Daily Pivots: (S1) 113.80; (P) 114.65; (R1) 115.56; More...

Intraday bias in USD/JPY remain son the downside for the moment. The decline from 118.65 would extend to 55 day EMA (now at 113.22) and below. At this point, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rally resumption. Above 116.86 minor resistance will turn bias to the upside for 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) 1.0078; (P) 1.0162; (R1) 1.0224; More.....

USD/CHF breached 1.0056 support brief but quickly recovered. Intraday bias stays neutral first as consolidation from 1.0342 is still in progress. At this point, we'd still expect downside to be contained by 1.0019 support and bring rally resumption. Firm break of 1.0342 will confirm up trend resumption. However, sustained break of 1.0019 will indicate near term reversal and could bring deeper fall bring to 0.9443/9548 support zone.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9548 support zone.

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Dollar recovers mildly towards the end of the week as supported by comments from Fed officials. Fed chair Janet Yellen said that the economy is "doing quite well" and there are no serious short term obstacles. She noted "unemployment has now reached a low level, the labor market is generally strong and wage growth is beginning to pick up." Inflation has moved up and is "pretty close" to 2% target. Chicago Fed president Charles Evans expected that president-elect Donald Trump's stimulus policies to "increase growth by a couple of tenths over the next two years." And policymakers "look forward to refining that when we actually see proposals that are moving forward and likely to be implemented." A improvements in the economic outlook materializes, US would need "less accommodation". He also said earlier in the month that three rate hikes this year is "not implausible".

Philadelphia Fed president Patrick Harker said that the US economy is "starting 2017 off on a good foot". He noted that "the labor market is strong, and we're creating jobs at a good pace." Besides, "inflation is moving back up to our 2% goal and growth is solid." And Harker believed that "three modest rate hikes" are "appropriate for the coming year" if the economy stays on track. On the other hand, St. Louis Fed president James Bullard thought that president-elect Donald Trump's policies will not have much impact this year. And Bullard believed that one hike is appropriate. Nonetheless, he also noted that Fed "may be in a better position" to reduce the size of its balance sheet.

Released from China, trade surplus narrowed to USD 40.8b in December, smaller than expectation of USD 47.6b. Exports rose 6.1% yoy while imports rose 3.1% yoy. In CNY terms, trade surplus widened to CNY 335b versus expectation of CNY 345b. Exports dropped -2.0% yoy while imports rose 2.7% yoy. Japan M2 rose 4.0% yoy in December. Looking ahead, European calendar is empty today. US will release retail sales, PPI, business inventories and U of Michigan sentiment later in US session.

USD/CHF Daily Outlook

Daily Pivots: (S1) 1.0078; (P) 1.0162; (R1) 1.0224; More.....

USD/CHF breached 1.0056 support brief but quickly recovered. Intraday bias stays neutral first as consolidation from 1.0342 is still in progress. At this point, we'd still expect downside to be contained by 1.0019 support and bring rally resumption. Firm break of 1.0342 will confirm up trend resumption. However, sustained break of 1.0019 will indicate near term reversal and could bring deeper fall bring to 0.9443/9548 support zone.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9548 support zone.

Economic Indicators Update

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Daily Pivots: (S1) 1.0483; (P) 1.0552 (R1) 1.0652; More.....

EUR/USD's rebound from 1.0339 extends today and breach of 1.0652 resistance indicates short term bottoming, on bullish convergence condition in daily MACD. Intraday bias is back on the upside for 1.0872 resistance and possibly above. On the downside, below 1.0453 minor support will 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) 1.2074; (P) 1.2173; (R1) 1.2308; More...

Intraday bias in GBP/USD remains neutral for the moment. Deeper fall is still expected as long as 1.2432 resistance holds. Below 1.2036 will target a test on 1.1946 low first. Decisive break there will confirm our bearish view and resume the larger down trend. However, break of 1.2432 will suggest that consolidation pattern from 1.1946 is extending with another rise.

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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Daily Pivots: (S1) 1.0078; (P) 1.0162; (R1) 1.0224; More.....

USD/CHF is staying in the consolidation pattern from 1.0342 and intraday bias remains neutral. Another fall cannot be ruled out. But in that case, we'd expect strong support from 1.0019 to contain downside and bring rally resumption. Firm break of 1.0342 will confirm up trend resumption. However, sustained break of 1.0019 will indicate near term reversal and could bring deeper fall bring to 0.9443/9548 support zone.

