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Although some of the selling momentum experienced yesterday throughout the stock markets has cooled down, the market headlines across the globe continue to be dominated by the executive order from Donald Trump to ban certain nationals from entering the United States. While it has to be taken into account that the record moves seen in the stock markets last week would increase the risks of some investors being tempted to take profits from positions, there is no doubting that this move from Trump has caused outrage across the globe and such actions represent a risk to the market sentiment. There was for example some market movement following the news overnight that Donald Trump fired the acting US attorney general for questioning the legality of his immigration clampdown, contributing towards losses being seen across the trading session in Asia.

Investors definitely need to be aware that the markets behaved very suddenly towards pricing in heavy premiums following the US election outcome based on fiscal promises, but so far it is the far-right agenda that we have seen the most movement on from the Trump administration. Fiscal stimulus, job growth and infrastructure spending were the contributors towards the milestone levels in the stock markets, although the agenda so far has been more heavily pointed towards protectionism and moving the United States away from globalisation – quite the opposite in comparison to the "partnership and peace" message Trump delivered following his election victory that soothed investors nerves following his election victory.

I do believe that investors need clarity on how the Trump administration will move forward with fiscal stimulus and infrastructure spending rather than blacklisting certain nationals and getting into a war of words with Mexico over the wall, otherwise there is a risk of the stock markets entering a correction. Basically, the previous moves that were seen are not justified without clarity on what investors priced in.

Dollar still slipping against emerging currencies

While the Dollar has edged higher against emerging currencies in Europe such as the Turkish Lira and Russian Ruble, the Greenback has slipped somewhat against Asian currencies like the Malaysian Ringgit, Thai Baht and Indian Rupee. These are marginal losses but likely related to the overwhelming consensus that the Federal Reserve will be leaving US interest rates unchanged tomorrow. The Asian currencies in general are among those most vulnerable to higher US interest rates, especially considering the amount of bonds that are held in these nations from foreign investors.

What needs to be taken into account with the US interest rate decision tomorrow is that the Federal Reserve is likely to highlight the area of uncertainty over the US fiscal direction following the Trump inauguration. This might be seen as a minor issue now but if Trump is not able to deliver on fiscal intentions and instead continues to isolate the United States from globalisation, it does risk the Federal Reserve needing to keep US interest rate policy unchanged for longer.

EURUSD back above 1.07

The EURUSD has managed to move back above 1.07 on Tuesday following the news that consumer prices in January increased by 1.8%. This is a significant annual increase and will once again open the debate over whether ECB President Mario Draghi will need to provide guidance on the ECB stimulus program and whether the current level of stimulus needs to be tailed back following inflation moving back towards the central bank goal of 2%. Expect for Mario Draghi to continue stressing that inflation needs to be consistently around the target level at 2%, before the central bank acts and this would also dissuade investors away from pricing in further recoveries into the Euro.

GBPUSD looks at risk to falling below 1.24

There has been pressure on the British Pound following the reports earlier this morning that Theresa May might be aiming to invoke Article 50 earlier than expected on March 9. It is quite surprising that Theresa May is reportedly aiming to pull the trigger on Article 50 earlier in March rather than later in the month, especially considering the continuous uncertainty over the strategy to exit the European Union. Investors are also likely to be kept on their toes over the next two days as MPs begin a two-day debate on the European Union bill, allowing the government to trigger Article 50.

EUR/USD is almost unchanged in the Tuesday session. Currently, the pair is trading at the 1.07 line. On the release front, it's a busy day. In the Eurozone, CPI Flash Estimate gained 1.8%, above the estimate of 1.5%. Preliminary Flash GDP improved to 0.5%, edging above the forecast of 0.4%. The unemployment rate dropped to 9.6%, compared to an estimate of 9.8%. The news was not as good from German Retail Sales, which declined 0.9%, nowhere near the forecast of +0.6%. Later in the day, ECB President Mario Draghi delivers remarks at a conference of the ECB and the European Commission. In the US, today's key event is CB Consumer Confidence, with the markets expecting a strong reading of 112.8 points. On Thursday, the Federal Reserve will set the benchmark interest rate, which is expected to remain pegged at 0.50%.

