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The increasing levels of volatility the Greenback has dished out this month continues to highlight how the currency remains entangled in a fierce tug of war between the Fed hawks and President Trump. Although it may be clear that Trump may want a weaker Dollar to help US exports become competitive on the global markets, the heightened expectations of a proposed expansionary fiscal plan which will be supportive of US growth may uplift the Greenback. While the Trump fuelled uncertainties and fears of protectionism policies impacting US growth may limit gains on the Dollar in the short term, prices may be poised to rally higher in the medium to longer term on the prospects of higher US interest rates. With the Federal Reserve, independent of the government, proposing an expansionary fiscal plan that may bolster US growth should encourage further US rate increases ultimately empowering the Dollar. From a technical standpoint, the Dollar Index has been on standby during Monday's trading session with prices hovering around 100.85 as of writing. Weakness below 100.50 in the short term could encourage bearish investors to send the Dollar Index back towards 100.00.

Currency spotlight - GBPUSD

The heightened political risks around Brexit have ensured Sterling vulnerability remains a key market theme for the first quarter of 2017. While economic data from the UK has on many occasions displayed signs of resilience post-vote to leave the European Union, it is the persistent uncertainty which has effectively dented investor attraction towards the Pound. The live threat of economic fundamentals discarded amid the Brexit developments could punish Sterling further, with investors solely directing their attention towards how the UK economy fares after the Article 50 is invoked in early March. Sterling remains fundamentally bearish and the terrible cocktail of jitters coupled with anxiety should limit upside gains. From a technical standpoint, the Sterling/Dollar remains slightly pressured on the daily charts with weakness below the 1.2400 support opening a path lower towards 1.2200.

Commodity spotlight - Gold

The rising political risks across the globe and overall market uncertainty have boosted Gold's safe haven allure with prices trading around $1235.70 as of writing. This yellow metal is firmly bullish on the daily charts and could receive a further boost to the upside if the Dollar comes under renewed selling pressure. From a technical standpoint, the consistently higher highs and higher lows on the daily chart coupled with prices trading firmly above the 20 simple moving averages have suggested that Gold remains tilted to the upside. A technical breakout and daily close above the $1240 resistance could encourage a further incline higher towards $1250 this week. This bullish daily setup remains valid as long as prices can keep above the previous $1220 higher low.

After an uneventful week, USD/CAD is showing little movement in the Monday session. Early in North American trade, the pair is trading just above the 1.31 level. On the release front, US markets are closed for Presidents' Day, so traders can expect a quiet day from USD/CAD. In Canada, Wholesale Sales jumped 0.7% in December, above the estimate of 0.4%.

With Fed Chair Janet Yellen's giving the US economy a thumbs-up last week, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, "bad for business".

The US economy continues to perform well, as underscored by sharp economic data on Thursday. Unemployment claims were slightly higher at 239 thousand, but beat the forecast of 245 thousand. On the manufacturing front, the Philly Fed Manufacturing Index soared to 43.3 points, crushing the estimate of 18.5 points. This marked its highest level since 2011. Earlier in the week, the Empire State Manufacturing Index also climbed sharply, with a reading of 18.7, compared to the forecast of 7.2 points. The surprisingly strong data is welcome news from the manufacturing sector, which like other industrialized countries, has been battered by globalization. President Trump has promised to bring manufacturing jobs back to the US and invigorate the struggling sector. There was more good news from the inflation front, as PPI and CPI posted respectable gains of 0.6% in January, above their estimates.

The Japanese yen is almost unchanged at the start of the week. In the Monday, session, USD/JPY is trading just above the 113 line. On the release front, Japan's trade surplus fell sharply to JPY 0.16 trillion, well short of the forecast of JPY 0.28 trillion. This marked the smallest surplus since January 2016. Later in the day, Japan releases two minor events, Flash Manufacturing PMI and All Industries Activity. US markets are closed for Presidents' Day, so we're unlikely to see much movement from the pair.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, "bad for business".

