US stocks extended the record run overnight as Trump trade remained in force. DJIA closed up 142.79 pts or 0.70% at 20412.16. S&P 500 rose 12.15 pts, or 0.52% to end at 2328.25. NASDAQ gained 29.83 pts or 0.52% to 5763.96. All three indices closed at record highs. Treasury yields also increased mildly but stayed in familiar range. 10 year yield rose 0.025 to end at 2.434. Dollar followed higher with the index hitting 101.11 and breached 101.02 resistance. But there is no sustainable momentum above this resistance yet. In the currency markets, Yen remains the weakest major currency on risk appetite. Euro follows as the second weakest on worries over political situations in Europe. The economic calendar is very busy today but main focus will be on Fed chair Janet Yellen's semiannual testimony to the Senate.

Fed Yellen to Deliver Non-Committal Message

Fed fund futures are pricing in 17.7% chance of a March Fed hike and 66.1% chance by June. Markets will look into Yellen's speech on any change on Fed's forecasts of three rate hike this year. Some might also want to get hints on chance of March hike. However, based on uncertainties over the fiscal policies Trump would adopt, it's likely that Yellen would sound non-committal. Meanwhile, there are also talks that Fed's Yellen's speech doesn't carry the same significance as before. Yellen's stance could be irrelevant as US president Donald Trump would appoint three member of Fed. And that would reshape the policy path.

Dallas Fed Kaplan: Mover Sooner

Dallas Fed president Rob Kaplan said yesterday that Fed should be "moving sooner rather than later will make it more likely that future removals of accommodation can be done gradually - that is, reduce the likelihood that the Fed will get 'behind the curve' and feel the need to remove accommodation more rapidly." He argued that keep rates on hold at current low level for too long could create distortions in investment and hiring.

NY Fed Survey: Inflation Expectations Highest Since June 2015

A New York Fed survey released yesterday show that US inflation expectations rose to the highest level since June 2015. The year-ahead inflation expectations jumped to 3.0%, up from 2.8% in December and 2.5% in November. The three-year inflation expectation was at 2.9% up from 2.8% in December. New York Fed noted that "both increases were fairly broad-based, but largest among younger and higher-income respondents."

On the data front, Australia business confidence rose to 10 in January. China CPI accelerated to 2.5% yoy in January while PPI also accelerated to 6.9% yoy. Looking ahead in European session, Eurozone, Germany and Italy GDP will be featured together with German ZEW economic sentiment. Swiss and UK will both release CPI and PPI. Later in the day, US will release PPI.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.3834; (P) 1.3862; (R1) 1.3894; More...

EUR/AUD's decline continues today and reaches as low as 1.3808 so far. Intraday bias remains on the downside for 1.3671 key support level next. At this point, we'd still expect strong support around 1.3671 to bring rebound. On the upside, above 1.3888 minor resistance will turn bias neutral first. Firm break of 1.4025 support turned resistance will indicate short term bottoming and turn focus back to 1.4289 resistance.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a corrective pattern. Deeper fall could be seen but, we'd expect strong support above 1.3671 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 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.

Economic Indicators Update

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Previously, we had EUR/GBP bouncing off daily support, which as you can see if you bring up the pair on your own MT4 charts, gave a nice trade with multiple chances to get long.

Some hindsight trading homework for you would be to look at that daily level and then where you could have got long on any short term pullbacks. Think about why you'd wait for a pullback and also the risk:reward ratios that you can give yourself by waiting.

Back to the present and as you can see, the EUR/GBP daily chart shows that after the higher time frame support level held, price has again pulled back:

EUR/GBP Daily:

It hasn't quite pulled back all the way to the higher time frame level, but this intraday swing low level just above is certainly in play:

EUR/GBP 4 Hourly:

I've redrawn the level as a zone on the intraday chart so you can see what I'm talking about a little clearer. With daily support having held, if this intraday zone holds, I'm happy to look for longs on any retests back into or around it.

Markets await Yellen

It has been a quiet start to the week, but the markets should pick up with Fed Chair Yellen's semi-annual testimony before Congress. While the Feds have been taking a back seat of late to Fiscal and Tax banter, Dr Yellen returns to the spotlight this evening, and as usual, the market is sitting on pins and needles.

While there is tremendous uncertainty over the new US administration policies, I expect her to hold the FOMC cards close to the chest and to avoid any explicit jawbone to a March rate hike. Guidance will be sufficient to tighten up market interest rate expectations, and we could see the dollar punch higher.