Germany's economy continues to raise concerns, as consumer indicators have looked dismal this week. German Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months. However, there was good news from the job front, as unemployment claims dropped by 26 thousand, much better than expected.

Analysts expected the US economy to soften in the fourth quarter, and GDP fell a bit short of the forecast. The economy expanded 1.9%, shy of the estimate of 2.1%. Business investment and consumer spending remains solid and should continue into 2017. However, Trump's protectionist rhetoric and action, which saw tensions escalate with Mexico last week, could cloud the bright picture for the US economy.

Donald Trump continues to stir controversy, after signing a host of executive orders last week which have been condemned both domestically and abroad. Trump has withdrawn from the Trans-Pacific Partnership and declared he will reopen the NAFTA trade agreement with Canada and Mexico. He has also ordered work to begin on a wall with Mexico and banned immigrants from seven Moslem countries. Trump's unconventional and disjointed approach to international politics and trade could have major ramifications on global trade and could lead to financial instability in global markets, triggering volatility in the currency markets. Just a few days before being sworn in as president, Trump stated that the US dollar was "too strong", blaming a weak Chinese currency. Predictably, the greenback lost ground after Trump's remarks. It's a safe bet that Trump's offhand tweets and comments will continue to fuel market volatility.

'Euro inflation forwards may have rallied too far, too soon in the absence of any sign of a pickup in core price pressures.' – Tanvir Sandhu, Bloomberg

Pair's Outlook

On Tuesday morning the EUR/USD currency exchange rate remained rather flat just below the weekly PP, which is located at 1.0709. However, the course of the rate can be forecasted. Previously, during Monday's trading the pair fell down to 1.0620 mark and rebounded there. As a result a surge began which lasted into Tuesday and reached the weekly PP. Afterwards the rate bounced off of the resistance level and set a course southward. Due to that reason the pair is set to fall down to the weekly S1 at 1.0644. Although, the decline is set to be hindered by the 20-day SMA at 1.0652.

Traders' Sentiment

SWFX traders remain bearish, as 56% of trader open positions are short on Tuesday. In the meantime, 56% of trader set up orders are set up to sell the Euro.

'Our analytical focus remains on USD. The past week's USD downward correction may be challenged when the Fed releases its statement on Wednesday.' – Morgan Stanley (based on PoundSterlingLive)

Pair's Outlook

The British currency sustained further losses against the US Dollar on Monday, with the immediate demand area around 1.2515 failing to limit the losses. Although the Cable slipped back under 1.25 yesterday, another tough support area is now likely to keep the pair afloat. The support cluster is formed by the monthly PP, the weekly S1, the 20 and the 55-day SMAs, all located around the 1.24 major level. However, the 100-day SMA could also play its part and still trigger a rebound. Technical indicators also suggest the Sterling could edge higher today, but with the 1.26 mark remaining intact, as there is no impetus present for a surge that far up.

Traders' Sentiment

Today 60% of traders are long the Pound (previously 62%). At the same time, the portion of sell orders inched up from 54 to 55%.

'The market is very much tethered to movement in the broader U.S. dollar. We may be entering some very important times as the markets are digging for clues on the Trump policy front.' – OANDA (based on Reuters)

Pair's Outlook

Risk-aversion kept driving the markets yesterday, causing the US Dollar to lose nearly 100 pips against the Yen. The Buck, however, remains on the back foot, risking to post more losses versus the Japanese currency today. The monthly and the weekly S1s could still provide sufficient support in order to avoid this outcome, but that would imply a close in the green zone, with the 114.00 mark being reclaimed again. Ultimately, a drop towards 112.60 is possible, namely a strong psychological support level, which is expected to cause a U-turn if things get out of hand for the Greenback. Meanwhile, technical studies are unable to confirm any scenario, as they keep giving mixed signals.

Traders' Sentiment

Market sentiment remains relatively neutral, as 51% of all open positions are short and the other 49% are long.

'To go higher, gold needs constant injections from political uncertainty or increases in geopolitical tensions.' – James Steel, HSBC (based on Reuters)

Pair's Outlook

The yellow metal continues to surge, as political uncertainty increases demand for a safe haven investment. However, from a technical perspective, it seems that the 20-day SMA was strong enough to push the yellow metal higher. In addition, during the move the bullion broke through the resistance put up by the weekly PP, which is located at 1,196.86. Due to that reason the commodity price might rise up to the weekly R1 at 1,213.16, as there are no other levels of resistance up to that mark.

