Daily Pivots: (S1) 1.3132; (P) 1.3159; (R1) 1.3201; More...

USD/CAD's fall from 1.3598 resumed after brief consolidation and intraday bias is back on the downside. As noted before, prior break of 1.3080 key support level could have completed a double top pattern (1.3588, 1.3598) and indicates reversal. That is, whole corrective rise from 1.2460 is finished. Further fall should be seen to retest 1.2460 low. However, considering bullish convergence condition in 4 hours MACD, break of 1.3189 minor resistance will dampen this bearish view and turn bias to the upside for retesting 1.3598.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely finished at 1.3598 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3080 would now likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 again to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

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Dollar remains the weakest major currency over the week despite some positive comments from Fed officials. Fed Governor, Lael Brainard indicated that material increase in fiscal stimulus measures would lead to acceleration in rate hikes. Speaking for the Brookings Institution, Brainard suggested that "if fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise". She added that "based on recent spending indicators, we might expect progress to continue to be gradual and steady". Meanwhile, speaking for the National Retail Federation, New York Fed president William Dudley noted that the "risk that the Fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem".

However, the greenback was clearly weighed down by president elect Donald Trump's warning on its strength. He said that the US might need to "get the dollar down" if a change in tax policy drives it higher, adding that "having a strong dollar has certain advantages, but it has a lot of disadvantages". Regarding the trade relations with China, Trump noted that "our companies can't compete with [China] now because our currency is too strong. And it's killing us". Overall, Trump will have his inauguration date later on Friday and he might outline his initial priorities in office. There are prospects of more volatility in the greenback.

Sterling is now the strongest major currency after lifted by prime minister Theresa May's speech on Brexit. May emphasized that the goal of her 12-point plan for Brexit is "a new, positive and constructive partnership between Britain and the European Union". Concerning the closely watched trade relations, she noted, "Brexit must mean control of the number of people who come to Britain from Europe. And that is what we will deliver... what I am proposing cannot mean membership of the single market". While providing details on neither the trade terms nor immigration control, May indicated that UK would seek a free-trade deal with the EU outside the single market, a new customs relationship that would allow Britain to negotiate trade deals around the world, but have "frictionless" cross-border trade, a "phased implementation process" at the end of the two-year period of negotiations, rather than a lengthy transitional deal, no more unrestricted immigration from the EU, and complete withdrawal from the European Court of Justice. Importantly, May confirmed that "the government will put the final deal... to a vote in both Houses of Parliament before it comes into force".

Bank of Canada will announce rate decision today. BoC is widely expected to keep benchmark interest rate unchanged at 0.50% and will likely be a non-event. Fed will also release the Beige Book economic report. On the data front, Australia Westpac consumer confidence rose 0.1% in January. German CPI was finalized at 0.7% mom, 1.7% yoy in December. UK will release job data today while Eurozone will release CPI final. US will release CPI, industrial production and NAHB housing index.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3132; (P) 1.3159; (R1) 1.3201; More...

USD/CAD's fall from 1.3598 resumed after brief consolidation and intraday bias is back on the downside. As noted before, prior break of 1.3080 key support level could have completed a double top pattern (1.3588, 1.3598) and indicates reversal. That is, whole corrective rise from 1.2460 is finished. Further fall should be seen to retest 1.2460 low. However, considering bullish convergence condition in 4 hours MACD, break of 1.3189 minor resistance will dampen this bearish view and turn bias to the upside for retesting 1.3598.

In the bigger picture, price actions from 1.4689 medium term top are seen as a correction pattern. The first leg has completed at 1.2460. The second leg is likely finished at 1.3598 too after hitting 50% retracement of 1.4689 to 1.2460 at 1.3575. Break of 1.3080 would now likely resume the fall from 1.4689 through 1.2460 to 50% retracement of 0.9406 to 1.4689 at 1.2048. We'd start to look for reversal signal below 1.2460 again to complete the correction. In case of another rise, we'll look for topping sign at 61.8% retracement of 1.4689 to 1.2460 at 1.3838.