In the bigger picture, the corrective fall from 1.0327 should have completed at 0.9443 already. Rise from 0.9443 could be resuming the long term rally from 2011 low at 0.7065. But decisive break of 1.0327 is needed to confirm. In that case, next medium term upside target will be 38.2% retracement of 1.8305 to 0.7065 at 1.1359. Rejection from 1.0327 will extend the sideway pattern with another fall back to 0.9443/9548 support zone.

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Daily Pivots: (S1) 114.12; (P) 115.50; (R1) 116.76; More...

Intraday bias in USD/JPY remains on the downside as decline from 118.65 continues, target 55 day EMA (now at 113.10) and below. At this point, we'd expect strong support from 38.2% retracement of 98.97 to 118.65 at 111.13 to contain downside and bring rally resumption. Above 116.86 minor resistance will turn bias to the upside for 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) 1.3100; (P) 1.3196; (R1) 1.3275; More...

USD/CAD reaches as low as 1.3134 so far today and decline from 1.3598 extends. The break of 1.3080 completes a double top pattern (1.3588, 1.3598) and indicates reversal. This also supports our view that corrective rise from 1.2460 has completed. Fall from 1.3598 is seen as the third leg of the corrective pattern from 1.4689 and should target 1.2460 low next. On the upside, break of 1.3293 is needed to confirm completion of the fall from 1.3598. Otherwise, outlook will stay bearish in case of recovery.

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 like 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 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's selloff continues today in spite of positive job data. In particular, EUR/USD broke 1.0652 resistance. USD/JPY took the lead yesterday and broke 114.76 support. USD/CAD also broke 1.3080 key near term support. The dollar index also breached 55 days and breached 101 handle. Deeper decline is now in favor in the greenback in general, possibly except versus Sterling. US initial jobless claims rose 10k to 247k in the week ended January 7. Continuing claims dropped 16k to 2.1m in the week ended December 31. Import price index rose 0.4% mom in December.

Philadelphia Fed president Patrick Harker said that the US economy is "starting 2017 off on a good foot". He noted that "the labor market is strong, and we're creating jobs at a good pace." Besides, "inflation is moving back up to our 2% goal and growth is solid." And Harker believed that "three modest rate hikes" are "appropriate for the coming year" if the economy stays on track. On the other hand, St. Louis Fed president James Bullard thought that president-elect Donald Trump's policies will not have much impact this year. And Bullard believed that one hike is appropriate.

Dollar dropped over the board since yesterday as the markets were disappointed by Donald Trump's first post-election press conference. Lacking details on his pro-growth plan, the theme of his speech centered on the avoidance of conflict of interest between his business and the presidency. The press conference of US President-elect Donald Trump mainly focused on how he would avoid conflict of interest between his businesses and the Presidency, denial of the recently published memos concerning himself and clarification of his relations with Russia. Little was discussed on the details of his pro-growth fiscal stimulus, except confirmation that there would be a "major border tax" on companies that leave the US. Meanwhile, healthcare shares got hammered after Trump blasted that pharmaceutical companies are "getting away with murder" in what they charge the government for medicines. His promise to lower drug spending send healthcare shares lower.

ECB noted in the accounts of the December monetary policy meeting that the decision to extend the asset purchase program by another nine months was for potential political shocks this year. And the central bank warned that "volatility could easily emerge, relating in particular to shocks emanating from the political environment."While inflation is expected to climb significantly in the coming months due to energy prices, underlying inflation had "failed to show any clear signs of a convincing upturn." Meanwhile, a few members opposed to the extension "in view of their well-known general skepticism regarding" the program. From Eurozone, industrial production rose 1.5% mom in November.

USD/CAD Mid-Day Outlook

Daily Pivots: (S1) 1.3100; (P) 1.3196; (R1) 1.3275; More...

USD/CAD reaches as low as 1.3134 so far today and decline from 1.3598 extends. The break of 1.3080 completes a double top pattern (1.3588, 1.3598) and indicates reversal. This also supports our view that corrective rise from 1.2460 has completed. Fall from 1.3598 is seen as the third leg of the corrective pattern from 1.4689 and should target 1.2460 low next. On the upside, break of 1.3293 is needed to confirm completion of the fall from 1.3598. Otherwise, outlook will stay bearish in case of recovery.