Traders' Sentiment

Today 51% of SWFX traders are still bullish. In the meantime, 58% of trader set up orders are set up to buy the yellow metal.

European inflation and employment data continues improving trend

Notes/Observations

US political volatility appears to be on the rise in the aftermath of the recent imposition of immigration controls; Trump fired acting U.S. Attorney General

European inflation continues to improve (France, Spain Euro Zone all beat expectations)

German unemployment hits fresh post-reunification low at 5.9% while Italy Dec reading hits a 18 month high

Overnight:

Asia:

(JP) Bank of Japan (BOJ) left Interest Rate on Excess Reserves (IOER) unchanged at -0.10% and maintains its current policy on both asset purchases and yield control); Reiterated overall assessment that domestic economy to maintain moderate expansion; Appears to signal no taper at this time

(JP) Japan Dec Jobless Rate in-line with expectations (3.1% v 3.1%e) and hold just above multi-decade lows

Japan Fin Min Aso expected weak Yen/strong USD trend to continue in H1; FX policy should be discussed in global context

Europe:

(UK) Parliament begins debate on Article 50; reports that five amendments presented to draft bill (**Note: final vote on Wed, Feb 8th)

(UK) Jan GFK Consumer Confidence hits a 3 month high (-5 v -8e)

Americas:

President Trump fires Acting Attorney General Yates (Obama holdover) who would not enforce immigration orders; names Dana Boente new acting AG

Economic data

(JP) Japan Dec Annualized Housing Starts (miss): 923K v 938Ke; Y/Y: 3.9% v 8.4%e v 6.7% prior

(FR) France Q4 Advance GDP (in-line) Q/Q: 0.4% v 0.4%e; Y/Y: 1.1% v 1.1%e

(DE) Germany Dec Retail Sales (miss) M/M: -0.9% v +0.5%e; Y/Y: -1.1% v 0.5%e

(TR) Turkey Dec Trade Balance: -$5.6B v -$5.6Be

(FR) France Jan Preliminary CPI (beat) M/M: -0.2% v -0.5%e; Y/Y: 1.4% v 1.1%e

(FR) France Jan Preliminary CPI EU Harmonized M/M: -0.2% v -0.5%e; Y/Y: 1.6% v 1.2%e

(FR) France Dec Consumer Spending M/M: -0.8% v +0.2%e; Y/Y: 1.5% v 2.1%e

(FR) France Dec PPI M/M: 0.9% v 0.7% prior; Y/Y: +1.7 v -0.5% prior

(ES) Spain Jan Preliminary CPI (beat) M/M: -0.5% v -1.2%e; Y/Y: 3.0% v 2.3%e

(ES) Spain Jan Preliminary CPI EU Harmonized M/M: -0.9% v -1.6%e; Y/Y: 3.0% v 2.2%e

(ES) Spain Jan Preliminary CPI Core M/M: % v 0.1% prior; Y/Y: % v 1.0%e

(AT) Austria Q4 GDP Q/Q: 0.6% v 0.4% prior; Y/Y: 1.8% v 1.2% prior

(DE) Germany Jan Unemployment Change (beat): -26K v -5Ke; Unemployment Rate: 5.9% v 6.0%e ( (post-reunification record low)

(IT) Italy Dec Preliminary Unemployment Rate (miss): 12.0% v 11.8%e

(PL) Poland Overall 2016 GDP Y/Y: 2.8% v 2.7%e

(UK) Dec Net Consumer Credit: £1.0B v £1.7Be; Net Lending: £3.8B v £3.2Be

(UK) Dec Mortgage Approvals (miss): 67.9K v 69.0Ke

(UK) Dec M4 Money Supply M/M: -0.5% v +0.4% prior; Y/Y: 6.2% v 6.4% prior

(EU) Euro Zone Dec Unemployment Rate (beat): 9.6% v 9.8%e (lowest level since 2009)

(EU) Euro Zone Q4 Advance GDP Q/Q: 0.5% v 0.5%e; Y/Y: 1.8% v 1.7%e

(EU) Euro Zone Jan CPI Estimate (beat) Y/Y: 1.8% v 1.5%e (3 1/2 year high); CPI Core Y/Y: 0.9% v 0.9%e

