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Currency pair USD/JPY

The USD/JPY seems to have made a double bottom at the 38.2% Fibonacci retracement level of wave 4 vs 3. A break of the bottom would still encounter a larger support trend line (green). Price needs to break above resistance (orange/red) trend lines before a new uptrend becomes more likely.

The USD/JPY could either be building a new uptrend via a 123 (blue) or a larger bearish correction via a WXY (grey). The trend lines indicate contracting triangle pattern and are critical to see whether a breakout could occur later today.

Currency pair EUR/USD

The EUR/USD failed to break below the support trend line (blue) and to reach the 161.8% Fibonacci target of wave 3 vs 1, which means that another wave 1-2 (blue) is likely unless price were to break above the top of wave 2 (purple).

The EUR/USD is most likely building an ABC (green) zigzag within wave 2 (blue) unless price breaks below the 100% level of wave B vs A.

Currency pair GBP/USD

The GBP/USD is building an ABC (blue) correction within wave 4 (purple). Price could retest the larger resistance trend line (brown) and Fibonacci levels of wave C if it breaks the local resistance (red).

The GBP/USD is probably in a wave 5 (orange) of the wave C (blue) unless price breaks the support trend line (blue) which would make a correction towards the 50% Fibonacci level of wave 4 vs 3 likely.

Daily Pivots: (S1) 0.8508; (P) 0.8530; (R1) 0.8550; More...

EUR/GBP remains in range of 0.8469/8643 and intraday bias stays neutral. Structure of the rise from 0.8469 affirmed our view that it's a corrective move. And this, in turn, affirmed the view that fall from 0.8851 is the third leg of the corrective pattern from 0.9304. Overall, we'd expect upside to be limited by 50% retracement of 0.8851 to 0.8469 at 0.8660 in case the consolidation from 0.8469 extends. On the downside, break o.8469 will target 0.8303 low next.

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) 1.3949; (P) 1.3983; (R1) 1.4028; More...

No change in EUR/AUD's outlook as the cross loss downside momentum. With 1.4075 minor resistance intact, further decline should be seen. Current fall from 1.4721 is seen as part of the larger decline from 1.6587. Next target is key support level at 1.3671. As the fall from 1.6587 is seen as a corrective move, we'd expect downside to be contained by 1.3671 to bring reversal. On the upside, above 1.4075 minor resistance will turn intraday bias neutral first. Break of 1.4289 resistance will indicate short term bottoming and turn bias back to the upside for 1.4721 resistance.

In the bigger picture, price actions from 1.6587 medium term top are viewed as a consolidative pattern. While further fall cannot be ruled out, 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.

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Daily Pivots: (S1) 119.35; (P) 119.72; (R1) 120.13; More...

EUR/JPY's corrective fall from 124.08 is still in progress and deeper decline could be seen. However, as it's treated as a correction, we'd expect strong support from 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39) to bring rebound. On the upside, above 120.54 minor resistance will turn bias 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) 139.88; (P) 140.28; (R1) 140.75; More...

Intraday bias in GBP/JPY remains neutral for the moment. Overall, price actions from 148.42 are viewed as a corrective pattern, with fall from 144.77 has a leg. On the downside, below 138.52 will target 136.44 first. Break will target 50% retracement of 122.36 to 148.42 at 135.39. But we'd expect strong support from there to bring rebound. On the upside, above 141.96 will turn bias to the upside and probably extend the rise from 136.44 through 144.77.

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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A mixed trading day for U.S. stocks on Wednesday failed to provide direction to Asian equities today. While China, Hong Kong, and Korea led MSCI Asia ex-Japan to its highest levels since mid-2015, Japanese equities are unable to gain traction despite machinery orders rising 6.7% MoM in December and the Yen dropping slightly. A price action as such indicates that stocks are moving on specific corporate news rather than a global macro driven story, and with no tier one economic data on the calendar this indecisive performance is likely to resume into Europe trade.

The greenback traded slightly higher against a basket of currencies today, but remained within a very tight range. For the past three months, sentiments driven by expected fiscal and monetary policies drove the U.S. currency to its highest level in 14-years but the rally stalled as of late as these policies seem now to require more time than previously anticipated to come into force, and several comments from the White House weighed on the dollar. This is becoming more complicated now, as rising political uncertainty in Europe supports the U.S. currency, meanwhile on the other side, falling treasury yields plays an opposite role.