Japan's economy is on a modest upswing. GDP has expanded over four consecutive quarters and inflation continues to point upwards, although it remains well below the BoJ target of two percent. At the same time, the new Trump administration could pose a serious challenge for Japan. Trump has paraded the motto of "America first" and withdrew the US from the Trans-Pacific Partnership, a trade agreement in which Japan is a major partner. Trump has charged that Japan is manipulating its currency to gain an unfair trade advantage, and this disputed threatened to sour the recent meeting between Prime Minister Shinzo Abe and Trump in Washington. However, the potential crisis was quickly defused, as the two leaders agreed that their finance ministers would conduct bilateral talks to discuss currency policy. Abe has dodged a bullet for now, but if USD/JPY pushes above the 120 level, the war of words over exchange rates could be renewed. Trump remains concerned about the huge US trade imbalance with Japan and will want to make changes in the US-Japan trade relationship. Japan is heavily dependent on its export sector, and any protectionist moves by the US, such as import taxes, could hurt the Japanese economy.

Quiet start to trading week

Notes/Observations

Overnight:

Asia:

Japan Jan Trade Balance registers its first deficit in 5 months as imports rise for 1st time in over two years

Europe:

ECB's Lautenschlaeger (Germany) welcomed the recent rise in inflation but added it was too soon for any rate move. Hoped the ECB could scale down its bond-buying program before year-end but not raise interest rates.

German Chancellor Merkel reiterated view that ECB tailored its policies for all of Europe and not strictly to Germany

German Fin Min Schaeuble: Greece would not have any problems if it implemented the agreed-upon reforms

German DBB union says wages for 2M civil servants to rise 2% this year and by 2.35% in 2018

Matteo Renzi has resigned as leader of Italy's ruling Democratic Party; in a bid to win a fresh, stronger mandate before parliamentary elections (**Note: move seen as setting up a leadership battle that could hoist him back into the nation's highest office)

European Commission to warn Italy on Wed, Feb 22nd about disciplinary measures for not meeting public debt reduction targets unless deficit is reduced as promised

Canadian ratings agency DBRS affirmed Netherlands sovereign rating at AAA; stable trend

UK House of Lords begins two days of Brexit debate on article 50

Americas:

Fed's Mester (hawkish, non-voter): Would be comfortable raising rates at this point if economy keeps current pace of performance; Fed not behind the curve on rates

Economic data

(DE) Germany Jan PPI M/M: 0.7% v 0.3%e; Y/Y: 2.4% v 2.0%e

(FI) Finland Jan CPI M/M: -0.6% v +0.2% prior; Y/Y: 0.8% v 1.0% prior

(JP) Japan Jan Convenience Store Sales Y/Y: 0.1% v 0.5% prior

(TR) Turkey Feb Consumer Confidence: 66.7 v 68.0e

(TW) Taiwan Jan Export Orders Y/Y: 5.2% v 7.4%e

(HK) Hong Kong Jan Unemployment Rate: 3.3% v 3.3%e

Fixed Income Issuance:-

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.4% at 3,315, FTSE flat at 7,301, DAX +0.6% at 11,826, CAC-40 +0.1% at 4,874, IBEX-35 +0.4% at 9,541, FTSE MIB +0.1% at 19,032, SMI +0.3% at 8,532, S&P 500 Futures +0.1%]

Market Focal Points/Key Themes: European equity indices are trading generally higher in the morning session after an overall positive end to the Asian session overnight; shares of Deutsche Telekom leading the gains seen in the Eurostoxx after Softbank was reported to approach the company on merger of Sprint and TMUS; shares of Unilever however trading sharply lower, rebounding all of Friday's gains after Kraft withdrew its $143B takeover offer over the weekend; Banking stocks trading generally higher across the board; shares of RBS the notable gainer in the FTSE 100 after the company issued an update on remaining State Aid obligation; Commodity and mining stocks trading generally higher in the index as oil and commodity prices trade higher intraday.