Economic Indicators Update

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We expect EURCHF to weaken modestly from current level. Elevated political uncertainty in Europe should maintain demand for Swiss franc as a safe haven, a status which accelerating buying of the franc in several occasions in 2016, including Brexit referendum and US presidential election. While FX intervention is still on, we expected SNB to be a little more tolerable to franc's appreciation than the previous years. Switzerland's economic outlook has improved over the past months with gradual recovery seen in exports and inflation. Meanwhile, strength in US dollar should also allow the franc to weather some appreciation against the euro. In our estimate, EURCHF might drop to 1.05 by end-2014, -2.8% below SNB's unofficial floor of 1.08, after the central bank's removal of the 1.2 threshold in January 2015

Swiss Franc's Safe Haven Demand: CHF continued to demonstrate its safe haven appeal last year during times of high uncertainties. Shocked by the Britons' decision to leave the EU, investors dumped the pound and the euro and fled their capitals to the franc, sending EURCHF to the lowest levels in 8 months. Similarly, worrying about the victory of Donald Trump, EURCHF plunged to the lowest level more a year. Price movements breached SNB's unofficial line of defense at 1.08 in both occasions. Political uncertainty has by no means diminished in 2017. On the contrary, with elections in France, Germany, the Netherlands, and possibly, Italy, the rise of populist, anti-globalization sentiment might trigger another crisis in Europe. The key focus is on the French presidential elections in May. It is likely that Marine Le Pen from the far-right Front National party would become president. She pledged to hold a 'Frexit' referendum on French membership of the EU. Safe haven demand keep EURCHF under downward pressure.

Improvement in Swiss economic outlook:

Headline CPI contracted -0.1% m/m in December, improving from November's -0.2%. From a year ago, inflation was flat, compared with a -0.3% in the prior month. SNB's downward revision of inflation outlook in December has also made it less urgent for the central bank to add stimulus. SNB now forecast inflation to stayed unchanged at –0.4% for 2016, before improving to +0.1% in 2017 (September: +0.2%) and then to +0.5% in 2018 (September: +0.6%). Meanwhile, SNB expects domestic economy to continue to expand moderately in 2017, with a 'cautiously optimistic' outlook. Although SNB would maintain the rhetoric that 'the Swiss franc is still significantly overvalued' in its meeting statements, we believe better economic outlook would allow some more CHF appreciation, offering room for SNB to intervene less aggressively.

SNB's Intervention: We expect SNB to maintain sight deposit interest rate at -0.75% and the three-month Libor target between -1.25% and -0.25%. Meanwhile, it would reiterate the commitment to intervene the FX market as necessary. While we believe that SNB would continue selling Swiss franc and accumulating reserves, it would likely have more tolerance toward franc's appreciation. Indeed, over the past few weeks, SNB's intervention has been minimal although EURCHF has broken below 1.08. We see several reasons for this. Besides better economic developments that allow more flexibility and tolerance for the franc's movement, SNB has had less incentive to intervene when the driver of lower EURCHF comes from the euro. We recall in January 2015 that SNB removed the EURCHF floor of 1.2, as the selloff of the currency pair was mainly driven by euro's weakness amidst ECB's QE program. Moreover, SNB has been paying more attention to the movement of USDCHF, too. As SNB President Thomas Jordan spoke in May, 2016, he talked about the removal of floor in 2015. He mentioned that 'the economy had regained momentum, confidence in the US dollar had been restored and uncertainty had decreased considerably', 'not just the euro, but the Swiss franc, too, had been losing ground against the US dollar', and for some time now [after removal of the floor], the US dollar has been trading above the level posted on average while the minimum exchange rate was in place'. These suggested that SNB has got less unnerved about EURCHF's weakness as long as USDCHF shows strength

Daily Pivots: (S1) 1.0086; (P) 1.0111; (R1) 1.0135; More.....

USD/CHF's break of 1.0019 support confirms short term topping at 1.0342. More importantly, rise from 0.9443 has completed at 1.0342 after failing to sustain above 1.0327 key resistance. Intraday bias is turned back to the downside for 0.9443/9548 support zone. On the upside, above 1.0135 minor resistance will turn focus back to 1.0342 resistance intact.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still extend the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 113.71; (P) 114.08; (R1) 114.55; More...

Intraday bias in USD/JPY remains on the downside for 38.2% retracement of 98.97 to 118.65 at 111.13. At this point, we'd expect strong support from there to contain downside and bring rebound. Above 115.43 minor resistance will turn bias to the upside for retesting 118.65 high. However, sustained break of 111.13 will argue that whole rise from 98.97 has completed and bring deeper fall to 61.8% retracement at 106.48 and below.

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) 1.0574; (P) 1.0604 (R1) 1.0630; More.....

No change in EUR/USD's outlook. With 1.0453 minor support intact, further rise is expected for 1.0872 resistance and above. But after all, rise from 1.0339 is seen as a corrective move. Below 1.0453 will argue that it's completed and turn bias back to the downside for 1.0339 support. Break there will extend the larger down trend towards parity.

