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'After a massive buildup in long positions earlier this week, currencies are in full reversal mode, with the dollar falling aggressively.' – Cambridge Global Payments (based on Reuters)

Pair's Outlook

Even though the Fed raised rates on Wednesday, both inflation and labour market showed improvements, the US Dollar still plummeted on a cautious Fed stance. Against the Yen a nearly 140-pip loss was registered, but from the technical perspective this was anticipated. The decline only confirmed the ascending channel pattern's resistance line, allowing the pair to cover most of the distance towards retesting the lower boundary. The monthly PP and the 100-day SMA is now the only obstacle on the Buck's path, which is expected to be crossed today. However, a drop under 113.00 is doubtful just yet, but is required for the up-trend to be reconfirmed this week.

Traders' Sentiment

Now 58% of traders are long the US Dollar (previously 53%), but 55% of all pending orders are to sell it, compared to 48% on Wednesday.

'Yellen reiterated that future rate increases would be 'gradual', with this key word bestowing a dovish tone to the outlook.' – Edward Meri, INTL FCStone (based on Reuters)

Pair's Outlook

On Thursday morning the yellow metal's price continued to score gains in the aftermath of the jump, which occurred on the Federal Funds rate increase on Wednesday. Although, the commodity price has run into the resistance of the weekly R1, which is located at the 1,228.89 level. It is highly possible that a consolidation of positions will occur, as traders take profits. However, the decline of the price is unlikely to fall lower than the 1,220 mark, near which the 20-day SMA and the 38.20% Fibonacci retracement level are located at. Due to that reason it can be assumed that the pair will rebound against the mentioned support levels.

Traders' Sentiment

Traders are bullish on the metal, as 53% of open positions are long on Thursday. In addition, 68% of trader set up orders are to buy.

EUR/USD

Current level - 10721

Yesterday's impulsive rise broke through 1.0660 resistance and 1.0712 peak and the today's bias is positive above 1.0710 area. My outlook is counter-trend, for a break through 1.0712, towards 1.0650 and 1.0600 low later on.

Profit-taking affects gold curbing silver and platinum

USD/JPY

Current level - 113.15

The recent break through 114.50 led to a fast sell-off all the way down to 112.90 support area. I favor a reversal and a break through 113.50 will signal a rebound towards 114.50.

GBP/USD

Current level - 1.2270

The pair has reached the resistance area at 1.2300 and my outlook is already bearish, for a break through 1.2250, towards 1.2175.

Weekly

• Last Candlesticks pattern: N/A
• Time of formation: N/A
• Trend bias: Near term up

Daily

• Last Candlesticks pattern: Hammer
• Time of formation: 3 Feb 2016
• Trend bias: Sideways

EURGBP – 0.8708

As the single currency has eased after meeting resistance at 0.8788 twice, suggesting minor consolidation below this level would be seen, however, reckon downside would be limited to 0.8650-60 and reckon the Kijun-Sen (now at 0.8596) would hold, bring another rise later, above said resistance at 0.8788 would extend rise from 0.8403 to 0.8810-15 but as broad outlook remains consolidative, reckon upside would be limited to previous resistance at 0.8857, risk from there is seen for a retreat to take place later. Looking ahead, only break of said resistance at 0.8857 would signal the rise from 0.8304 low is underway for headway to 0.8900, then towards 0.8940 (50% Fibonacci retracement of 0.9576-0.8304) which is likely to hold from here.

On the downside, whilst pullback to 0.8650-60 cannot be ruled out, reckon the Kijun-Sen (now at 0.8596) would contain downside and bring another rise later. A daily close below the Kijun-Sen would signal top is formed and bring weakness to 0.8550-55 and then test of 0.8505-10 but break of latter level is needed to signal the rebound from 0.8403 has ended, bring subsequent fall to 0.8460-65, however, price should stay well above said support at 0.8403 and bring another rebound later. 

Recommendation: Buy at 0.8605 for 0.8785 with stop below 0.8505.