Fixed Income Issuance:

(ID) Indonesia sold total IDR22.0T in bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 +0.6% at 3,279, FTSE +0.6% at 7,161, DAX +0.3% at 11,721, CAC-40 +0.5% at 4,810, IBEX-35 +0.6% at 9,416, FTSE MIB +1.0% at 18,936, SMI +0.2% at 8,340, S&P 500 Futures -0.1%]

Market Focal Points/Key Themes: European equity indices are trading higher despite the Asian and US sessions ending lower overnight; Rallies in European indices predominantly led by banking stocks; Italian FTSE MIB outperforming with the peripheral lenders trading sharply higher, with automobile manufacturers Fiat ad Ferrari also trading notably higher; FTSE 100 gains led by commodity and mining stocks as copper prices trade higher intraday.

A plethora of upcoming scheduled US earnings (pre-market) include AmerisourceBergen, Aetna, Ally Financial, Anixter, CIT Group, CONSOL Energy, Coach, Danaher, HCA, Harley Davidson, Hubbell, Eli Lilly, MasterCard, Manpowergroup, NASDAQ OMX, NuStar Energy, Nucor, Paccar, Pfizer, Pentair, Sprint Nextel, Stifel Financial, Scotts Miracle-Gro, Simon Property, Taylor Morrison, Thermo Fisher Scientific, Under Armour, UPS, Valero Energy, Exxon Mobil, Xerox, and Zimmer Biomet.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Centrotec CEV.DE +0.2% (prelim FY16 results), GFK GFK.DE +0.1% (prelim FY16 results), Givaudan GIVN.CH -4.2% (FY16 results), Hennes & Mauritz HMB.SE +5.5% (Q4 results), Ocado OCDO.UK +7.5% (FY16 results), Richemont CFR.CH +2.0% (Four execs to depart)]

Energy: [Nostrum Oil & Gas NOG.UK +4.7% (production), Royal Dutch Shell RDSA.UK +1.5% (To sell package of UK North Sea assets to Chrysaor for up to $3.8B), Seadrill SDRL.NO -20.6% (financial restructuring update), Scottish & Southern Energy SSE.UK -0.7% (trading update)]

Financials: [Sanne Group SNN.UK +3.6% (trading statement)]

Industrials: [Alfa Laval ALFA.SE +8.1% (Q4 results), UPM-Kymmene UPM1V.FI -9.5% (Q4 results, raises LT outlook)]

Telecom: [Com Hem COMH.SE +1.0% (Q4 results)]

Speakers

ECB's Draghi: Financial integration essential for well-functioning single currency

ECB's Villeroy (France) reiterated view that concerns about rising inflation are exaggerated

UK Government might may invoke Article 50 on March 9th at a European summit. Govt told House of Lords on Mon, Jan 30th that it wanted the bill authorizing Brexit to be approved on March 7th

France Fin Min Sapin: 2017 beginning with very good economic conditions

Spain Econ Min de Guindos saw national inflation easing from Q2

German Finance Ministry spokesman reiterated further payments to Greece depend on successful completion of debt review and IMF participation

Turkey Central Bank Quarterly Inflation Report raised its inflation forecasts for both 2017 and 2018 citing thatimport price rise was the main factor. It raised 2017 CPI from 6.5% to 8.0% and 2018 CPI from 5.0% to 6.0%. CBRT noted that in Jan it decided to strengthen policy tightening and could do additional policy tightening if needed and would use all policy tools until inflation was under control. CBRT also noted that 2017 economic recovery could be slower than expected and expected exports to recover

BOJ Gov Kuroda post rate decision press conference reiterates that that economic recovery remained on a moderate trend and the upward revision to GDP forecasts reflected overseas economies. Reiterated that risks to both growth and inflation remained on the downside (Board Members Kiuchi, Sato both believe that inflation to stay below 2% over BOJ forecast horizon). Reiterated to achieve 2% inflation target around FY18 (**Note: Apr 17 thru Mar 2018). To keep close watch on policy direction and impact from new Trump Administration. Kuroda added that the central bank had "no intention to signal future policy stance through bond buying operations. Too early to discuss any exit strategy from policy; only halfway to inflation target; balance sheet and interest rates were important parts of exit strategy but still dependent on economic situation

Currencies

USD remained on the defensive mode in the aftermath of US President Trump's broad-sweeping executive order on immigration curbs from 7 Middle East countries. Safe-haven plays remained in focus with JPY and Gold being eyed as primary benefactors.

