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Monetary policy guidance and strong U.S. data failed to provide another push higher for the greenback last week. Fed Chair Janet Yellen made a blunt statement in her testimony before Congress that it would be unwise to wait too long to tighten monetary policy. Several of her colleagues followed by similar rhetoric specially Boston Fed President, Eric Rosengren, who even suggested that the fed may raise rates by more than three times in 2017.

On the data front consumer prices increased to highest levels in nearly four years and retail sales came in well ahead of expectations. Overall, most of the economic data releases were positive, and still, the U.S. dollar did not perform well.

The fall in U.S. treasury yields on Thursday which eventually narrowed the spreads between U.S. bond yields and their counterparts may explain partially why the U.S. dollar couldn't resume its two-week uptrend. But dollar bulls seemed reluctant to push the currency higher without President Trump providing a clear agenda on tax and trade policy, and may not get one until he addresses the joint session of Congress on February 28.

The FOMC minutes due to release on Wednesday may reverberate recent hawkish remarks made by Fed officials, but without providing a solid indication on the path of interest rates, the impact on the dollar will likely be minor. Another aspect of interest will be a discussion of scaling down the central bank's balance sheet, any sort of such discussion will likely support the dollar. Apart from FOMC minutes and Fed officials scheduled speeches there's no tier one data on the shortened trading week.

The cable also challenged fundamentals last week. A terrible retail sales report, below than expected inflation, and drop in wage growth all failed to break the 200 pips trading range for GBPUSD. Traders will have the chance to hear from Mark Caney on Tuesday when he testifies before the UK parliament's Treasury Committee. What's going to be interesting is that his testimony comes after Bank of England upgraded its growth forecast in February 2, and since then signs of weakness in the economy emerged. Markets are currently seeing less probability of BoE tightening this year, but if Carney indicates that higher interest rates are still on the table during UK's negotiation period, sterling may find some support.

EUR traders will be braced for some volatility on Monday when Euro area finance ministers gather to discuss Greece bailout, and “Grexit” term will probably show again if talks between Athens and its creditors get more complicated. Greece has about €7.5 EUR of debt due by July, and it's unlikely to manage to pay back without securing another tranche of the bailout. This comes at a time where the Eurozone faces several elections with anti-euro politicians on the rise. On the data front, PMI's reports, consumer confidence, and inflation data are scheduled for release.

Market movers today

We have a very light data calendar ahead of us today where US markets are closed due to President's Day.

The data calendar for this week is also relatively light. The most interesting data points are preliminary European and US PMIs, which will give an indication of the condition of the industrial cycle. We look for an increase in the US, while the index for Europe is likely to show that the recent upward trend has ended. However, both indices will show that activity remains solid.

In the UK, focus is on the Article 50 debate in the House of Lords, which begins today. The bill is not expected to be delayed and the UK remains on track to trigger Article 50 by the end of March, perhaps at the EU summit in Malta on 9-10 March.

In the euro area, we expect slightly weaker consumer confidence in February in line with the turn in other sentiment indicators. That said, as the unemployment rate continues to decline, we expect consumer confidence to remain at a high level, thereby pointing to continued solid growth in private consumption.

Selected market news

The week starts with a modest positive tone on Asian bourses where most regional equity indices trade higher this morning following the positive close in the US on Friday.

With little on the agenda today, markets are likely to dwell on the political situation in Europe, with the upcoming presidential election in France on 23 April and 7 May as the most noteworthy event. Polls released on Friday showed that the election is still a very open race. According to a poll from Ifop, the National Front's Marine Le Pen remains in the lead in the first round with 26% of the votes, Emmanuel Macron and Francois Fillon are both tied in second place with 18.5% of the votes, while the Socialist Party candidate Benoit Hamon is at 14% and Far Left candidate Jean-Luc Melenchon 11.5%. Speculation that Hamon and Melenchon would unite under a single candidacy in order to boost the chance that the left wing proceeds to the final round was the main driven behind the 6bp widening of France 10-year yields versus Germany on Friday.