No upcoming scheduled US earnings today due to Presidents' Day holiday.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Bovis Homes BVS.UK -9.7% (FY16 results), Telegraaf Media Groep TMG.NL +3.8% (increased conditional proposal from Mediahuis/VPE of €5.90/share), Unilever UNA.NL -6.3% (Kraft steps down from merger talks)]

Energy: [CGG CGG.FR -2.5% (extends consent solicitation deadline for 2017 bondholders)]

Financials: [RBS RBS.UK +5.7% (Confirms RBS's remaining State Aid obligation; takes £750M provision for William & Glyn sale plan)]

Healthcare: [AstraZeneca AZN.UK -0.2% (Licenses Zoladex to TerSera)]

Industrials: [Boskalis BOKA.NL -5.2% (to report non-cash impairment of €840M in FY16 results), LifeWatch LIFE.CH -1.2% (Discloses terms of public takeover offer from Aevis at CHF12.40-13.60/shr), Vedanta VED.UK -0.1% (Q3 results)]

Materials: [Covestro 1COV.DE -3.7% (Q4 results), Pan African Resources PAF.UK -8.3% (mining accident, cuts gold production)]

Telecom: [Deutsche Telekom DTE.DE +3.3% (Softbank reportedly approached Deutsche Telecom on merger of Sprint with T Mobile US)]

Speakers

EU Commission President Juncker could step down from position as soon as March. EU official later refuted the speculation as ‘fabrication' (**Note: On Feb 16th reports circulated that EU's Juncker would not seek 2nd term in 2019)

Singapore Finance Ministry presented its 2017 Budget which would address weakness in marine and construction sectors and bring forward S$700M in projects to start in FY17 and FY18

Saudi Arabia Dec oil production at 10.465M bpd, -255K bpd - JODI

Currencies

FX markets were basically locked within recent ranges in quiet trade with overall global participation low alongside the US markets closed for the Presidents' Day holiday. The USD retraced some of its recent strength as dealers debated the possibility of the next Fed rate hike being pushed back to May instead of March

EUR/USD was holding above the 1.06 level but faced headwinds as the pair struggled for traction after suffering significant losses at the end of last week on renewed concerns about the upcoming French elections

Fixed Income:

Bund futures trade at 164.40 down 3 ticks in quiet trade with the US cash markets shut in observance of Presidents day. Continuation of the recent uptrend targets Friday high at 164.64 followed by 164.94. Support moves to 164.05 then 163.62, 163.13, 162.92 followed by 162.44.

Gilt futures trade at 126.25 down 16 ticks drifting off 126.37 high in quiet trade tracking Bunds lower. Resistance remains at 126.70 followed by 127.16. Support moves to 162.05 followed by 125.63 then 125.30. Short Sterling trades virtually flat across the curve. Jun17Jun18 trades lower to 12/13bp.

Monday liquidity report showed Friday's excess liquidity rose to €1.302T up €2B from €1.300T prior. Use of the marginal lending facility rose to €623M from €52M prior.

Corporate issuance saw last week ended at $23B via 31 tranches, with February volume at $47.9B order. For the week ahead, analysts expect between $15-20B to come to market. In Euro denominated issuance, just shy of €20B came to market last week with three part offerings Mckesson and Pemex some of the notable issuers last week.

Looking Ahead

(GR) Eurogroup on Greece - (UK) House of Lords begins debate on Article 50 Bill

(IL) Israel Feb 12-month CPI Forecast: No est v 0.7% prior

(BR) Brazil Jan Total Federal Debt (BRL): No est v 3.113T prior

05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month Bills

05:30 (PL) Poland to sell Bills

06:00 (UK) Feb CBI Industrial Trends Total Orders: 4e v 5 prior, Selling Prices: No est v 28 prior