Concerns over the future of France, Germany and the Netherlands dragged the euro in the past couple of days, but the more exciting story developing now is in a much smaller country. Greece which has been ignored recently is back in the headlines as the IMF clashes with the Eurozone over the future of the heavy indebted country. Greece's debt to GDP which already stands at 176% and unemployment above 23% is required to achieve a primary surplus of 3.5% by next year. For some economists, this looks as mission impossible, and for Greece to survive, a haircut on its debt should be taken. However, with elections looming in Germany there's very little chance of this happening, and without a third bailout aid, Greece will be out of cash in July.

The pound continued to show resilience after British MPs voted to begin the Brexit process. After all this was widely anticipated and we don't expect to see any significant moves until article 50 is triggered and the formal negotiations begin.

With all these stories developing, investors are finding the yellow metal as the safest investment. Investors continued to increase their holdings in GLD as SPDR holdings rose for a sixth consecutive day. The more political tensions intensify, the more GLD is likely to attract investors, and the higher prices will go.

NZD falls as RBNZ signals neutral stance

Asia Mid-Session Market Update: NZD falls as RBNZ signals neutral stance, calls out market expectations of hikes premature

US Session Highlights

(US) DOE Crude: +13.8M v +2.5Me; Gasoline: -0.9M v +1Me; Distillate: +0.03M v +0.5Me

(US) MBA MORTGAGE APPLICATIONS W/E FEB 3RD: +2.3% V -3.2% PRIOR

(US) President Trump order to get rid of 2 regulatory initiatives for each new initiative is challenged in court by environmental group NRDC and others - press

(EU) ECB's Draghi: ECB will remain accommodative until at least the end of his term, Oct 2019 - France press report of earlier Draghi remarks

US markets on close: Dow -0.2%, S&P500 +0.1%, Nasdaq +0.2%

Best Sector in S&P500: Utilities

Worst Sector in S&P500: Financials

Biggest gainers: MCHP +6.0%, CTSH +5.0%, KSS +4.3%, XRX +4.1%, JWN +4.1%

Biggest losers: AKAM -10.6%, GILD -8.6%, AIZ -6.8%, ICE -4.8%, JEC -3.7%

At the close: VIX 11.5 (0.2pts); Treasuries: 2-yr 1.15% (-2bps), 10-yr 2.35% (-4bps), 30-yr 2.96% (-6bps)

US movers afterhours

PAYC: Reports Q4 $0.18 ex-items v $0.12e, R$87.8M v $86.2Me; extends existing stock repurchase plan; Guides Q1 Rev $114.5-116.5M v $114Me; +10.5% afterhours

IMPV: Reports Q4 $0.32 v $0.03e, R$78.4M v $70.2Me; Guides Q1 -$0.06 to -$0.02 v -$0.10e, R$67-69M v $68Me; +9.7% afterhours

PCMI: Reports Q4 $0.51 v $0.36e, R$586.6M v $578Me; +9.1% afterhours

SCSS: Reports Q4 $0.25 v $0.32e, R$313.4M v $314Me; +6.2% afterhours

WFM: Reports Q1 $0.39 adj v $0.39e, R$4.92B v $4.99Be; Q2 SSS to date tracking -3.2%; -1.5% afterhours

FISV: Reports Q4 $1.16 v $1.16e, R$1.43B v $1.48Be; -2.6% afterhours

QLYS: Reports Q4 $0.23 v $0.18e, R$52.2M v $52.8Me; Guides Q1 $0.17-0.19 v $0.20e, R$52-53M v $54.8Me; -7.1% afterhours

IRBT: Reports Q4 $0.49 v $0.39e, R$212.5M v $206Me; Guides initial FY17 $1.35-1.65 v $1.69e, R$770-785M v $763Me; -9.1% afterhours

Politics

(US) Ninth Circuit Court of Appeals will not be issuing ruling on Trump travel ban today - press

(US) Senate confirms Jeff Sessions as the next US Attorney General by 52-47 margin

Asia Key economic data:

