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Market movers today

In the US, service and manufacturing PMIs for February are due to be released. Both PMIs are at levels indicating a tailwind for the overall economy and have furthermore been rising steadily since late summer 2016. We expect this to continue and look for an increase in both PMIs in February.

In the euro area, PMI figures from Germany, France and the euro area are also due out. Overall, we expect PMIs to see a downward correction in line with the fall across other survey indicators (IFO and ZEW expectations). In manufacturing, recent months have shown an increase in output, but the order-inventory balance indicator has weakened and points to a downward correction in manufacturing PMI. In service, we also expect a decline in line with the other survey indicators. Still, even with the expected decline in February, PMIs remain at solid levels.

In the UK, the Article 50 marathon debate in House of Lords continues today. More than 190 members (record) will be speaking during the two-day debate: 80 yesterday and 110 today. Members of the House of Lords have proposed around 30 amendments to the bill and speeches will be monitored closely for signs of the mood among the members and whether the bill in contrast to our expectation could be delayed.

The Fed's Harker (voter, hawkish) and Kashkari (voter, dovish) are scheduled to speak tonight. We will look for communication about the expected timing of a US rate hike. We still expect the Fed to deliver the next rate hike in June, but think risks are skewed towards an earlier rate hike.

Selected market news

Risk appetite has improved this morning and most regional Asian equity indices and USD/JPY trade higher after European equity markets closed broadly flat yesterday in a relatively uneventful day. In Japan, the manufacturing PMI rose to the highest level since March 2014 at 53.5, underscoring that the global manufacturing business cycle is still solid. Details in the PMI report were also solid with both new orders and output improving.

The tone in the Minutes from the Reserve Bank of Australia's (RBA) monetary policy meeting on 7 February was relatively optimistic and the RBA expects GDP growth to pick up to around 3% later in 2017 and to remain above estimates of potential growth. We expect the RBA to keep its key rate unchanged in the coming 12 months and we still think the RBA wants to limit the upside in AUD and is ready to soften its tone in case the exchange rate appreciates excessively.

The European fixed income market remains in focus for investors, and French government bonds once again slumped yesterday as political uncertainty reduces investors' appetite for exposure to France. The 10-year yield spread between France and Germany yesterday reached the widest level since 2012. Monday's OpinionWay poll showed a 1pp gain to Marine Le Pen, who now has support from 27% of the votes in the first round. Moreover, polls suggest that Le Pen is rapidly narrowing the gap to her rivals in the second round. Hence, while Emmanuel Macron is likely to defeat Le Pen by 58% to 42% in the second round, according to the poll, his advantage has halved in less than two weeks.

RBA minutes for the February meeting contained little news. Indeed, it reinforced our view that the central bank would leave the monetary policy unchanged for the rest of the year. The market currently prices in further rate cut this year, followed by rate hike in 2018. The central bank acknowledged the -0.5% GDP contraction in 3Q16. While attributing most of the weakness to temporary factors including 'disruptions to coal supply and bad weather', policymakers also warned that 'slower growth in consumption had also been a factor'. However, they assured that such weakness should not have continued into 4Q16. On the growth outlook, the central bank suggested that 'GDP growth was expected to pick up to around +3% in year-ended terms later in 2017, and to remain above estimates of potential growth over the rest of the forecast period'

On household consumption, RBA indicated that the subdued growth in the second and third quarters was 'consistent with subdued growth in household income' and this would continue to 'constrain consumption growth over the forecast period'. The minutes, however, suggested that growth in retail sales volumes for 4Q16 had increased, as 'households' perceptions of their personal finances had remained around average and expectations of unemployment had been low relative to recent years'. As elaborated in the minutes, the forecasts for consumption growth were closely related to labour market developments and households' expectations about their income growth. Employment had risen modestly in 4Q16 and 'all of the increase had been in the full-time component, reversing the pattern of the previous few quarters'. Moreover, 'forward-looking indicators had been consistent with some pick-up in employment growth over the period ahead'.

Policymakers remained cautiously optimistic over non-mining business investment. They noted that strongest growth in the aspect was seen in New South Wales and Victoria over recent years. They added that 'while non-residential building construction was likely to remain subdued in coming quarters, the increase in approvals over the past year across a range of sectors suggested that non-residential building construction would contribute to GDP growth towards the latter part of the forecast period'.

The unemployment rate drifted lower to 5.7% in January, after soaring to 11-month of 5.8% in December. RBA described the job market as 'mixed' and cautioned over the 'uncertainty about the momentum in the labour market'. However, it also acknowledged the increase in full-time employment growth over the past year and forecast that the unemployment rate would 'edge lower' in coming months.

Daily Pivots: (S1) 140.18; (P) 140.71; (R1) 141.47; More...