06:00 (IL) Israel Dec Manufacturing Production M/M: No est v 3.3% prior

06:00 (IL) Israel to sell Bonds

06:25 (BR) Brazil Central Bank Weekly Economists Survey - 06:45 (US) Daily Libor Fixing

07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

07:00 (DE) German Fin Min Schaeuble at Belgium business lobby

08:00 (RU) Russia Jan Unemployment Rate: 5.4%e v 5.3% prior, Real Disposable Income: -2.9%e v -6.1% prior, Real Wages Y/Y: 1.9%e v 2.4% prior

08:00 (RU) Russia Jan Real Retail Sales M/M: -27.0%e v +18.3% prior; Y/Y: -5.1%e v -5.9% prior

08:00 (ES) Spain Debt Agency (Tesoro) announces size of upcoming actions in week

08:15 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Dec Wholesale Trade Sales M/M: 0.4%e v 0.2% prior

08:50 (FR) France Debt Agency (AFT) to sell €5.3-6.5B in 3-month, 6-month and 12-month Bills

09:30 (EU) ECB announces Covered-Bond Purchases

09:35 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

09:50 (UK) Bank of England Bond Buying Operation (APF Gilt purchase operation between 3-7 years)

10:00 (EU) Euro Zone Feb Advance Consumer Confidence: -4.8e v -4.7 prior

News and Events:

UK economy shows signs of weakness

The UK economy has weathered surprisingly well since the Brexit vote as economic data consistently surprises to the upside. However, dark clouds have started to gather on the horizon as the reality of Brexit becomes a major concern for businesses and consumers. January UK retail sales came in on the soft side with the headline gauge contracting 0.2%m/m versus an expected expansion of 0.7%. In addition, the previous month's reading was downwardly revised to -2.2% from -2% initially estimated. Sales have been gloomy since December as retail customers brace for the Brexit shock. We do not expect this trend to improve in the short-term against the backdrop of rising inflation and growing concerns about the UK's outlook outside of the European Union.

The pound sterling partially erased Friday's losses this morning as it rose 0.55% against the greenback with GBP/USD hitting 1.2480. On the medium-term, the trend remains negative as traders are reluctant to take long positions before negotiations begin. According to CFTC data, net short speculative positioning remained stable last week at roughly 30% of total open interest. On the technical side, the strong resistance standing at 1.28 will continue to cap any upside gains, while on the downside, the 1.23-1.24 area will act as support.

Russian economic recovery continues

Russia's unemployment rate will be released later today, which should increase to 5.4% from 5.3%. However, this rise should be viewed as a purely seasonal increase as unemployment in Russia tends to rise at this time of the year.

What really matters to us at the moment is the business environment and it seems that there is more confidence in the Russian economy since Trump's election as relations between both nations thaw and even warm.

Commodity prices are also on the rise, which is definitely helping Russia, even though crude oil prices are stalling below $54. GDP expectations are at 0.6% for this year according to the Economic Development Ministry's outlook. For the time being fundamental data is showing positive momentum. In particular, manufacturing and commodity production are increasing.

Currency-wise, the ruble has been strengthening for more than a year and we believe that this trend should continue over the year. Reloading the ruble's position is a good trade. Our target is 50 ruble for one dollar by year-end.

Today's Key Issues (time in GMT):

• Feb Consumer Confidence Indicator, last 4,5 DKK / 08:00
• Feb 17 Total Sight Deposits CHF, last 539.0b CHF / 09:00
• Feb 17 Domestic Sight Deposits CHF, last 464.5b CHF / 09:00
• Feb CBI Trends Total Orders, exp 4, last 5 GBP / 11:00
• Feb CBI Trends Selling Prices, last 28 GBP / 11:00
• Central Bank Weekly Economists Survey (Table) BRL / 11:25
• Jan Federal Debt Total, last 3113b BRL / 13:00
• Dec Wholesale Trade Sales MoM, exp 0,40%, last 0,20% CAD / 13:30
• FRB President Mester Speaks at Central Banking Series SGD / 14:15
• Bank of England Bond Buying Operation GBP / 14:50
• Feb A Consumer Confidence, exp -4,9, last -4,9 EUR / 15:00
• Feb 19 Trade Balance Weekly, last $956m BRL / 18:00
• Feb 19 ANZ Roy Morgan Weekly Consumer Confidence Index, last 116,4 AUD / 22:30
• Jan Formal Job Creation Total, exp -45324, last -462366 BRL / 23:00
• Jan Tax Collections, exp 137340m, last 127607m BRL / 23:00
• SURVEY: Private Capital Expenditure 2017-18 A$84.8b AUD / 23:00

