. Fundamental focus will be on the FOMC meeting minutes. Overall I remain neutral.

EUR/USD continues to head south this week. In the Wednesday session, the pair is trading at the 1.05 line, it's lowest level since January 11. On the release front, German Ifo Business Climate improved to 111.0, beating the estimate of 109.6 points. Eurozone Final CPI remained at 0.9%, matching the forecast. The US releases Existing Home Sales and the Federal Reserve will publish the minutes of the January policy meeting. On Thursday, the US releases unemployment claims, with an estimate of 242 thousand.

The Federal Reserve will be on center stage on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump's shock win in November, post-election euphoria boosted the markets. However, Trump's first month in office has been marked by controversy and confusion, which has unsettled the markets.

German numbers continue to impress this week. German Ifo Business Climate improved to 111.0 in February, up from 109.8 a month earlier. Inflation is pointing upwards, as PPI climbed o.7% in January, above the estimate of 0.3%. This marked a 3-month high. This was followed by strong Manufacturing PMI reports from Germany and the Eurozone, which continue to indicate expansion. On Thursday, Germany releases GDP and Consumer Climate.

Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank's target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and inflation numbers continue to climb, there will be increased pressure and louder voices calling for tighter monetary policy, which would be bearish for the stock market.

News and Events:

USD lagging yields

US equity markets wasted no time after the long weekend rallied to new record highs. The general optimism relies on the strong economic outlook. Fed speakers sounding increasingly hawkish, suggesting a steeper rate path but also US economic acceleration, which will support corporate earnings. Fed president Hackers added his name to members that support a March hike causing Fed Funds rate to jump. Given OIS underpricing a March hike (rate only pricing in two hikes and not three) we see possibility of a short term USD rally. Interestingly, US yields continue to rise on higher than expected CPI read, forcing spreads between US and DM to widen. However, the USD has failed to meaningfully follow this generally solid indicators. We suspect the lag between US interest rate differentials and USD is a function of increasing expectations for accelerating global growth. Given the considerable room for short term US rates to adjust higher we just need a catalyst. This could be Trump's 'phenomenal' tax reform, which has been promised to be released within a month. The merely materialization of stimulus will likely be enough to excite bullish economic forecasts and force markets to reevaluate underpricing.

UK: Hefty bill reinforces soft Brexit

On the surface European Commission President Jean Claude Junker's comments over the 'very hefty' bill for Brexit sounds like a dire warning. Yet in our view his words actually reinforce the view that a 'soft' Brexit is the only realistic path. In a speech to the Belgian Federal Parliament, Junker indicated that UK would face 'tough negotiations' and would not be 'at a discount or at zero cost'. Back of the envelope reports have the further payments to the EU at €60 billion. Money that will be used for UK spending commitments made during membership. It is unlikely that divorce settlements will be made in a single lump payments but rather steady payments which will ensure the UK's deep involvement in EU issues. We anticipate the Notification of Withdrawal Bill will passed into law allowing Prime Minister Theresa May to trigger Article 50, starting the long drawn-out process (despite political suggestions to the contrary). Sterling could come under short term selling pressure heading into March due to Article 50 uncertainty yet improving UK domestic and external fundamentals will further support economic recovery and GBP strength.

Switzerland: SNB can't stop the demand

SNB sight deposits indicated another significant round of FX intervention last week. In the last month the SNB has injected approximately 12bn CHF to support the EURCHF un-official floor at 1.06. Swiss economic data remains strong with CPI tuning positive and cross boarder M&A flow strong. In addition, mounting political risk in European will continue to haunt the SNB. CHF remains the primary safe haven trade for European investors. Heading into a contentious period for European with election cycle underway and UK article 50 preparing to be launch, short EURCHF remains one of our favorite plays.

No Greek Drama

Current negotiations over Greek debt could be the least suspenseful script since N. Shyamalan's 'The Happening.' After public clashes between EU, IMF and Greek officials over sustainability of Athens debts reports from Euro-group meeting indicate a deal is in reach for Greece's third bailout. Officials will head to Athens to finalize details of a deep reform package that include pension cuts and broader scope of income tax (convergence of EU and IMF views). This will allow Greece to receive the bailout funds to meet July's €7bn debt repayment. Despite marginal yield spread widening between German and Greek sovereign debt the market seems, correctly, unconcerned over the Greek bailout program. The reality is that even the current headwinds the EU is facing (Brexit, Trump administration, election cycle) the cost of 'kicking the can' down the road is a low risk solution. EU officials at this point need to contain the growing sentiment that the EU experience is unsustainable especially in Netherland and France. The hype around negotiations is a perfect example, in our view, of a key 2017 trend of market noise clouding fundamentals realities. In our view, current euro weakness is a function of mounting EU political risk emulating from impending Dutch and French elections. Moving forward, Greek debt sustainability must come with debt relief, especially with interest rates marching higher.