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 like 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 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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British pound was the most volatile G10 currency last year with the trade weighted index plunging -15% on annual basis, despite a -5% rebound from the October low. Sterling fell about -16% against both US dollar and the euro for the year. The huge volatility was mainly driven by political reasons: Brexit referendum, resignation of David Cameron, as succession of Theresa May, as Prime Minster, as well as May's announcement to trigger Article 30, followed High Court's ruling that MPs must be consulted before triggering Brexit. In 2017, political risks should continue to haunt UK's economic developments as Brexit negotiations are prone to begin. The market has recently priced in higher BOE rate expectations due to rising inflation outlook and solid dataflow. Yet, we do not believe any rate hike would be adopted. The central bank would stand on the sideline, maintaining the bank rate at 0.25%, throughout the year. We are bearish over sterling, forecasting it to depreciate against USD and be range-bounded around current levels against the euro, which has been pressured by elevated political risks

Reemergence of Brexit Risk: PM Theresa May announced last October that she would trigger Article 50, the clause needed to start the Brexit negotiation process, by the end of 1Q17. However, the High Court in November ruled that MPs must be consulted before triggering Brexit. The Supreme Court is set to rule, in early January, on the government appeal against High Court's judgment. The market continues to expect the triggering would happen in 1Q17. A delay in the process would only prolong uncertainty and weigh on investment, though some judge that the increase in the parliament's oversight might be supportive to the pound.

For now, the market appears to have underestimated the possibility of, and the severity of the economic impacts to be brought about by, a 'hard' Brexit, a scenario that the UK is no longer allowed to freely access to the EU single market for goods and services. In this case, UK and EU would likely enter into a basic free trade agreement, with terms based on the two entities' existing WTO commitments and limited to minimum tariff reduction and goods trade. The advantage of such a clear breakup with the EU is that the UK would not only regain control over its own budget and legal system, but also sovereignty, in the sense that the Kingdom could control its immigration. There are a few forms of 'soft' Brexit. One most-discussed form is UK's joining of the European Economic Area (EEA), alongside Norway, Liechtenstein and Iceland. In this case, the Kingdom would have to continue to contribute to the EU budget. It would also give up parts of its sovereignty, allowing freedom of movement and following EU rules, to some extents. YouGov's polling in October suggested that 47% of Britons supported a 'hard' Brexit, while 39% supported a 'soft' one. This was compared to Opinium's recent polling that 35% favored a 'hard' Brexit and 41% on 'soft'.

Brexit-inspired Current Account Deficits:

We believe both the UK and the EU would take a tough stance on the negotiation process, increasing the possibility of a 'hard' Brexit. A 'hard' Brexit without fiscal stimulus, would hurt household finances and further deteriorate UK's current account balance, both are detrimental to sterling's movement. The Kingdom's current account balance has deteriorated significantly in recent years, even before the referendum, driven by widening of deficit in the balance of goods and net income. Uncertainty of how Brexit would materialize has already restrained foreign investments over the past months. With the market readjusting its expectations on higher possibility of a 'hard' Brexit would undoubtedly shrink capital inflow and delay inward foreign direct and portfolio investments.

BOE's Stance:

UK's GDP growth was revised higher to +0.6% q/q in 3Q16, from the initial estimate of +0.5%, as expansions in all of the services, industrial and construction sectors got revised upwards. The revision has indicative meaning as it signals the economy had grown faster than expected after the Brexit referendum. Meanwhile, headline CPI soared to +1.2% y/y in November, compared with consensus of +1.1%, and October's +0.9%. This marked the highest level since October 2014. Core CPI (excluding energy and food) accelerated to +1.4% from +1.2% in October. This also came better than expectations of +1.3%. Retail prices, RPI, improved to +2.2% in November, beating expectations of +2.1% and October's +2%. YouGov's polls for Citi unveiled that inflation expectations soared, with the long-term forecast rising to a 2-month high of +3%. Short-term inflation expectations stayed largely stable at +2.4%, still lower than BOE's forecast of +2.7% by end-2017. In his testimony before the Treasury Select Committee, Governor Mark Carney indicated that 'recent data would be consistent with a further upgrade of the forecasts' of economic activities.

Rising inflation expectations have lifted speculations over BOE's rate hike with the market now pricing in a 30% chance this year. At the November meeting, Governor Mark Carney suggested the central bank has "a neutral bias around policy going forward" as the "monetary policy can respond in either direction". While further easing has become less likely, we do not expect a rate hike to come this year as Brexit has inevitably presented downside risks to growth. We expect BOE to maintain the status quo throughout the year.