The Risk Today:

EUR/USD is now consolidating above 1.0600. Hourly resistance is given at 1.0679 (16/02/2017 high). Expected to see further strengthening. 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 is still trading below strong resistance given at 1.2771 (05/10/2016 high). The technical structure suggests that the pair should bounce lower towards support 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. Key resistance is given at a distance at 1.0344 (15/12/2016 high). Nonetheless, 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.

EUR/USD is almost unchanged in the Monday session, as the pair trades at 1.0620. US markets are closed for Presidents' Day, so we're unlikely to see much movement from the pair. In the eurozone, German PPI improved to 0.7%, beating the forecast of 0.3%. The eurozone will release Consumer Confidence, which is expected to remain unchanged at -5 points. On Tuesday, Germany and the eurozone will release Flash Manufacturing PMI reports.

After Fed Chair Janet Yellen's upbeat take on the US economy, the markets are keen to review the Fed policy minutes, which will be released on Wednesday. Testifying before Congress last week, Yellen noted that inflation is moving towards the Fed's 2 percent target, the labor market remains red-hot and consumer spending is strong. Yellen strongly hinted that a rate hike was imminent, leaving the markets to speculate if the Fed prefers to make a move in March or June. If the US economy stays on track in 2017, analysts expect two or three rate hikes of a quarter-point. At the same time, the Fed wants to take into account the economic stance of the new administration, but this remains an elusive goal. Donald Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump has fired back by bitterly attacking the media, and lost in the mayhem is a clear and coherent economic policy. Although Trump has been in office for just over a month, the perception of a muddled and disoriented White House is creating uncertainty in the markets, and is, as Trump would say, “bad for business”.

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 a tightening in monetary policy.

Today, in the UK the House of Lords is due to begin its debate over the government's Brexit bill. The House of Commons has already passed this bill, making no meaningful amendments to it. The House of Lords is expected to approve it as well, with the possibility of any amendments appearing rather low once again. Even if the Lords manage to introduce any changes, those would have to be ratified by the Commons, who have already showed their intentions of not wanting to interfere with or delay the government's plans. As such, although we may get some interesting remarks from lawmakers over the next few days, the broader Brexit story is unlikely to change much, with the triggering of Article 50 still set to take place late March.

Considering that May's government appears determined to regain full control of immigration, and that the EU is highly unlikely to grant the UK full access to the single market is such a case, we maintain our view that we may be headed for a "hard Brexit". What's more, we think that for that to change, it is the UK that will have to back off a little, since the EU is bound by multiple treaties that do not allow much flexibility to politicians and technocrats over the free movement of people. Sterling may react little to any "Brexit" headlines heading into and at the time of triggering Article 50, given that most of the negotiating intentions of both sides could already be priced in. However, in the aftermath of the triggering, EU-UK talks are likely to begin dominating news headlines, and uncertainty with regards to the divorce terms may start to escalate. As such, we believe that any near-term rebounds in GBP are likely to stay limited. We still see as a temporary ceiling for GBP/USD the 1.2850 territory. Nevertheless, our favorite proxy for any potential sterling softness in the foreseeable future is GBP/JPY, bearing in mind that the looming political risks in Eurozone could benefit the yen due to its status as a safe haven.