In Sweden, CPI, CPIF and CPIF excluding energy were all a 10th below the Riksbank's forecasts, printing 1.4% y/y, 1.6% y/y and 1.2% y/y, respectively on Friday. Looking ahead, we expect all measures to print below the Riksbank's forecasts this year. Most importantly, we see a significant widening compared with the Riksbank's forecast for CPIF excluding energy in particular. To make the story short: wage cost pressure is too low to boost domestic inflation sufficiently, in our view, and the upcoming wage round will give no comfort here. With a stable to slowly appreciating Swedish krona, import prices will soon be back to deflation levels again as long as global consumer goods prices continue to fall. For more details, see Flash Comment - Sweden: January inflation again below Riksbank's forecasts,17 February.

• Rally lacks conviction but stocks remain in the green;
• Gold fails at previous higher, $1,216 now key;
• Quiet session in store given US holiday and light economic calendar.

European equity markets are expected to open higher on Monday, although trading is likely to be relatively light given the US bank holiday which helped drive similar conditions in Asia overnight.

It would appear we’re still in a kind of trance at the moment whereby equity markets continue to shuffle higher in the hope that Donald Trump will deliver on his fiscal stimulus, tax and deregulation plans and yet, there’s no conviction in the rally’s. This isn’t overly surprising given the amount of political risk at the moment but you wonder how much longer we can remain in this state before we wake up.

That’s not necessarily to say markets are going to collapse or even enter correction but I think we’re nearing the point at which investors may start demanding something a little more concrete. It’s difficult to ignore the moves in Gold and the yen alongside this which typically accompany more risk averse conditions. Perhaps it just reflects underlying uncertainty which is a concern.

Gold is actually trading a little lower so far today having interestingly failed to break above the high from 8 August, despite coming very close. The next big test for Gold will now come around $1,216.41, last week’s lows, with a break through here possibly triggering a move back below $1,200 towards $1,180.

As mentioned above, with it being a bank holiday in the US today, we could be looking at a slightly quieter session. We have some scatterings of low level data throughout the day but nothing that I would expect will cause too much of a jolt in the markets. The Reserve Bank of Australia minutes from its recent meeting, released overnight, will likely be the next event of note.

Japan trade balance in deficit on rising imports

Asia Mid-Session Market Update: Beijing voices opposition to US carrier presence in South China Sea; Japan trade balance in deficit on rising imports

Friday US markets on close: Dow flat, S&P500 +0.2%, Nasdaq +0.4%

Best Sector in S&P500: Telecom

Worst Sector in S&P500: Energy

Biggest gainers: KHC +10.7%; VFC +4.6%; CL +4.3%

Biggest losers: CPB -6.5%; fls -4.8%; GIS -3.8%

At the close: VIX 11.5 (-0.3pts); Treasuries: 2-yr 1.19% (-2bps), 10-yr 2.43% (-3bps), 30-yr 3.03% (-2bps)

Weekend US/EU Corporate Headlines

ULVR.NV: Kraft Heinz withdraws $143B offer for Unilever

RBS: UK Treasury has brokered a new deal with EU over the £46B bailout received by RBS in 2008 amid Brexit fears; new measures will cost RBS £750M, to be written off as a cost in this week's annual results - UK press

SAZ.DE: Bain Capital said to have submitted competing €3.6B takeover bid at €58/shr - press

Politics

(JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri

(US) Homeland Security Secretary (DHS) Kelly said to consider a new "streamlined" version of Executive Order on immigration - press

Key economic data:

(JP) JAPAN JAN TRADE BALANCE: -¥1.09T (first deficit in 5 months) V -¥626BE; ADJ TRADE BALANCE: ¥155B (1-year low) V ¥276BE