On the weekly chart, although the single currency staged another rebound last week, as euro has eased after meeting resistance at 0.8788, suggesting initial consolidation below this level would be seen and pullback to the Tenkan-Sen (now at 0.8630) cannot be ruled out, however, reckon downside would be limited to 0.8580 and bring another rise later. Above said resistance at 0.8788 would extend the rebound from 0.8403 towards said resistance at 0.8857. Looking ahead, only a break of this level would revive bullishness and extend the rise from 0.8304 to 0.8940 (50% Fibonacci retracement of 0.9576-0.8304 and current level of the Kijun-Sen) but price should falter below resistance at 0.9026.

On the downside, expect pullback to be limited to 0.8630 and 0.8595-00 should hold, bring another rebound. Below 0.8550 would defer and risk weakness to 0.8520 but reckon 0.8495-00 would contain downside. Below 0.8460-65 would bring retest of 0.8403 but break there is needed to revive bearishness and extend the fall from 0.8857 to 0.8350-55. Looking ahead, below there would signal decline from 0.9576 top has resumed for retest of 0.8304 but only break there would extend the fall from 0.9576 top for retracement of medium term upmove to previous support at 0.8251, then 0.8200.

The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. Interest on sight deposits at the SNB is to remain at -0.75% and the target range for the three-month Libor is unchanged at between -1.25% and -0.25%. The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration. The SNB's expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. The Swiss franc is still significantly overvalued. The negative interest rate and the SNB's willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency.

Compared to December, the new conditional inflation forecast is slightly higher for the next few quarters. Increased oil prices in particular contribute to the rise in inflation in the short term. Over the longer term, however, the conditional inflation forecast is marginally lower. The inflation forecast for 2017 has risen to 0.3%, compared to 0.1% in the previous quarter. For 2018, the SNB anticipates inflation of 0.4%, compared to 0.5% in the previous quarter. The forecast for 2019 is 1.1%. The conditional inflation forecast is based on the assumption that the three-month Libor remains at -0.75% over the entire forecast horizon.

The global economy expanded in line with expectations in the fourth quarter. GDP growth was once again robust in the US, where the labour market has returned to full employment and inflation is approaching the Federal Reserve's target. Against this backdrop, the Federal Reserve decided on 15 March to raise its key interest rate by a further 25 basis points. The other major economic areas likewise developed favourably in the fourth quarter. The euro area, Japan and China all reported encouraging growth rates, and economic growth in the UK was once again surprisingly strong.

Indicators available at the beginning of the year suggest the outlook for the global economy will continue to improve. Industrial activity and international trade especially have picked up. While the SNB expects international economic developments to remain positive in 2017, its baseline scenario for the global economy is still subject to considerable risks. Chief among these are political uncertainty with respect to the future course of economic policy in the US, upcoming elections in Europe, and the complex exit negotiations between the UK and the EU.

In Switzerland, fourth-quarter GDP growth was lower than expected. According to an initial quarterly estimate, GDP grew - as in the third quarter - at an annualised rate of just 0.3%. However, a more extensive analysis of the available economic indicators points to an ongoing moderate recovery in the final months of the year; developments on the labour market support this view. Although the seasonally adjusted unemployment rate remained stable, the number of people out of work declined slightly from August onwards. Discussions with company representatives conducted by the SNB's delegates for regional economic relations also suggest a moderate improvement of the economic situation.

Given favourable economic developments internationally, the outlook for Switzerland's economy is cautiously optimistic. Overall, the SNB continues to expect GDP growth of roughly 1.5% for 2017. Nonetheless, the forecast for Switzerland, too, is marked by considerable uncertainty emanating from international risks.

Growth on the mortgage and real estate markets remained fairly constant at a relatively low level in the fourth quarter of 2016. At the same time, the slowdown in price momentum in the residential property market continued. Imbalances on the mortgage and real estate markets nevertheless persist. The SNB will continue to monitor developments on these markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.