(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 1.75%; AS EXPECTED

(NZ) NEW ZEALAND DEC BUILDING PERMITS M/M: -7.2% V -9.6%PRIOR (2nd straight decline)

(AU) AUSTRALIA Q4 NAB BUSINESS CONFIDENCE: 5 V 6 PRIOR

(AU) AUSTRALIA DEC HIA NEW HOME SALES M/M: +0.2% V +6.1% PRIOR; 2nd straight increase

(JP) JAPAN Q4 HOUSING LOANS Y/Y: 3.1% V 2.7% PRIOR

(JP) JAPAN JAN M2 MONEY STOCK Y/Y: 4.1% V 4.0%E; M3 MONEY STOCK Y/Y: 3.5% V 3.5%E

(JP) JAPAN DEC CORE MACHINE ORDERS M/M: 6.7% V 3.0%E; Y/Y: 6.7% V 4.5%E

Asia Session Notable Observations, Speakers and Press

Markets stateside as well as in Asia appear to have reached an equilibrium, with sessions of modest losses alternating with those of modest gains; Few macro catalysts are observed, even as bond markets rally continues to put in question the confidence of 3 FOMC rate hikes this year. Investors are now looking forward to Fed Chair Yellen's Congressional testimony next week as key determinant of near term policy bias.

Fixed income markets had begun to price in the possibility of RBNZ preparing for a rates liftoff after the latest quarterly inflation data returned to target range for the first time in over 2 year. However today's RBNZ statement, economic projections, and subsequent commentary delivered a squarely neutral assessment. While acknowledging progress on inflation, RBNZ is not convinced the upward pressure can be sustained and also noted elevated uncertainty from external factors. NZD/USD was most volatile among the majors, selling off by 100pips below $0.72.

PBoC has once again skipped its reverse repo operations, calling liquidity conditions ample; Separately, a local press report speculated the central bank will continue to tighten policy, even though economists have suggested that last week's 10bp hike in reverse repo yields were an adjustment to fundamentals rather then a start of a trend.

Ahead of the high profile Abe-Trump summit tomorrow, Japan PM signaled he is prepared to discuss the currency issues at G20, with local press also calling for more formal framework for cooperation between US and Japan. BOJ Dep Gov Nakaso also noted that while the central bank is prepared to consider raising long-term rates target in the future, momentum behind inflation does not yet justify the shift.

China:

(CN) China Ministry of Commerce (MOFCOM) Spokesperson Sun Jiwen: Urges other countries to drop protectionism

(CN) White House press secretary: Pres Trump sent letter to China Pres Xi; Looking forward to constructive relationship - press

(CN) PBOC may continue tightening of monetary conditions in 2017 - Chinese press

Japan:

(JP) Japan PM Abe: To suggest to Trump to talk about currency issues at G20 and G7

(JP) Japan PM Abe to propose new cabinet level framework for US-Japan talks on trade, security, and macroeconomic issues - press

(JP) Japan Chief Cabinet Sec Suga: nothing has been decided on US/Japan economic framework

(JP) BOJ Dep Gov Nakaso: Momentum towards price target not yet sufficiently firm; BOJ should consider raising long term rate increase in near future, though momentum toward hitting price goal not yet sufficient

Australia/New Zealand:

(NZ) RBNZ Gov Wheeler: comfortable with a neutral bias, neutral bias was the right one to have at this point; Market a bit ahead of itself in pricing in 2017 rate hike.

Asian Equity Indices/Futures (00:00ET)

Nikkei -0.4%, Hang Seng +0.4%, Shanghai Composite +0.4%, ASX200 +0.2%, Kospi +0.2%

Equity Futures: S&P500 flat; Nasdaq flat; Dax flat; FTSE100 flat

FX ranges/Commodities/Fixed Income (00:00ET)

EUR 1.0675-1.0700; JPY 111.70-112.30; AUD 0.7610-0.7645; NZD 0.7190-0.7280

Apr Gold +0.3% at $1,243/oz; Mar Crude Oil +0.6% at $52.60/brl; Mar Copper +0.3% at $2.67/lb

(CN) PBOC SETS YUAN MID POINT AT 6.8710 V 6.8849 PRIOR

(CN) PBOC skips reverse repo operations (5th consecutive halt)