The EUR/USD hovered around the 1.07 level and little changed in the session despite continued improvement in European inflation data and record low unemployment in Germany. Dealers noted that several ECB officials, including President Draghi, have recently highlighted the importance of seeing core CPI pick-up as one of the determinants of meeting its price stability mandate

The USD/JPY moved off its worst levels after BOJ showed its firm commitment to managing the yield curve and dismissed speculation of any imminent tapering of policy. USD/JPY trying to make its way back to the 114 area after testing 113.26 overnight

GBP/USD was softer by 0.4% at 1.2435 as UK Parliament begins debate on the Article 50 bill. Several bits of UK data did disappoint in the session highlighted by mortgage approval for Dec

Fixed Income:

Bund futures trade at 161.66 down 40 ticks with on risk aversion flows with strong German job numbers, stronger Eurozone CPI and GDP readings also weighing on futures. Continued downside targets 161.19 followed by 160.80. A reversal higher targets 162.22 yesterday high, 162.49 then 163.01 followed by 163.38.

Gilt futures trade at 123.35 down 30 ticks of an opening high of 123.69 falling with the Euro Indices rising. Support moves to 122.99, 122.60, 122.23 then Dec low at 122.08. Resistance moves to 123.79 followed 124.13 to close the gap. Short Sterling futures trade flat with Jun17Jun18 remaining steady at 28/29bp.

Tuesday's liquidity report showed Monday's excess liquidity fell to €1.260T down €5B from €1.265T prior. Use of the marginal lending facility fell to €15M from €183M prior.

Corporate issuance saw $17.85B come to market via 3 deals headlines by Microsoft jumbo 7 part $17B issuance upsized from an original $14B with $11.5B being issued in 10, 20, 30 and 40 year bonds.

Looking Ahead

05.30 (UK) Weekly John Lewis LFL sales data

05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender

05:30 (HU) Hungary Debt Agency (AKK) to sell 3-month Bills

05:30 (UK) DMO to sell £2.5B in 1.5% 2026 Gilts

05:30 (BE) Belgium Debt Agency (BDA) to sell €1.0-1.4B in 3-Month and 6-month Bills

06:00 (IE) Ireland Jan Unemployment Rate: No est v 7.2% prior

06:00 (IL) Israel Dec Unemployment Rate: No est v 4.6% prior

06:00 (BR) Brazil Dec National Unemployment Rate: 11.9%e v 11.9% prior

06:00 (BR) Brazil Dec PPI Manufacturing M/M: No est v 0.7% prior; Y/Y: No est v -0.1% prior

06:00 (IN) India Dec Fiscal Deficit (INR):

06:00 (RU) Russia announces weekly OFZ bond auction

06:45 (US) Daily Libor Fixing

07:00 (ZA) South Africa Dec Trade Balance (ZAR): +6.3Be v -1.1B prior

07:00 (IN) India 2016 annual GDP estimate Y/Y: No est v 7.1% prior

07:00 (CL) Chile Dec Unemployment Rate: 6.1%e v 6.2% prior

07:30 (BR) Brazil Dec Nominal Budget Balance (BRL): -113.2Be v -80.4B prior: Primary Budget Balance: -75.1Be v -39.1B prior

07:45 (US) Weekly Goldman Economist Chain Store Sales

08:15 (UK) Baltic Dry Bulk Index

08:30 (US) Q4 Employment Cost Index (ECI): 0.6%e v 0.6% prior

08:30 (CA) Canada Nov GDP M/M: +0.3%e v -0.3% prior; Y/Y: 1.4%e v 1.5% prior

08:30 (CA) Canada Dec Industrial Product Price M/M: 0.6%e v 0.3% prior; Raw Materials Price Index M/M: +2.8%e v -2.0% prior