Weekly

• Last Candlesticks pattern: Shooting star
• Time of formation: 1 Feb 2016
• Trend bias: Up

Daily

• Last Candlesticks pattern: Doji
• Time of formation: 1 Sep 2016
• Trend bias: Near term down

EUR/CHF – 1.0711

Although the single currency staged a strong rebound to 1.0825 earlier this week, lack of follow through buying and the subsequent retreat suggest further consolidation would take place and weakness to 1.0670 cannot be ruled out, however, reckon downside would be limited and last month’s low at 1.0631 should remain intact, bring another rebound later. Above 1.0770 would bring test of said resistance at 1.0825 but break there is needed to signal low has been formed, bring further subsequent gain to 1.0850 but price should falter below key resistance at 1.0899 (Dec high), risk from there is seen for a retreat later.

On the downside, whilst pullback to 1.0660-70 cannot be ruled out, reckon downside would be limited and said strong support at 1.0631 should remain intact, bring another rebound later. Only a break below support at 1.0622-31 would confirm the erratic decline from 1.1201 (2016 high) has resumed for further fall to 1.0590-00, then towards 1.0530-35 but loss of downward momentum should prevent sharp fall below 1.0500, price should stay well above 1.0400-10, risk from there has increased for a strong rebound to take place later.

Recommendation: Stand aside for this week.

 
On the weekly chart, despite this week’s initial rise to 1.0825, lack of follow through buying and the subsequent retreat look set to form a black candlestick this week and consolidation with initial downside bias is seen for weakness to 1.0660-70, however, break of support at 1.0622-31 is needed to signal recent decline from 1.1201 top is still in progress and may extend further fall to 1.0550-55, then 1.0500-10, however, oversold condition should prevent sharp fall below 1.0400-10 (100% projection of 1.1201-1.0622 measuring from 1.1001) and price should stay well above previous support at 1.0314, risk from there is seen for a rebound to take place later.

On the upside, above said resistance at 1.0825 would signal low has been formed at 1.0631, bring retracement of recent decline to 1.0850 but a break above indicated resistance at 1.0899 is needed to add credence to this view and bring a stronger rebound to 1.0970-75, then test of 1.1001. Looking ahead, only a sustained breach above 1.1001 would signal the fall from 1.1201 has ended, bring further gain to 1.1100 but reckon resistance at 1.1129 would hold on first testing.

USD/CHF - 1.0002

Most recent candlesticks pattern : N/A

Trend                                    : Near term down

Tenkan-Sen level                  : 0.9993

Kijun-Sen level                    : 1.0039

Ichimoku cloud top                 : 1.0090

Ichimoku cloud bottom              : 1.0089

New strategy  :

Sell at 1.0050, Target: 0.9950, Stop: 1.0085

Position : -

Target :  -

Stop : -

Although the greenback dropped sharply overnight and fell to as ow as 0.9978, current recovery suggests consolidation above this level would be seen and rebound to 1.0020 is likely, however, reckon upside would be limited and price should falter below previous support at 1.0060 (now resistance) and bring another decline later. A break of said support at 0.9978 would extend recent decline from 1.0171 top towards key support at 0.9967 but break there is needed to retain bearishness and extend fall to 0.9930-40.

In view of this, would not chase this fall here and would be prudent to sell dollar on recovery as 1.0040-50 should limit upside. Above said previous support at 1.0060 would defer and suggest low is formed instead, risk rebound to 1.0090 and then test of resistance at 1.0109. 

GBP/USD - 1.2270

Original strategy :

Buy at 1.2140, Target: 1.2250, Stop: 1.2105

Position : -

Target :  -

Stop : -

New strategy  :

Buy at 1.2220, Target: 1.2320, Stop: 1.2185

Position : -

Target :  -

Stop : -

As cable rallied again after finding renewed buying interest at 1.2178 yesterday, suggesting the rise from 1.2109 low is still in progress for retracement of recent decline, above 1.2310 resistance would extend gain to 1.2335-40 (61.8% Fibonacci retracement of 1.2479-1.2109), however, previous support at 1.2347 should turn into resistance and limit cable’s upside, bring retreat later.