SPDR Gold Trust ETF daily holdings rise 5.7 tonnes to 832.7 tonnes; 6th consecutive increase; Highest since Dec 16th

(JP) Japan MoF sells ¥723B in 0.6% (0.6% prior) 30-yr bonds; Avg yield: 0.907% v 0.745% prior; Bid to cover: 3.23x v 3.33x prior

Asia equities/Notables/movers by sector

Consumer discretionary: 751.HK Skyworth Digital +1.8% (Jan result); 2432.JP DeNA Co +1.9% (9-month result); 034230.KR Paradise Co -0.8% (Q4 result)

Consumer staples: 2607.JP Fuji Oil Holdings +5.5% (9-month result); 168.HK Tsingtao Brewery Co +5.3% (Carlsberg to bid stake); RHL.AU Ruralco Holdings +4.1% (ACCC not oppose acquisition)

Financials: 6881.HK China Galaxy Securities Co +1.1% (Jan result); PMV.AU Premier Investments -2.2%; AMP.AU AMP Capital +3.8% (FY16 result)

Industrials: 2238.HK Guangzhou Automobile Group +3.1%, 1958.HK +2.7% BAIC Motor Corp (Jan result); 6448.JP Brother Industries -7.9% (9-month result); 4118.JP Kaneka Corp -11.5% (9-month result); 052690.KR Kepco Engineering & Construction +7.0% (offer to join UK project); 1919.HK COSCO Shipping Co +10.4% (Maersk to be profitable this year); 7202.JP Isuzu Motors -0.2% (9-month result)

Technology: 3436.JP Sumco Corp +6.6% (Q4 result)

Materials: RIO.AU Rio Tinto -0.9% (FY16 result); 3863.JP Nippon Paper Industries -1.5% (9-month result)

Energy: AGL.AU AGL Energy +4.5% (H1 result); 1662.JP Petroleum Exploration +3.6% (9-month result)

Telecom: 035720.KR Kakao Corp +5.6% (Q4 result)

Market movers today

The market is still scrutinizing any news from the FOMC and tonight we have both Bullard and Evans on the wires.

Initial jobless claims will also be watched to get a first idea of the strength of the US labour market in February.

In Norway, it is time for mainland GDP. We estimate 0.3% q/q growth in Q4. See more in Scandi markets on page 2.

Selected market news

Risk appetite returned to the European government bond market yesterday and especially the periphery bond markets, including France, performed well and spreads tightened against Germany. French 10Y yields dropped close to 10bp. However, bunds were also supported and German 10Y yields were pushed below 0.3% again. German 2Y yields were pushed to a record low of -0.80%, fuelled by the ECB now buying bonds with a yield below the depo rate at -0.40% and the tight repo situation.

There is no single explanation behind the sudden support to France and periphery markets. But many investors probably concluded that the spread levels, for example, for France, which we have not seen this wide since the debt crisis in 2012, were starting to look attractive. Short covering was probably also a part of the story. Reassuring words from ECB president Mario Draghi furthermore supported sentiment. According to Bloomberg, Draghi said that he sees the ECB maintaining an accommodative policy until the end of his term in October 2019. It seems that Draghi is well aware that any talks about ECB tapering or less accommodative policy are very negative for periphery bond markets. The European bond market has also been weighed down by a severe supply wave this week with new bonds from the Netherlands, Belgium, Finland and the EFSF. The supply is now slowing down.

But it does not mean that the market is out the woods yet. More Italian supply is coming to the market already on Monday, the French political situation is still very uncertain and despite Draghi's reassurance, the ECB tapering discussion could soon resurface. The concern about the Italian banking sector is a never ending story. Finally, the stand-off between Greece, the EU and not least the IMF continues. Yesterday, the Dutch Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem said that if the IMF will not take part or withdraws from the Greek bailout programme, the Netherlands would withdraw too. Greek 2Y yields are again trading dangerously close to 10%.

In the US equity market, financials came under pressure as little news on deregulations were seen and as the recent rally in bonds spooked investors, as it threatens to erode income for US banks. It seems that the market is starting to lose some of its patience with the Trump administration as little news on the promised pro-growth policies including tax-cuts are seen. The major indices all ended more or less flat. The energy sector did well, as oil prices were pushed higher by bullish gasoline stock and demand data.