GBP/JPY tumbled on Friday, braking below the support (now turned into resistance) barrier of 141.20 (R1) to hit the psychological zone of 140.00 (S1) and the upside support line drawn from the low of the 16th of January. Given that the rate is trading above that line, but still below the downside resistance line taken from the peak of the 15th of December, we remain sidelined with regards to the short-term outlook. We would like to see a clear break below 140.00 (S1) before we get confident on more near-term declines. Such a break is possible to open the way for our next support of 138.80 (S2). For now, we see the possibility of a corrective bounce due to short-covering after Friday's slide, which could stay limited near the 141.20 (R1) hurdle.

RBA February meeting minutes in focus

During the Asian morning Tuesday, the RBA will release the minutes from its February policy meeting. The tone of the statement accompanying that decision was surprisingly optimistic in our view, as the officials basically disregarded the latest mixed batch of data out of Australia. If the minutes confirm that the RBA is indeed as confident on the domestic economy as the statement led us to believe, AUD could come under renewed buying interest. The short-term trend in AUD/USD remains to the upside, given that the pair continues to trade above the uptrend line taken from the low of the 13th of January. Now the rate is testing the 0.7680 (R1) resistance level, where a clear break is possible to open the way for another test near the 0.7730 (R2) zone, defined by the peak of the 16th of February.

The key risk to this view is the possibility of potentially worried comments regarding the strength of AUD. The RBA has repeatedly expressed its desire for a weaker currency and the market has not been paying a lot of attention to that. However, considering our recent experience with the RBNZ's verbal intervention, we will scan the minutes for any clues on how dissatisfied the RBA is with the recent strength of AUD, and whether it may choose to utilize similar tactics to those of the RBNZ in the future. In case the minutes show more nervousness with regards to Aussie's exchange rate than the actual statement did, AUD/USD may confirm the negative divergence between our short-term momentum studies and the price action and could fall below the aforementioned uptrend line. Something like that could cause the pair to correct near the 0.7600 (S2) key support.

Today's highlights

The European day is very quiet in terms of data releases. The most noteworthy indicator we get will be Eurozone's preliminary consumer confidence index for February, which is forecast to have remained unchanged.

Markets will remain closed in the US and Canada in celebration of Presidents' Day and Family Day respectively.

As for the rest of the week

On Tuesday, we get the minutes from the RBA's February meeting, as we noted above. We also get the preliminary manufacturing and services PMIs for February from several European nations and the Eurozone as a whole.

On Wednesday, the main event will be the FOMC February meeting minutes. We think that the market may look through the minutes for extra details on the Fed's forward guidance and the timing of the next increase in borrowing costs. From the UK, we get the 2nd estimate of Q4 GDP and from Germany, the Ifo survey for February.

On Thursday, we have no major events or indicators due to be released.

On Friday, Canada's CPI data for January are due out.

In PBOC's latest set money report, China's new renminbi loans rose to RMB 2.03 trillion in January. However, it came in below consensus of RMB 2.44 trillion and RMB 2.5 trillion the same period last year. Although it is usual for new loans to be high earlier in a year as banks front-load their loans for profit maximization, the January figure missed expectations as lending to non-bank financial institutions fell for the month. Outstanding renminbi loans growth decelerated to +12.6% y/y, from +13.5% in December. Medium and long term corporate bank lending, a barometer of corporate sector demand, increased +43.4% y/y to RMB 1.52 trillion, whilst medium- and long-term household loans, mainly mortgage loans, rose to a record high of RMB 0.63 trillion. This suggests that PBOC's recent tightening measures have yet to feed through the housing market. We believe a few months' data would be needed to see the effectiveness of these measures..