08:55 (US) Weekly Redbook Sales

09:00 (EU) Weekly ECB Forex Reserves: No est v €280.8B prior

09:00 (US) Nov S&P / Case-Shiller 20-City M/M: 0.70%e v 0.63% prior; Y/Y: 5.00%e v 5.10% prior; House Price Index (HPI): No est v 191.79 prior

09:00 (US) Nov S&P / Case-Shiller (overall) HPI M/M: No est v 0.85% prior, Y/Y: No est v 5.61% prior, House Price Index (HPI): No est v 185.06 prior

09:00 (MX) Mexico Q4 Preliminary GDP Q/Q: 0.6%e v 1.0% prior; Y/Y: 2.2%e v 2.0% prior

09:00 (US) Federal Open Market Committee (FOMC) begins 2-day meeting (Decision on Wed)

09:45 (US) Jan Chicago Purchasing Manager: 55.0e v 53.9 prior (revised from 54.6)

09:50 (UK) Bank of England (BOE) Bond Buying Operation (over 15 years)

10:00 (US) Jan Consumer Confidence: 112.8e v 113.7 prior

10:00 (MX) Mexico Dec Net Outstanding Loans (MXN): No est v 3.61T prior

11:30 (US) Treasury to sell 52-Week Bills

14:00 (AR) Argentina Dec Industrial Production Y/Y: No est v -4.1% prior; Construction Activity Y/Y: No est v -9.4% prior

16:30 (US) Weekly API Oil Inventories

17:20 (CA) Bank of Canada (BOC) Gov Poloz speaks at University of Alberta

News and Events:

EUR/CHF dips lower

EUR/CHF has been under constant pressure over the last few weeks as it tested continuously the 1.07 threshold that is broadly considered as the SNB’s implicit floor of 1.07. The market is getting ready for a tough year in the Euro area as the Brexit story together with ongoing and upcoming elections (Dutch national elections, French presidential and parliamentary elections and German federal election). However, the pressure has increased another notch yesterday as the euro dip to 1.0638 against the Swiss franc, the lowest level since the Brexit vote when the currency pair hit 1.0624.

We however think it a bit early to ring the alarm bell and call for the failure of the SNB’s FX intervention program. Indeed, the Swiss franc had to face some unexpected market conditions recently. First, the takeover of Swiss company Actelion by Johnson & Johnson created some disturbance, even though most the $280-a-share price will be paid in dollar. However, small shareholders will a possibility to get paid in CHF. Second, yesterday sell-off in worldwide equity markets are reduce investors’ risk appetite and triggered a slight risk-off move in favour of safe-haven currencies such as the CHF and JPY. We believe that there is no reason to worry yet as the SNB is still committed to defend the Swiss franc, it however means that the central bank is now more tolerant with respect to CHF strength.

BoJ bets on Trump

The Bank of Japan has left its policy balance rate unchanged at -0.1% in line with market expectations. The Japanese central bank will continue targeting 0% on the 10-year government bond.

The BoJ has clearly been in "wait and see mode" since Trump's election. Indeed, there are hopes that the new US president will spark better economic conditions which could in the end help Japan and increase inflationary pressures.

Donald Trump has stated over the past week that the greenback may be too strong. This supports our view that the yen should weaken in the medium term even though it is far too early to assess the future efficiency of Trump’s policies.

Inflation expectations have not changed following the meeting and it is still expected to come in at 1.5% by March 2018 - below the BoJ target of 2%.

One should not forget that even if Trump is at the centre of the markets’ attention, there are also downside risks in Europe that could offset Japanese inflationary pressures. Europe's political outlook appears more and more uncertain, especially given the upcoming French and German elections which may provide plenty of surprises. The market's fear of a nationalist party win could drive investors back to safe haven, causing further yen appreciation.

European inflation to grind higher

A big day is in store for European economic data and potentially for the single currency. Euro area preliminary Q4 GDP is expected to rise to 0.5% q/q from 0.3% q/q prior read, while the annual headline CPI estimate is expected to surge to 1.5% from 1.1% prior read. French CPI was released earlier coming in at 1.4% y/y against an expected 1.1% y/y indicating that an upside surprise in the Euro area read is probable. Overall, the Euro-area economy has clearly preserved its solid growth momentum. This improvement in the European outlook might catch many off guard as investors have been singularly focused on US President Trump's first week and the latest Brexit developments. However, as inflation grinds towards the ECB 2% target range we need to consider adjusting the central bank’s current ultra-accommodating policy. Given that the ECB has forecasted strong growth, today's read is unlikely to panic Draghi, however, higher sustainable inflation will eventually lead to tighter monetary policy. We suspect that the Trump pro-growth story and worries over the European political environment have clouded investors to the fact that Europe inflation is rising. Currently, FX markets are underpricing the risk of a sharp shift in ECB policy, quickly unwinding the USD dominant trade.