(NZ) NEW ZEALAND Q4 PPI INPUT Q/Q: 1.0% V 1.5% PRIOR; PPI OUTPUT Q/Q: 1.5% V 1.0% PRIOR

(NZ) NEW ZEALAND JAN PERFORMANCE OF SERVICES INDEX: 59.5 (16-month high) V 58.5 PRIOR

(KR) SOUTH KOREA JAN PPI M/M: 1.3% V 0.9% PRIOR; Y/Y: 3.7% (5-year high) V 1.8% PRIOR

Asia Session Notable Observations, Speakers and Press

Asian equity markets trading mixed to start the week, with Australia dragged down by disappointing earnings from Brambles and WorleyParsons, while Shanghai Composite is faring better despite the rising geopolitical risks. Overall trading sentiment is somewhat muted by the US holiday on Monday, as investor also await this week's FOMC policy minutes for further hints of just how close the Fed is to another policy tightening. Ahead of that release, Fed's Mester (hawkish, non-voter) stated she sees the US economy on solid footing, but also added it will take some time to for Fed to shed MBS from its balance sheet.

Weekend security summit in Munich, Germany yielded some more conciliatory and less isolationist rhetoric from US govt officials, including VP Pence. However, some focus also turned to China, and US Sen Lindsay Graham said there may be bipartisan Congressional support if Pres Trump decides to name Beijing a currency manipulator. In the mean time, China defense officials expressed displeasure to US aircraft carrier USS Carl Vinson beginning patrols in the South China Sea.

In economic data, Japan trade balance was the most notable event with a much wider deficit than anticipated. Exports growth was slower than expected at 1.3% v 5.0%e, while imports growth of 8.5% v 4.8%e marked the first monthly rise in 2 years. Some of the slower exports can be attributed to stronger JPY, as USD/JPY came in about 5 handles from early January highs. Shipments to US and Europe were down 6.6% and 5.6% respectively, while exports to Asia rose 6%. Elsewhere, South Korea PPI spiked up to a 5 year high.

China

(US) According to US Sen Lindsey Graham (R-SC), Pres Trump would have bipartisan support to label China a "currency manipulator" - press

(CN) Chinese Academy of Social Sciences (CASS) Researcher Zhang Yunling: China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press

(CN) US Nimitz-class aircraft carrier USS Carl Vinson started patrols in the South China Sea despite this week's opposition from China Foreign Ministry against US meddling in the region - Nikkei

(CN) China plans to have growth depend more on domestic consumption and less on exports amid rising labor costs and weak external demand - Chinese press

Japan

(JP) Japan PM Abe's cabinet approval rating rises 5pts to 66% - Yomiuri

Australia/New Zealand:

(AU) CBA Business Sales indicator sees Australia growth of business spending for January rising 0.5pts m/m to 5.8% - press

(NZ) ASB chief economist: New Zealand property market expectations have retreated - NZ press

Asian Equity Indices/Futures (23:30ET)

Nikkei +0.1%, Hang Seng +0.3%, Shanghai Composite +0.8%, ASX200 -0.3%, Kospi flat

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

FX ranges/Commodities/Fixed Income (23:30ET)

EUR 1.0600-1.0635; JPY 112.80-113.20; AUD 0.7660-0.7680; NZD 0.7170-0.7195; GBP 1.2405-1.2440

Apr Gold -0.3% at 1,235/oz; Mar Crude Oil +0.1% at $53.83/brl; Mar Copper +0.3% at $2.72/lb

GLD: SPDR Gold Trust ETF daily holdings fall 2.3 tonnes to 841.2 tonnes; first fall since Jan 25th

(CN) PBOC SETS YUAN MID POINT AT 6.8743 V 6.8456 PRIOR; biggest margin of decline since Jan 9th

(CN) PBOC to inject combined CNY170B v CNY150B prior in 7-day, 14-day and 28-day reverse repos

(KR) South Korea sells 10-yr Treasury bonds; avg yield 2.155%

Asia equities/Notables/movers

Australia

NHF.AU NIB Holdings +7.2% (H1 result)