GBP/JPY is staying in range of 138.53/142.79 and intraday bias is turned neutral first. Break of 138.53 will extend the fall to 136.44. Overall, price actions from 148.42 are seen as a corrective pattern. Strong support could be seen at 50% retracement of 122.36 to 148.42 at 135.39 to bring rebound. Above 142.79 will turn bias back to the upside.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern with a test on 122.36 low next. Though, sustained break of 150.42 will extend the rebound towards 61.8% retracement at 167.78.

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Daily Pivots: (S1) 119.71; (P) 120.01; (R1) 120.31; More...

EUR/JPY is still bounded in range of 119.32/121.32. Intraday bias remains neutral at this point. On the downside, below 119.32 will extend the corrective fall from 124.08. In that case, we'd expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to contain downside and bring rebound. On the upside, break of 121.32 minor resistance should revive the case that such correction is completed. And, intraday bias would then be turned back to the upside for 123.30/124.08 resistance zone.

In the bigger picture, price actions from 109.20 medium term bottom are seen as part of a medium term corrective pattern from 149.76. There is prospect of another rise towards 126.09 key resistance level before completion. But even in that case, we'd expect strong resistance between 126.09 and 141.04 to limit upside, at least on first attempt. Nonetheless, decisive break of 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) will argue that rise from 109.20 is completed and turn outlook bearish for 61.8% retracement at 114.88 and below.

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Daily Pivots: (S1) 1.3775; (P) 1.3818; (R1) 1.3841; More...

EUR/AUD is staying in range above 1.3722 and intraday bias remains neutral for the moment. We're holding on to the view that price actions from 1.6587 are corrective in nature. Thus, we'd expect strong support from 1.3671 key level to contain downside and bring rebound. Decisive break of 1.4025 support turned resistance will indicate near term reversal. In this case, intraday bias will be turned back to the upside for 1.4289 resistance first.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. We'd expect strong support from 1.3671 key level to contain downside and bring rebound. Up trend from 1.1602 should not be finished and will resume later. Break of 1.4721 resistance will indicate completion of such correction and turn outlook bullish for retesting 1.6587 high. However, sustained break of 1.3671 will invalidate our bullish view and would turn focus back to 1.1602 long term bottom.

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Daily Pivots: (S1) 0.8497; (P) 0.8526; (R1) 0.8540; More...

EUR/GBP is staying in consolidation in range of 0.8455/8643. Intraday bias remains neutral for the moment. Fall from 0.8851 is seen as the third leg of the corrective pattern from 0.9304. Below 0.8445 will target 0.8303 low first. Break will confirm our view and target 0.8116 key cluster support level. However, on the upside, break of 0.8643 will invalidate our view. In that case, intraday bias will be turned to the upside for 0.8851 to extend the corrective pattern from 0.8303.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

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Daily Pivots: (S1) 1.0631; (P) 1.0647; (R1) 1.0659; More...

Intraday bias in EUR/CHF remains neutral for the moment. With 1.0706 resistance intact, outlook stays bearish and deeper decline is expected. Firm break of 1.0620 key support level will extend the larger decline from 1.1198 to 1.0485 fibonacci level. However, break of 1.0706 resistance will indicate short term bottoming and turn bias back to the upside. Further break of 1.0749 resistance will raise the chance of medium reversal.

In the bigger picture, the decline from 1.1198 is seen as a corrective move. Such correction is still in progress. Sustained trading below 38.2% retracement of 0.9771 to 1.1198 at 1.0653 will target 50% retracement at 1.0485. On the upside, break of 1.0897 resistance is needed to confirm completion of such fall. Otherwise, outlook will stay bearish.

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Daily Pivots: (S1) 1.0597; (P) 1.0615 (R1) 1.0627; More.....

EUR/USD is bounded in range above 1.0520 temporary low. Intraday bias remains neutral for the moment. With 1.0713 minor resistance intact, we're holding on to our bearish view. That is, corrective rise from 1.0339 has completed at 1.0828 already. Below 1.0520 will target 1.0339 first. Break will extend the larger down trend to parity. However, above 1.0713 will dampen our view and turn focus back to 1.0828 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.

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Daily Pivots: (S1) 112.84; (P) 113.03; (R1) 113.29; More...

USD/JPY remains in range of 111.58/114.94 and intraday bias stays neutral at this point. Corrective fall from 118.65 could extend lower through 111.58. But we'd still expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rebound. On the upside, above 114.94 resistance should confirm completion of pull back from 118.65. In such case, intraday bias will be turned back to the upside for retesting 118.65.

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

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Daily Pivots: (S1) 1.2359; (P) 1.2434; (R1) 1.2482; More...

GBP/USD is still bounded in range of 1.2346/2705 and intraday bias remains neutral. Price actions from 1.1946 are viewed as a consolidation pattern, with rise from 1.1986 as the third leg. In case of another rise, we'd expect upside to be limited by 1.2774 to bring larger down trend resumption. On the downside, below 1.2346 will revive the case that such consolidation is completed at 1.2705 already. In that case, intraday bias will turn back to the downside for retesting 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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