Overall, total social financing (TSF), before adding local government bond net issuance, rose to RMB 3.74 trillion in January, up from December's RMB 1.63 trillion. Adjusted TSF stock expanded +15.5% y/y in January, slowing from +15.7% a month ago. According to PBOC, TSF stock growth (not adjusting for local government bond issuance) grew +12.8%y/y in January, easing from around +13% in December. On the money supply, growth in broad money supply (M2) has decelerated for a third straight month, easing to +11.3% y/y, in January. We believe a critical factor dragging on M2 growth is ongoing capital outflow. The decline in FX reserve to US$2.998 trillion, the lowest since early 2011, in January, has already sent initial evidence that capital outflow remained so severe that PBOC had to intervene in the FX market. Last Friday, SAFE reported net sales of US$19.2B worth of FX in January, compared with US$46.3B and US$ 33.4B in December and November, respectively. According to SAFE, the diminished sales amount signaled that pressure from capital outflow “has been remarkably alleviated since 2017”. It added that, “despite external uncertainties, China's sound economic fundamentals will determine stable cross-border capital flows in the medium and long run”. In our opinion, the diminished figure was merely helped US dollar's depreciation during the period

Inflation came in higher than expected in January. Headline CPI accelerated to a 32-month high of +2.5% y/y, from +2.1% in December. While high energy prices and Lunar New Year effect did helped push inflation higher, the core reading suggested that the underlying trend has also improved. Core inflation, excluding food and energy, rose to+2.2% y/y in January, from +1.9% a month ago. Food inflation increased +2.7% y/y, up from +2.4% previously, whilst nonfood inflation rose to +2.5% y/y, from +2% in December. Upstream PPI jumped +6.9% y/y in January, after a +5.5% expansion in the prior month.

Strong inflation would give room for PBOC to continue monetary tightening. In early February, PBOC raised interest rates of 7-, 14- and 28-day reverse repos by +10bps each to 2.35%, 2.5% and 2.65% respectively. It also lifted the overnight SLF rate to 3.1% from 2.75% previously. The move has sparked speculations for further tightening, especially the loan data above confirmed that mortgage lending remained strong in January.

'The failure of retail sales in January to rise at all after December's 2.1 per cent month-to-month drop demonstrates that consumers' spending has shifted down several gears in response to slowing employment growth and rising inflation.' - Samuel Tombs, Pantheon Macroeconomics

Sales in the United Kingdom dropped for the third straight month in January, indicating that consumers started feeling the pressure of higher prices and slower wage growth. According to the official data published by the British Office for National Statistics on Friday, retail sales slid 0.3% over the previous month, coming in short of analysts' expectations for a 1.0% increase and following a downwardly revised 2.1% slide in December. If compared with the same month a year ago, sales rose at the slowest pace since November 2013, jumping 1.5%. The downmove was mainly driven by higher prices of fuel and food at both conventional and online stores, which rose 1.9% on average in January when compared to the same month a year ago. At this point, analysts worldwide expect prices to be on an uptrend through the year, as retailers are struggling to keep their businesses afloat following the devaluation of the Sterling caused by the decision of the UK to the European Union. Nevertheless, despite expectations for inflation to hit 3% and above this year, economists are eyeing rather anaemic wage growth, with real income being at risk of posting its worst year since 2013.

'Acquisitions of equities were moderated by sales of US government debt instruments in the month, for which Canadian investors have reduced their exposure in each of the last five months.' - Statistics Canada

The Canadian capital inflows rose less than expected in December, official data showed on Friday. Statistics Canada reported foreign investment in the country's government securities surged to $10.2B in the reported month, following the preceding month's $7.3B, whereas economists penciled in an increase of $11.6B. On the positive side, total inflows increased compared with the previous year's $106.0B to $161.3B in 2016. In the meantime, net inflows of debt securities rose to $107.9B in the reported year from $91.6B in 2015. This increase was mainly driven by solid growth of inflows into debt securities issued by corporations. In volume terms, equity inflows rose to $9.7B in the 12th month of the year. On a yearly basis, the value of investment into equities increased from $14.4B to $53.4B. In addition, Statistics Canada reported the sum of outflows in 2016 declined sharply to $13.8B from $60.2B previously, as investors dampened their interest for cross-border assets.