BSL.AU Bluescope +4.0% (H1 result)

AMP.AU AMP Capital -1.3% (FY result)

BXB.AU Brambles -9.6% (H1 result)

WOR.AU WorleyParsons -14.2% (H1 result)

Hong Kong

611.HK China Nuclear Energy Technology +2.2% (FY16 profit alert)

827.HK Ko Yo Chemical Group +2.0% (FY16 guidance)

1060.HK Alibaba Pictures Group Ltd -4.3% (FY16 profit warning)

3322.HK Win Hanverky Holdings -6.8% (FY16 profit warning)

1219.HK Tenwow International Holdings -10.7% (FY16 profit warning)

Japan

5101.JP Yokohama Rubber +3.4% (FY16 result)

9984.JP Softbank +3.2% (reportedly preparing to approach Deutsche Telekom's T-Mobile US about a possible merger with Sprint)

6502.JP Toshiba +1.3% (Speculation about chip unit sale)

5423.JP Tokyo Steel -2.4% (Maintains prices of hot-rolled coil and H-beam steel after 3 months of increases)

Key Points:

• Last week's fundamentals could set the pair up for further gains.
• Technicals remain bullish despite the pair cooling off last week.
• Any rally will likely be more sedate than those seen recently.

After a rather dicey week, it's worth taking stock of what exactly happened to the AUD and what this could mean moving ahead. Additionally, we should look at what news is worth keeping an eye on in the wake of the drop in unemployment to 5.7% and also how this fits in with the technical forecast.

The Aussie Dollar was under heavy selling pressure straight out of the gate last week, sinking around 40 pips despite a lack of economic news. However, things soon turned around in the subsequent session, the pair surging strongly higher as the NAB Business Confidence and Westpac Consumer Sentiment figures came in at 10 and 2.3% respectively.

However, despite building on this bullishness following the Flynn drama and Trump's Press debacle, the AUD moderated and fell back to where it opened the week. This came as somewhat of a surprise given that the Australian Unemployment Rate had dropped to 5.7% during Friday's session. Regardless, now that the pair has cooled off slightly, the result means that the AUDUSD should be well positioned to make another move higher which is largely reflected in the technical bias.

Specifically, the AUD retains its strong bullish bias even though it appears to be slowing its ascent to a significant degree. Notably, the 12, 20, and 100 day moving averages are effectively as bullish as they can be with little chance of becoming bearish in the near-term. In addition, the Parabolic SAR and ADX readings are highly suggestive of the uptrend continuing moving ahead. However, the constant threat of becoming overbought is providing some resistance which could see this bullish phase slow substantially moving on and this is worth keeping in mind.

As for what lies ahead in the news, the RBA will be in focus given that we have the monetary policy meeting minutes due to be posted and two speaking engagements from deputy governor Lowe. However, the Cash Earnings data will also be worth keeping a close eye on. This is predominantly because it could help to build on any positive sentiment still in the wings following the drop in the Unemployment rate that we saw last week. This being said, also monitor the US Existing Home Sales figures due around the same time as they could moderate the day's performance.

Ultimately, we could have quite a good week lying ahead of us for the Aussie Dollar if everything goes according to plan. However, as we live in the age of Trump, it may be best to keep half an eye on the white house just in case of any further political bombshells.

Daily Pivots: (S1) 119.27; (P) 120.18; (R1) 120.66; More...

Intraday bias in EUR/JPY stays neutral first. 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) 139.08; (P) 140.50; (R1) 141.39; More...

Intraday bias in GBP/JPY is mildly on the downside for 138.53 support. Break will target 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) 0.8472; (P) 0.8497; (R1) 0.8528; More...

Intraday bias in EUR/GBP stays neural at this point. 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) 1.3804; (P) 1.3853; (R1) 1.3881; More...

Intraday bias in EUR/AUD 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) 1.0632; (P) 1.0641; (R1) 1.0647; 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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