Today's Key Issues (time in GMT):

• Feb 17 Money Supply Narrow Def, last 8.74t RUB / 08:00
• Feb IFO Business Climate, exp 109,6, last 109,8, rev 109,9 EUR / 09:00
• Feb IFO Expectations, exp 103, last 103,2 EUR / 09:00
• Feb IFO Current Assessment, exp 116,6, last 116,9 EUR / 09:00
• Jan CPI FOI Index Ex Tobacco, exp 100,4, last 100,3 EUR / 09:00
• Jan F CPI EU Harmonized YoY, exp 0,70%, last 0,70% EUR / 09:00
• Feb Credit Suisse Survey Expectations, last 18,5 CHF / 09:00
• 4Q P GDP QoQ, exp 0,60%, last 0,60% GBP / 09:30
• 4Q P GDP YoY, exp 2,20%, last 2,20% GBP / 09:30
• 4Q P Private Consumption QoQ, exp 0,70%, last 0,70%, rev 0,90% GBP / 09:30
• 4Q P Government Spending QoQ, exp 0,10%, last 0,00% GBP / 09:30
• 4Q P Gross Fixed Capital Formation QoQ, exp 0,20%, last 0,90% GBP / 09:30
• 4Q P Exports QoQ, exp 2,00%, last -2,60% GBP / 09:30
• 4Q P Imports QoQ, exp 0,30%, last 1,40%, rev 1,30% GBP / 09:30
• Dec Index of Services MoM, exp 0,10%, last 0,30% GBP / 09:30
• Dec Index of Services 3M/3M, exp 0,80%, last 1,00%, rev 0,90% GBP / 09:30
• 4Q P Total Business Investment QoQ, exp 0,10%, last 0,40%, rev 0,70% GBP / 09:30
• 4Q P Total Business Investment YoY, exp 0,30%, last -2,20%, rev -2,30% GBP / 09:30
• Jan CPI MoM, exp -0,80%, last 0,50% EUR / 10:00
• Jan F CPI YoY, exp 1,80%, last 1,80% EUR / 10:00
• Jan F CPI Core YoY, exp 0,90%, last 0,90% EUR / 10:00
• Jan Unemployment Rate, exp 5,40%, last 5,30% RUB / 11:00
• Jan Real Disposable Income, exp -2,90%, last -6,10% RUB / 11:00
• Jan Real Wages YoY, exp 2,00%, last 2,40% RUB / 11:00
• Jan Retail Sales Real MoM, exp -27,00%, last 18,30% RUB / 11:00
• Jan Retail Sales Real YoY, exp -5,10%, last -5,90% RUB / 11:00
• BOE Deputy Governor Jon Cunliffe Speaks in London GBP / 11:00
• Feb FGV Consumer Confidence, last 79,3 BRL / 11:00
• Feb FGV Construction Costs MoM, exp 0,35%, last 0,29% BRL / 11:00
• Feb Real Sector Confidence SA, last 100,5 TRY / 11:30
• Feb Real Sector Confidence NSA, last 97 TRY / 11:30
• Feb Capacity Utilization, exp 74,70%, last 75,50% TRY / 11:30
• BOE Deputy Governor Shafik Answers Questions in Twitter Q&A GBP / 11:30
• Feb IBGE Inflation IPCA-15 MoM, exp 0,50%, last 0,31% BRL / 12:00
• Feb IBGE Inflation IPCA-15 YoY, exp 4,98%, last 5,94% BRL / 12:00
• Feb 17 MBA Mortgage Applications, last -3,70% USD / 12:00
• Feb 20 CPI WoW, last 0,00% RUB / 13:00
• Feb 20 CPI Weekly YTD, last 0,70% RUB / 13:00
• Dec Retail Sales MoM, exp 0,00%, last 0,20% CAD / 13:30
• Dec Retail Sales Ex Auto MoM, exp 0,50%, last 0,10% CAD / 13:30
• Conference Board China January Leading Economic Index CNY / 14:00
• Bank of England Bond Buying Operation GBP / 14:50
• Revisions: Existing Home Sales USD / 15:00
• Jan Existing Home Sales, exp 5.55m, last 5.49m USD / 15:00

The Risk Today:

EUR/USD is back below 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high) while hourly support can be found at 1.0521 (15/02/2017 low). The technical structure suggests that the current underlying move is a bearish consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD has exited symmetrical triangle. However, the pair is still lying below strong resistance given at 1.2771 (05/10/2016 high). Support is given at 1.2254 (19/01/2016 low). The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's demand is fading after its increase from support given at 111.36 (28/11/2016 low). Bearish pressures arise around hourly resistance given at 115.62 (19/01/2016 high). The technical structure suggests further weakness. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF's short-term bullish momentum is back to bullish. The pair lies within an uptrend channel. Hourly resistance is implied by upper bound of the uptrend channel. Key resistance is given at a distance at 1.0344 (15/12/2016 high). We believe that the pair is likely to strengthen again above parity. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