Today's Key Issues (time in GMT):

• Dec Unemployment Rate Gross Rate, exp 4,30%, last 4,20% DKK / 08:00
• Dec Unemployment Rate SA, exp 3,40%, last 3,40% DKK / 08:00
• Dec Foreign Tourist Arrivals YoY, last -21,40% TRY / 08:00
• Jan P CPI YoY, exp 2,40%, last 1,60% EUR / 08:00
• Jan P CPI MoM, exp -1,10%, last 0,60% EUR / 08:00
• Jan P CPI EU Harmonised MoM, exp -1,60%, last 0,50% EUR / 08:00
• Jan P CPI EU Harmonised YoY, exp 2,20%, last 1,40% EUR / 08:00
• ECB's Mario Draghi Speaks in Frankfurt EUR / 08:00
• Jan Unemployment Change (000's), exp -5k, last -17k, rev -20k EUR / 08:55
• Jan Unemployment Claims Rate SA, exp 6,00%, last 6,00% EUR / 08:55
• Nov Current Account Balance, last 2.0b EUR / 09:00
• Feb Norges Bank Daily FX Purchases, exp -1000m, last -1000m NOK / 09:00
• Dec P Unemployment Rate, exp 11,80%, last 11,90%, rev 12,00% EUR / 09:00
• Dec Net Lending Sec. on Dwellings, exp 3.2b, last 3.2b, rev 3.1b GBP / 09:30
• Dec Mortgage Approvals, exp 69.2k, last 67.5k GBP / 09:30
• Dec Money Supply M4 MoM, last 0,40% GBP / 09:30
• Dec M4 Money Supply YoY, last 6,40% GBP / 09:30
• Dec M4 Ex IOFCs 3M Annualised, last 4,20%, rev 4,60% GBP / 09:30
• Dec Unemployment Rate, exp 9,80%, last 9,80%, rev 9,70% EUR / 10:00
• 4Q A GDP SA QoQ, exp 0,50%, last 0,30%, rev 0,40% EUR / 10:00
• 4Q A GDP SA YoY, exp 1,70%, last 1,70%, rev 1,80% EUR / 10:00
• Jan CPI Estimate YoY, exp 1,50%, last 1,10% EUR / 10:00
• Jan A CPI Core YoY, exp 0,90%, last 0,90% EUR / 10:00
• Dec PPI MoM, last -0,20% EUR / 10:00
• Dec PPI YoY, last -0,30% EUR / 10:00
• Dec National Unemployment Rate, exp 11,90%, last 11,90% BRL / 11:00
• Dec Fiscal Deficit INR Crore, last 34489 INR / 11:00
• Dec PPI Manufacturing MoM, last 0,73% BRL / 11:00
• Dec PPI Manufacturing YoY, last -0,12% BRL / 11:00
• Dec Trade Balance Rand, exp 6.3b, last -1.1b ZAR / 12:00
• 2016 GDP Annual Estimate YoY, last 7,10% INR / 12:00
• ECB's Yves Mersch Speaks in Frankfurt EUR / 12:15
• Dec Net Debt % GDP, exp 45,80%, last 43,80% BRL / 12:30
• Dec Nominal Budget Balance, exp -105.2b, last -80.4b BRL / 12:30
• Dec Primary Budget Balance, exp -72.8b, last -39.1b BRL / 12:30
• 4Q Employment Cost Index, exp 0,60%, last 0,60% USD / 13:30
• Nov GDP MoM, exp 0,30%, last -0,30% CAD / 13:30
• Nov GDP YoY, exp 1,40%, last 1,50% CAD / 13:30
• Dec Industrial Product Price MoM, exp 0,50%, last 0,30% CAD / 13:30
• Dec Raw Materials Price Index MoM, exp 2,80%, last -2,00% CAD / 13:30
• Nov S&P CoreLogic CS 20-City MoM SA, exp 0,70%, last 0,63% USD / 14:00
• Nov S&P CoreLogic CS 20-City YoY NSA, exp 5,00%, last 5,10% USD / 14:00
• Nov S&P CoreLogic CS 20-City NSA Index, last 191,79 USD / 14:00
• Nov S&P CoreLogic CS US HPI YoY NSA, last 5,61% USD / 14:00
• Nov S&P CoreLogic CS US HPI NSA Index, last 185,06 USD / 14:00
• ECB's Benoit Coeure Speaks in Frankfurt EUR / 14:3
• Jan Chicago Purchasing Manager, exp 55, last 54,6, rev 53,9 USD / 14:45
• Jan Conf. Board Consumer Confidence, exp 112,8, last 113,7 USD / 15:00
• Jan Conf. Board Present Situation, last 126,1 USD / 15:00
• Jan Conf. Board Expectations, last 105,5 USD / 15:00
• Jan QV House Prices YoY, last 12,50% NZD / 16:00
• 4Q Unemployment Rate, exp 4,80%, last 4,90% NZD / 21:45
• 4Q Employment Change QoQ, exp 0,70%, last 1,40% NZD / 21:45
• 4Q Employment Change YoY, exp 6,10%, last 6,10% NZD / 21:45
• 4Q Participation Rate, exp 70,20%, last 70,10% NZD / 21:45
• 4Q Pvt Wages Ex Overtime QoQ, exp 0,50%, last 0,40% NZD / 21:45
• 4Q Pvt Wages Inc Overtime QoQ, exp 0,50%, last 0,40% NZD / 21:45
• 4Q Average Hourly Earnings QoQ, exp 0,60%, last 0,30% NZD / 21:45
• Bank of Canada's Poloz speaks at University of Alberta CAD / 22:20
• Jan AiG Perf of Mfg Index, last 55,4 AUD / 22:30