In view of this, we are looking to buy cable on pullback as 1.2220-30 should limit downside and bring another rise. Only below said support at 1.2178 would abort and signal the rebound from 1.2109 has possibly ended, risk weakness to 1.2145-50 first.

EUR/USD - 1.0723

Most recent candlesticks pattern   : N/A

Trend                      : Near term up

Tenkan-Sen level              : 1.0731

Kijun-Sen level                  : 1.0677

Ichimoku cloud top             : 1.0657

Ichimoku cloud bottom      : 1.0624

New strategy  :

Buy at 1.0675, Target: 1.0775, Stop: 1.0640

Position : -

Target :  -

Stop : -

As the single currency found renewed buying interest at 1.0600 yesterday and has rallied, reviving our bullishness for recent erratic upmove from 1.0493 low to extend further gain to 1.0755, break there would encourage for headway to 1.0775-90 but reckon resistance at 1.0799 would limit upside and price should falter well below resistance at 1.0829, bring retreat later.

In view of this, would not chase this rise here and we are looking to buy euro on pullback as the Kijun-Sen (now at 1.0677) should limit downside. Below the upper Kumo (now at 1.0657) would signal top is formed, bring weakness to 1.0620-25 but said support at 1.0600 should remain intact.

Market movers today

The Bank of England's (BoE) March meeting (one of the small meetings without updated projections or a press conference) ends today and we do not expect it to make any policy changes. We expect the BoE to maintain the Bank Rate at 0.25% and keep its neutral stance by repeating that it could move in ‘either direction'. This is widely expected, so we do not expect big movements in the GBP or UK yields.

We expect Norges Bank to stay on hold with no major changes in signals about the rate path. The growth outlook is better than was expected at the December meeting. The regional network survey indicated growth of around 2.0%, that unemployment has fallen further than expected and that employment appears to be rising more quickly than expected.

In Sweden, the labour force survey is due today, including the unemployment rate, employment and hours worked, which is widely expected to demonstrate continued strong employment growth and an unemployment rate posing as white noise (due to the unintelligible on/off influx of migrants into the labour force).

Selected market news

Not even a blizzard could keep the Fed and Janet Yellen from delivering the much anticipated 25bp rate hike yesterday. Despite the tightening of monetary policy, equities extended their gains from the early hours, bond yields pushed lower and USD lost some ground, as the Fed did not signal that the number of rate hikes expected for 2017 and 2018 has increased. This caused some relief in the market that the Fed was not going to increase the hiking cycle going forward. See more in our FOMC review (http://bit.ly/2mPRDdb).

As expected, the Bank of Japan (BoJ) kept its monetary policy unchanged at its two-day meeting ending this morning, saying that it will keep its target for the short-term policy interest rate unchanged at -0.1% and continue to purchase Japanese government bonds (JGBs) so yields on 10Y JGB remain around 0%. Despite general upward pressure on US and global yields, which clearly increases the pressure on the BoJ's willingness to maintain its current yield curve control policy, there were little changes in the statement, and no hints that the BoJ is considering raising its 0% target on the 10-year yields on JGB.

As the results of the Dutch election keep ticking in, it seems more apparent that Prime Minister Mark Rutte's VVD once again will be the largest party in the Netherlands with 32 of the parliament's 150 seats, according to Reuters. What might be even more important is the fact that Geert Wilders' PVV only seems to have claimed 19 of the seats in parliament. Albeit an increase from the previous election, it is less than most polls suggested and a lot of people ‘feared'. See more here.

The gains in the US have spilled into the morning session in Asia with major indices up and especially Hang Seng having increased by more than 1% at the time of writing. This bodes well for a strong European opening for both Fixed Income and equities.