Key Points:

• Greece and Germany on a debt collision course.
• Greece unlikely to meet budget or debt repayment schedule.
• The question is now political as to whether Greece remains part of the EU.

It appears that history is again turning full circle as the formerly 'solved' Greek debt crisis returns to raise its ugly head and again threaten the wider Eurozone. The past week has seen the IMF again enter the fray and suggest that a looming debt Armageddon could potential pose a risk to the broader stability of the Eurozone. However, despite evidence that the previous bailout programs are not working, Germany is standing their ground and yelling a resolute no to any mention of debt relief for the embattled Greek nation.

Increasingly, the IMF is becoming unwilling to throw good money after bad, and continue to fund Greece's survival,without the prospect of debt cuts to provide for a relatively achievable recover for the nation. The renowned institution has, quietly behind the scenes, been pushing for a debt relief deal from Germany but is meeting staunch resistance. In fact, German Finance Minister Wolfgang Schaeuble has publicly suggested that the Lisbon Treaty blocks any form of debt forgiveness and that any moves in this direction would have to bring about a Greek exit from the common currency.

However, it remains to be seen just how far Germany is prepared to push Greece given that Britain will soon also exit the European Union. There is a definite split in the air between EU nations on how to deal with the errant Greek's but it appears relatively clear that the nation will indeed fail to meet either their current budget or the debt repayment target. It also begs the question as to the morality of asking the Greek people to continue accepting stark austerity measures when the money simply goes to Germany as part of the interest payments on borrowings and does little to reduce the current debt burden. Obviously, that is a highly untenable situation to have a European partner nation in effective debt servitude.

Given the fact that prior bailouts have not worked, and some of the other external pressures, we are rapidly reaching a critical juncture where both Europe and the Greek people will need to decide upon the way forward. Clearly there needs to either be debt forgiveness or an exit from the Eurozone. Subsequently, the choices have now exited the realm of economics and we are now faced with a range of political questions. Politics is likely to decide the course of action in the coming months but one thing is for sure, continued German intransigence could be presiding over the first few dominoes to fall in the greater question of the EU's survival.

Key Points:

• Turning point of the ABCD wave appears to have been reached.
• Most technical readings are indicative of a near-term decline.
• Brief ranging phase could come into effect this week.

The Euro's corrective wave seems to have finally given us a turning point which could signal we are destined to see some of the near-term downside risk realised. What's more, there are a number of other technical readings similarly suggestive of a spate of losses for the recently resurgent pair.

First and foremost, it's worth establishing if we have, in fact, reached the forecasted turning point in the ABCD corrective wave. Well, as shown below, the combination of both the 100 day EMA and the long-term trend line seem to suggest that we have reached a near-term peak for the EUR. Indeed, the rather voracious selling pressure seen over the past number of sessions could reflect a wider consensus that the pair actually briefly overshot the appropriate point of inflection.

Aside from the EMA and the trend line, the current Parabolic SAR and MACD oscillator readings provide further reasons to be bearish regarding the EURUSD. Specifically, there has been a clear signal line crossover on the MACD and a subsequent inversion of the Parabolic SAR bias. When combined with the aforementioned technical factors, upside potential seems notably limited as we move ahead.

However, downside risks are not nearly as significant as we would typically like to see when forecasting this particular wave. As is demonstrated below, we could also be dealing with a bullish channel formation which, when reinforced by the 38.2% Fibonacci level, could prevent the requisite downward momentum. As a result, we may have a brief ranging phase on our hands prior to any real declines taking hold of the pair.

Once the 38.2% level has been breached, we expect to see the pair retreat to around the 1.0543 price before having another go at moving beyond the long-term trend line. This point coincides with not only the 23.6% Fibonacci level, but it would also be the appropriate retracement for the overall ABCD pattern.

Ultimately, headline risks and the impacts of fundamentals will still be forces to contend with moving ahead but the corrective wave has proven largely resilient to market upsets. Consequently, follow the news feed fairly closely as it could help to explain any overshoots or ‘fake-outs' even if something short of an absolute calamity is unlikely to materially affect the medium-term forecast.