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) 1.1990; (P) 1.2037; (R1) 1.2089; More...

GBP/USD's strong rebound and break of 1.2316 minor resistance suggests short term bottoming at 1.1986, ahead of 1.1946 key support level. And, fall from 1.2774 is likely completed too. Intraday bias is back on the upside for 1.2432 resistance first. Break will target 1.2774 again. Price actions from 1.1946 are viewed as a consolidation pattern. Thus, we'd expect strong resistance at 1.2774 to limit upside and bring down trend resumption eventually.

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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Sterling rebounds today as UK prime minister Theresa May pledged to adopt a "phased approach" to achieve a "smooth and orderly Brexit". More important, the positive reaction was towards the confirmation that "the government will put the final deal that's agreed between the U.K. and the EU to a vote in both Houses of Parliament before it comes into force." May emphasized that UK will not stay as a member of the single market. But She would opt to "have a customs agreement with EU" and reach the country's "own tariff schedules at the WTO". GBP/USD's break of 1.2316 minor support argues that the pair has successfully defended 1.1946 key near term support and opens up the case for further rebound to 1.2774 resistance.

Also from UK, CPI accelerated to 1.6% yoy in December, up from 1.2% yoy and beat expectation of 1.4% yoy. That's also the highest reading since July 2014. Core CPI rose to 1.6% yoy, above expectation of 1.4% Yoy. Office for National Statistics head of inflation Mike Prestwood noted that "rising airfares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation. Rising raw material costs also continued to push up the prices of goods leaving factories." Also from UK, PPI input rose to 15.8% yoy, PPI output rose to 2.7% yoy, PPI output core dropped to 2.1% yoy.

From Eurozone, Germany, ZEW economic sentiment rose to 16.6 in January, up from 13.8, but missed expectation of 18.4. Current situation gauge rose to 77.3, up from 63.5, above expectation of 65.0. Eurozone ZEW economic sentiment rose to 23.2, up from 18.1 but missed expectation of 24.2. ZEW president Achim Wambach noted that "the slight increase" in sentiment "is mainly due to the improved economic situation across European countries." And, "this improvement in expectations can thus also be seen as a leap of faith for 2017."

Dollar weakens broadly in reaction to US president-elect Donald Trump's comments on the currency's strength. He complained that the Dollar's strength against China's Yuan "is killing us". One of his adviser, Anthony Scaramucci of Skybridge Capital, also said in a panel at the World Economic Forum that "we need to be careful about the rising currency." Released from US, Empire state manufacturing index dropped to 6.5 in January, below expectation of 8.5.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1990; (P) 1.2037; (R1) 1.2089; More...

GBP/USD's strong rebound and break of 1.2316 minor resistance suggests short term bottoming at 1.1986, ahead of 1.1946 key support level. And, fall from 1.2774 is likely completed too. Intraday bias is back on the upside for 1.2432 resistance first. Break will target 1.2774 again. Price actions from 1.1946 are viewed as a consolidation pattern. Thus, we'd expect strong resistance at 1.2774 to limit upside and bring down trend resumption eventually.

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.

Economic Indicators Update

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Daily Pivots: (S1) 120.63; (P) 121.15; (R1) 121.54; More...

As noted before, EUR/JPY's break of 120.90 support indicates near term reversal. That is, the corrective rebound from 109.20 is likely completed at 124.08, ahead of 126.09 key resistance. Intraday bias stays on the downside for 118.45 cluster support (38.2% retracement of 109.20 to 124.08 at 118.39). Sustained break there will target 61.8% retracement at 114.88 and below. On the upside, above 122.41 resistance is needed to indicate completion of the decline. Otherwise, outlook will now stay bearish in case of recovery.

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. Sustained trading below 55 day EMA will pave the way to retest 109.20.

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Daily Pivots: (S1) 136.57; (P) 137.36; (R1) 138.26; More...

Intraday bias in GBP/JPY remain son the downside for the moment. Current downside acceleration and break of 38.2% retracement of 122.36 to 148.42 at 138.46 suggests that whole corrective rise from 122.36 has completed at 148.42. Deeper fall should be seen to 61.8% retracement at 132.31 and below. On the upside, break of 142.16 support turned resistance is needed to indicate completion of such decline. Otherwise, outlook will stay bearish in case of recovery.

In the bigger picture, price actions from 122.36 medium term bottom are seen as developing into a corrective pattern. Upside is so far limited by 38.2% retracement of 195.86 to 122.36 at 150.4 for setting the medium term range. At this point, we don't expect a break of 122.36 in near term and the corrective pattern would extend for a while.

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