Australian Dollar

The AUD was a bit of a drifter overnight as any upward momentum was sapped by concerns of a hawkish Yellen testimony. The stronger US tempered base and precious metals prices, and despite another bump in iron ore prices, interest remained muted ahead of Dr Yellen's appearance.
Overall, price action is very much reflective of last week's neutral RBA. The current technical trading edges remain very much intact. There is strong resistance between 77- 7750, while the .7500 offers major support.

New Zealand Dollar

The NZD, on the other hand, continued to roll over after the RBNZ statements last week, and all but wrong-footed traders with a neutral interest rate outlook.

Japanese Yen

Market optimism over the Trump-Abe talks continues to hold, but the lack of a convincing follow-through above saw profit taking quickly out of the market. The feel-good factor remains intact, with the market leaning for a hawkish Dr Yellen. Dollar dips should remain well supported today.

Chinese Yuan

Yuan tracked the JPY lower, undermined by concerns about a hawkish Yellen speech and US tax reform. Risk points lower for the Yuan as the markets reprice US tax reform.
Expect external drivers to be the dominant force ahead of China's annual parliamentary session in March. Mainland policymakers seldom if ever rock the boat ahead of major events. PBOC has resumed open market operations.

It's been a slow start to trading on Monday, with a lack of major news flow or data providing few catalysts, but unlike last week that is unlikely to continue with numerous events scheduled that could shake things up.

The feeling at the start of the week is predominantly of relief. Donald Trump met with Shinzo Abe over the weekend which, given his tone towards Japan during his election campaign, could have been a tasty affair but as we saw following a phone call with Xi Jinping on Friday, the meeting appeared to go very smoothly. Of course we know very little about what was said behind the scenes but there is a sense of relief that the joint statement focused on "bilateral cooperation", which appeared to be a welcome step down from Trump's previous stance.

This sense of relief is helping drive equity markets higher in Europe and US futures suggest we'll see similar moves on Wall Street when the bell gets the week underway. The noises coming from the White House over the last week have certainly been more market friendly, with Trump also signalling that sweeping tax cuts that were promised during the campaign will be announced in the next few weeks. Other policies will continue to leave a cloud of uncertainty over markets for now but with all three major indices at record highs, it's clear that investors are pleased with how things are progressing, so far.

Oil has recovered some of its losses after OPEC released its monthly report which largely confirmed the report from IEA on Friday which claimed that compliance with cuts within the cartel was above 90% in January. In fact, OPEC claimed 93% compliance from the 11 members which have agreed to take part, with Saudi Arabia actually cutting more than it agreed taking its output to 9.748 million barrels per day. The report also slightly revised higher its demand growth forecasts and claimed the oil market will see zero average surplus this year, from 985,000 barrels per day last month.

While this level of compliance is unusually strong, many still believe the agreement to cut 1.8 million barrels per day until June will still not be enough to bring the market back into balance. An extension to the cuts has been touted by some including Russian energy minister Alexander Novak, who claimed the decision on whether to extend could be made at a meeting with Saudi Arabia in April or May.

USD/CAD is showing little movement in the Monday session. Currently, the pair is trading at the 1.31 line. Investors will be starting the week looking for economic cues, as there are no Canadian or US releases on the schedule. On Tuesday, The US releases PPI and Janet Yellen will testify before Congress.

US crude stockpiles continue to record surpluses. On Wednesday, Crude Oil Inventories made a splash, soaring 13.8 million barrels, according to the Energy Information Administration (EIA). The indicator has recorded five straight surpluses, easily exceeding forecasts on each occasion. The huge gain also marked the highest surplus since late October. Crude posted sharp losses on Tuesday, following the release of the API inventories report, which predicted a surplus of 14.2 million, compared to a forecast of 2.38 million. The EIA says that US production in 2017 will be the highest since 1970, so cuts from OPEC and Russia may not lead to higher oil prices, due to the steady increase in US crude production. The Canadian dollar is sensitive to crude fluctuations, so stronger oil prices would likely boost the Canadian dollar.