The Risk Today:

EUR/USD's momentum is now trading sideways. Hourly resistance area is given at around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued consolidation. 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 on the road towards 1.2771 (05/10/2016 high). The technical structure is still anyway showing positive potential. Hourly support is given at 1.2466 (30/01/2016 low). Expected to show further bullish move. 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 has surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Yet, the pair is back within it. Hourly resistance is given at 115.62 (19/01/2016 high) while a break of hourly support given at 112.57 (17/01/2017 low) is needed to confirm further downside moves. 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 momentum is bearish. Yet, the selling pressures are being reduced below parity. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is nonetheless wide-open for further decline. 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.

The pair remains directionless, trading within initial 0.7510/0.7607 range.

Yesterday's Doji candle confirms indecision, as near-term studies are in neutral mode.

Key supports, 100/200 SMA's (0.7494/0.7487) remain intact for now and maintain sideways mode, following upside rejection at 0.7600 zone.

No clear direction could be expected while the price holds within the range, however, south-heading daily indicators see risk of fresh attempts lower.

Firm break below 100/200SMA breakpoint is needed to signal reversal and open next strong support s at 0.7467 (daily cloud top) and 0.7437 (Fibo 38.2% of 0.7163/0.7607 upleg).

Alternative scenario requires sustained break above 0.7600 pivot to expose immediate target at 0.7630 (Fibo 76.4% of 0.7776/0.7158), with possible acceleration higher on break.

Res: 0.7569, 0.7583, 0.7607, 0.7630
Sup: 0.7526, 0.7510, 0.7487, 0.7467

Rejection under strong 115.55 barrier (daily cloud top / Kijun-sen line) and yesterday’s fall, turned near-term focus lower.

Recovery from today’s low at 113.23 stays for now caped by daily Tenkan-sen at 114.05, with Tenkan-sen / Kijun-sen lines being in bearish setup, together with negative daily studies, maintaining downside pressure.

Extended upticks are expected to hold below 114.67, where daily 20/55SMA’s bear-cross is forming, ahead of fresh downside attempts that could extend towards key near-term support, 112.50 base and floor of near-term congestion.

Res: 114.05, 114.67, 115.36, 115.55
Sup: 113.44, 113.23, 112.50, 111.97