Today the main event will be in the US, where the Fed releases the minutes from its February policy meeting. Considering this was one of the meetings that was not accompanied by a press conference or updated forecasts, we think that the market may look through the minutes for extra details on the Fed's forward guidance and on the timing of the next rate increase. Last week, in her semi-annual testimony before Congress, Chair Yellen was quite optimistic with regards to a near-term hike, indicating that such action will likely be appropriate at one of the upcoming meetings if employment and inflation evolve in line with the Fed's expectations. Following her appearances, the probability for a March hike rose somewhat, though it has since reverted back to its prior levels. We believe that in case we get another set of optimistic signals from the minutes, that probability could increase once again. Considering that the data the Committee had access to at that time were solid, since the disappointing wage growth print for January had yet to be released, we could indeed get some hawkish signals, something that may bring the dollar under renewed buying interest.

Our favorite proxy for exploiting further USD gains has now changed from USD/JPY to EUR/USD, which we expect to test once again the 1.0500 (S1) territory soon. If the bears prove strong enough to overcome that key support hurdle, then we may experience extensions towards our next support of 1.0450 (S2). The reason behind the change is the increased market attention Eurozone's politics have gained in the last couple of weeks.

Overall, we maintain our view that the FOMC is unlikely to rush into a March hike amid lackluster wage growth and heightened uncertainty around fiscal policy. Our model which is based on the yields of the Fed funds futures shows a 28% probability for a March hike, but we see even that number as somewhat optimistic if we take into account that the Committee has turned more dovish this year through the rotation of voting rights. Therefore, we still expect the next rate hike to come in June. We would like to see some clarity around fiscal reform, some acceleration in wage growth, as well as an uptick in the core PCE price index rate, before we reconsider this view.

RBA Governor confirms the bar for further easing is high

In a speech overnight, RBA Governor Philip Lowe suggested that the Bank is unlikely to ease its policy any further in the foreseeable future, as it is concerned with the already-high levels of household debt. He said that although the Bank would like to achieve its double mandate sooner than currently projected, if that is done by reducing rates further, it would encourage even more borrowing and thereby amplify financial stability risks. These comments confirm our view that the RBA is likely to remain on hold in the foreseeable future. Combined with the surge in iron ore prices over the past months, we believe that these factors could keep the Aussie supported moving forward. However, given the uncertainty surrounding fiscal policy in the US, we would avoid AUD/USD. We prefer EUR/AUD as a proxy for any future Aussie gains, considering that the political risks in Eurozone could keep the common currency on the back foot in coming months. EUR/AUD has been trading in a downtrend since the 30th of December and since the beginning of February, it appears to be trading within a downside channel. At the time of writing, the pair looks to be headed towards the 1.3675 (S1) support zone, marked by the lows of the 28th and 29th of April 2015. A clear break below that zone is possible to trigger extensions towards our next support of 1.3600 (S2), defined by the inside swing high of the 31st of May 2013. The broader trend appears negative as well. What's more, on the 10th of February the pair broke below the downside support line drawn from the 10th of March 2016, which enhances the case for the pair to continue trading south in the weeks to come.

As for the rest of today's highlights

During the European day, we get Germany's Ifo survey for February. The forecast is for both the expectations and the current conditions indices to have declined marginally, which is also supported by the slides in both the ZEW indices. Something like that could hurt the common currency somewhat. However, following the surprising surge in Eurozone's composite PMI for February, we do not expect a modest slide in the Ifo indices to be particularly worrisome for ECB policymakers.

In the UK, the 2nd estimate of Q4 GDP is due out. The 1st estimate showed that economic growth held steady at +0.6% on a quarterly basis, beating the consensus for a slight slowdown. This was another confirmation that the UK economy has not been hit by Brexit uncertainties, at least not yet. With regards to the 2nd revision, the forecast is for GDP growth to remain unchanged. We see the risks surrounding that forecast as skewed to the upside given that industrial production for December, which was released after the 1st estimate of GDP, beat expectations significantly. Thus we think that if there is any revision, it is likely to be upwards, something that could extend sterling's gains from yesterday.

As for the US economic data, we get existing home sales for January, though market focus is likely to be on the FOMC minutes.

In Canada, retail sales for December are due to be released and the forecast is for the print to have stagnated from the previous month, something that may hurt the Loonie somewhat.

We have only one speaker scheduled for today: BoE Deputy Governor for Financial Stability Jon Cunliffe.

EUR/USD

Current level - 10524

The downtrend is intact, currently testing 1.0520 support zone and next hurdle lies at 1.0450. Crucial on the upside is 1.0560 and only a violation of that level will signal a reversal of the slide.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.40

A reversal has been confirmed at 113.80 and my outlook is already bearish, for a slide towards 112.50, en route to 111.60.

GBP/USD

Current level - 1.2491

The outlook is already positive, for a break through 1.2520, towards 1.2610 area. Crucial on the downside is 1.2440 zone.