Donald Trump continues to entangle himself in controversy, with US allies, the media and the Supreme Court. On Thursday, Trump said that the administration was working on a "phenomenal" tax plan, which would be released in a few weeks, although he gave no details. Trump's plan is expected to lower taxes for both corporations and individuals, although tax reform promises to be a slow and daunting task, as changes to the US tax code can only be made by Congress. Still, the markets are hungry for any movement in this direction, and the dollar could get a strong boost once Trump outlines his tax agenda.

EUR/USD is almost unchanged on Monday, as the pair trades at 1.0630. It's a very quiet day on the release front. German inflation improved, as WPI came in at 0.8%, above the forecast of 0.3%. There are no US events on the schedule. On Tuesday, Germany releases GDP and consumer confidence numbers, while the Eurozone also releases GDP. The US will release PPI and Janet Yellen will testify before Congress.

The eurozone economy continues to improve. Growth has been steady and inflation, which has languished at low levels for years, is higher. However, there are black clouds on the horizon. There is increasing uneasiness in the markets as populist, far-right parties are gaining support in France, the Netherlands and Germany, threatening the old order. First up is France – the country goes to the polls in April, and Marie Le Pen, the far-right candidate in the ring, is leading in the polls ahead of the first round of voting. Le Pen wants to take France out of the Eurozone and has promised a referendum on France's membership out of the European Union. Although Le Pen is not expected to win the presidency, neither was Donald Trump. Le Pen has enthusiastically endorsed Trump's anti-establishment message and if she does well in the polls, the euro could be headed to lower levels.

Across the Channel, British Prime Minister Theresa May is preparing to invoke Article 50 and commence negotiations with the EU over Brtain's departure by the end of March. May has said that a deal could be reached in two years, but on Thursday, the head of the European Commission in Britain, Jacqueline Minor, countered that the timeline was unrealistic, suggesting that an "implementational" phase would be needed. The European Union doesn't want to encourage other members to exit, so it has no reason to go out of its way to accommodate Britain, and Minor has warned that the Brexit negotiations could get "nasty".

Donald Trump continues to entangle himself in controversy, with US allies, the media and the Supreme Court. On Thursday, Trump said that the administration was working on a "phenomenal" tax plan, which would be released in a few weeks, although he gave no details. Trump's plan is expected to lower taxes for both corporations and individuals, although tax reform promises to be a slow and daunting task, as changes to the US tax code can only be made by Congress. Still, the markets are hungry for any movement in this direction, and the dollar could get a strong boost once Trump outlines his tax agenda.

Daily Pivots: (S1) 112.72; (P) 113.28; (R1) 113.73; More...

Intraday bias in USD/JPY remains on the upside for the moment. Correction from 118.65 should have completed at 111.58, on bullish convergence condition in 4 hour MACD. Further rally would be seen to 115.36 resistance. Break will confirm this bullish case and target 118.65 high next. In that case, the larger rally from 98.97 could be resuming. On the downside, below 112.85 minor support will dampen this bullish view and could extend the correction from 118.65. In that case, downside should be contained by 38.2% retracement of 98.97 to 118.65 at 111.13 and bring rebound.

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) 0.9997; (P) 1.0029; (R1) 1.0054; More.....

Intraday bias in USD/CHF remains on the upside for the moment. As noted before, a short term bottom is formed at 0.9860 on bullish convergence condition in 4 hour MACD. Sustained trading above 55 day EMA (now at 1.0038) will pave the way for a test on 1.0342 high. On the downside, below 0.9935 minor support will turn focus back to 0.9860 instead.

In the bigger picture, prior rejection from 1.0327 resistance argues that USD/CHF is staying in a medium term sideway pattern. In any case, decisive break of 1.0342 resistance is needed to confirm underlying strength. Otherwise, we'll stay neutral in the pair first. In case of another fall, we'd expect strong support from 0.9443/9548 support zone. Meanwhile firm break of 1.0342 will target 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 1.0608; (P) 1.0638 (R1) 1.0668; More.....

EUR/USD recovers mildly after dipping to 1.0670. But intraday bias stays on the downside with 1.0713 minor resistance intact. Corrective rise from 1.0339 should have completed at 1.0838 already. Deeper decline should now be seen to retest 1.0339 low. Decisive break there will confirm resumption of medium term down trend. On the upside, however, above 1.0713 minor resistance will delay the bearish case and turn bias neutral first.

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) 1.2442; (P) 1.2481; (R1) 1.2523; More...

Intraday bias in GBP/USD remains neutral for the moment. Overall outlook remains unchanged. 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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